One of the benefits of investing in a utility is its relatively stable earnings each quarter. That stability was on full display when Dominion Resources (D 1.71%) reported its third-quarter results before the market opened on Monday. Earnings were right in the middle of its guidance range after solid execution and an improvement in the weather generated solid results for the company.
Dominion results: The raw numbers
|
Metric |
Q3 2015 Actuals |
Q3 2014 Actuals |
Growth (YOY) |
|---|---|---|---|
|
Operating Earnings |
$611 million |
$545 million |
12.1% |
|
Operating EPS |
$1.03 |
$0.93 |
10.8% |
Data source: Dominion Resources.
What happened with Dominion this quarter?
Dominion generated solid results:
- Dominion's operating earnings were right in the middle of its guidance range of $0.95 to $1.10 per share.
- Fueling the strong year-over-year increase in operating earnings was a return to normal weather conditions and incremental earnings from its farmout transactions whereby it sold the natural gas drilling rights beneath some of its gas storage fields.
- It is also worth noting that Dominion prefers to use operating earnings instead of GAAP earnings because it believes this is a more meaningful representation of the company's fundamental earnings power. That said, third quarter GAAP earnings were $0.03 per share less, which was due to "out-of-period tax-related items for our electric operations."
- Also during the quarter, the company made steady progress on a number of important growth projects. Among the most important was joining its partners, including Duke Energy (DUK 1.24%), in making formal FERC filings for the Atlantic Coast Pipeline.
What management had to say
CEO Thomas Farrell, commenting on the company's results, said:
We continue to execute with strong operational and safety performance and all major projects in our infrastructure growth plan are on time and on budget. Construction on Brunswick County, the 1,358-megawatt natural gas combined-cycle facility is about 89% complete and scheduled to begin commercial operation in the middle of 2016. During the quarter, we made formal FERC filings for the Atlantic Coast Pipeline and Supply Header Project. We plan to begin construction on both projects in the fourth quarter next year. Our Cove Point liquefaction project is also progressing on time and on budget. The project overall is about 47% complete and engineering -- at 95% -- is nearly complete.
The projects that Farrell mentioned are vitally important to Dominion's ability to grow earnings. In the near term, the aforementioned Brunswick County plant is the closest to completion and will be followed in 2017 by Cove Point, which is a $3.8 billion project that will export natural gas. Further down the line, and perhaps most importantly, is the $5 billion Atlantic Coast Pipeline project, which is a 564-mile interstate pipeline that is expected to be in service by the fourth quarter of 2018.
That pipeline project is a key for Dominion and Duke, which is buying out project partner Piedmont Natural Gas (PNY +0.00%) in part to gain a greater share of the project, for not just the cash flow from the pipeline itself but for the potential future growth projects that could follow. We get a glimpse of that from Dominion Energy's president, Diane Leopold, who noted in a recent press release:
The Atlantic Coast Pipeline is essential to meeting the clean energy needs of Virginia and North Carolina, and has significant benefits for West Virginia as well ... [it] will enhance overall energy reliability in the region, bringing natural gas that will heat homes and power businesses, support thousands of jobs, and promote lower energy prices and economic development. It will be used to fuel a new generation of efficient power stations being built to achieve future federal and state environmental regulations.
Dominion is playing a key role in the multipartner project, with it being responsible for building and operating the project. However, it is also worth noting the future potential for new natural-gas-fired power plants that both Dominion and Duke will be able to build once additional natural gas capacity is added to the region.
Looking forward
Shifting gears and looking ahead to the fourth quarter, Dominion expects operating earnings to be in a range of $0.85 to $0.95 per share, which is ahead of last year's $0.84 per share. Driving this year-over-year increase is expected growth from its regulated gas and electric business, higher merchant generation margins, and lower capacity payments.
