Warm Weather Fuels a Big Quarter for Dominion Resources, Inc.

By Markets Fool.com

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Warmer weather across Dominion Resources'(NYSE: D) service areas drove up power demand, fueling guidance-beating third-quarter earnings for the utility. That kept the company on pace to hit its full-year guidance. In addition to that solid operating performance, Dominion continued to make progress on its strategic initiatives, moving forward with all of its major projects and announcing a large dropdown transaction with its master limited partnershipDominion Midstream Partners (NYSE: DM). That said, it did hit a snag on one project, causing it to push back the in-service date by a year.

Dominion results: The raw numbers

Metric

Q3 2016 Actuals

Q3 2015 Actuals

Growth (YOY)

Operating earnings

$716 million

$611 million

17.2%

Operating earnings per share

$1.14

$1.03

10.7%

Data source: Dominion Resources. YOY = year over year.

What happened with Dominion this quarter?

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Dominion's earnings rose along with the temperature:

  • Dominion's operating earnings blew past its guidance range of $0.95 to $1.10 per share and were well above the year-ago quarter. Fueling the strong results were increased electric sales due to warmer weather, lower capacity expenses, a reduced tax rate, and the addition of growth projects that went into service over the past year.
  • The company also continued to make progress on all of its major growth projects during the quarter. It commenced construction on its Greenville County combined cycle power station, completed construction on two large solar farms,continued its progress on the Cove Point Liquefaction project while taking additional steps toward starting construction of the Atlantic Coast Pipeline project.
  • After the quarter had ended, Dominion announced an agreement to drop down Questar Pipeline to Dominion Midstream Partners in a $1.725 billion transaction. The deal will double Dominion Midstream Partners' adjusted EBITDA while providing Dominion with cash to pay down debt.

What management had to say

About the results, CEO Tomas Ferrell said:

We are very pleased with our strong third-quarter results that came in well above our guidance range partially as a result of warmer weather in our service territory. Our integrated system of power stations and transmission lines were able to meet the increased demand reliably and effectively. We continue to execute on our growth projects including starting construction of the 1,588-megawatt Greensville County combined cycle power station. The project is on-time and on budget...Our Cove Point Liquefaction project is now 75% complete and the facility continues on time and on budget for a late 2017 in-service date. We continue to work toward the construction of the Atlantic Coast Pipeline and the related Supply Header project. We expect completion of these projects in late 2019.

As Ferrell noted, the company had no problems meeting the challenges of the warmer weather during the quarter. Meanwhile, Ferrell would go on to say that almost all of its major growth projects continue to be on time and on budget. That said, there was one notable exception. The Atlantic Coast Pipeline, which it is developing with Duke Energy (NYSE: DUK) and Southern Company (NYSE: SO), isn't moving along as quickly as planned.

Last quarter, Ferrell said that the company expected a "completion date of 2018" for the project. However, this quarter he revised that expectation, saying that it should now becomplete"in late 2019." Driving that delay is the need to file an alternative route to satisfy the safety concerns of the U.S. Forest Service. As a result, Dominion, Duke Energy, and Southern Company expect to start construction next fall, assuming no additional delays.

Looking forward

Despite the delay on the Atlantic Coast Pipeline project, Dominion expects the rest of the year to go as planned. For the fourth quarter, the company predicts operating earnings in the range of $0.90 to $1.05 per share, driven by normal weather conditions, positive impacts from recent growth projects, the addition of Questar, and lower capacity expenses. That guidance range will keep Dominion Resources on pace to meet its full-year target of operating earnings between $3.60 to $4.00 per share.

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Matt DiLallo has no position in any stocks mentioned. The Motley Fool recommends Dominion Resources. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.