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WIKI ANALYSIS
Dominion Resources (D) is an electric and natural gas utility. Dominion Resources generated in excess of $15 billion in revenues in 2007 and has approximately 26,500 megawatts (MW) of electrical generating capacity, enough to power around 20 million homes.[1] As the owner of the nation's largest underground natural gas storage system, Dominion also delivers natural gas to retail customers in eleven states.
Dominion Resources, with its easy access to cheap coal in Virginia, generates over 40%[2] of its energy from burning coal. Like other electric utilities Dominion is under increasing political pressure to adopt cleaner electricity generation methods while maintaining competitive prices, and beginning in 2003, the company embarked on a $1.2 billion capital investment program to retrofit its coal power plants with technology to reduce toxic emissions. Dominion Resources is also investing in clean energy projects such as wind farms and the conversion of some of its coal plants to cleaner, gas powered plants. Nuclear power already constitutes over 21% of Dominion Resources' generation capacity.
Business Financials
Despite a decrease in Dominion's revenue over the past three years, its net income has steadily risen due to increased profitability after selling lagging business segments.
Net income increased by 84% in 2007 versus 2006 primarily due to a one-time gain on the sale of a majority of Dominion's Oil & Gas Exploration & Production segment. The sale is part of Dominion's strategy to re-focus on its core power generation and energy storage businesses. In addition, margin improvement at Dominion's merchant generation business (electricity sold wholesale on the open market) caused a significant revenue increase year-over-year as Dominion captured new customers in the Northeast United States.
One of the main operating expenses for utilities is the cost of fuel. In 2007, electric fuel and energy purchases expense increase 8% resulting from higher commodity prices. [3]
Business Segments
Dominion Resources has three primary business segments: Dominion Virginia Power (DVP), Dominion Generation and Dominion Energy.
- Utility - Dominion Virginia Power (DVP): DVP includes the company's regulated electric transmission, distribution and customer service operations. The electric transmission and distribution operations serve customers in Virginia and northeastern North Carolina
- Dominion Energy: Dominion Energy includes the company's Ohio natural gas distribution and storage company, liquid natural gas operations and its Applachian natural gas exploration and production business.
- Dominion Generation: Dominion's Generation sales electricity to other utilities. Its generation mix includes coal, nuclear, gas, oil, renewables and purchased power. The electric generating plants are located in Virginia, West Virginia and North Carolina.
Key Trends/Forces
Dominion vulnerable to rising coal prices
Prices for fossil fuels, the key energy input for greater than 40% of Dominion’s electrical output, have been volatile over the past couple of years. During 2007, Dominion experienced an 8% increase in their electric fuel and energy purchases used for generation. Dominion attributes this increase to higher commodity prices. In a Q2 2007 conference call, Dominion's management stated that long-term coal contracts should keep fuel expenses in 2007 versus 2008 relatively flat [6]. However, as these contracts expire in the future, Dominion's coal expenses will once again reset to the market rate.
The "Greening" of Utilities
Growing political awareness of the risks of global warming is resulting in increasing governmental pressure for utility companies to reduce emissions. In 2008, three major investment bank predicted that the U.S. government would cap CO2 emissions in the next three years. Dominion's reliance on coal for a major part of its electrical generation mix makes it vulnerable to "greener legislation." However, unlike peer Allegheny Energy (AYE), slightly under half of Dominion's electricity comes from nuclear and hydroelectric power better positioning the company to conform to new environmental standards. The company plans to spend $3.4 billion by 2015[7] on new clean air technologies to reduce particulate and toxic emissions. Dominion has filed for permits to expand one of its nuclear power plants and actively invests in new renewable energy projects to remain on-track for the renewable energy standards set forth by Virginia and North Carolina. * March 11, 2008 - Dominion Virginia Power applied with the Virginia State Corporation Commission for permission to build a 580-megawatt natural-gas fired power station which could serve enough electricity for 145,000 homes. [8]
Nuclear Power & Electricity Generation
The key difference between nuclear and fossil plants is the cost structure. Nuclear plants require very large capital investments (to construct the plant) but little expenditure for fuel because it takes relatively little uranium to power a plant. On the other hand, fossil fuel plants require relatively little capital investment but have high fuel costs because they require large amounts of coal, oil or gas. In the past, low fossil fuel prices gave given fossil fuel plants a cost advantage over nuclear plants. The cost advantage, compounded by the stigmas of nuclear energy (the not in my backyard phenomenon) has prevented new nuclear construction for almost 30 years.[9] Record fossil fuel prices have begun to reverse this trend. Already, nuclear utilities such as Exelon, Entergy and Duke Energy Corporation (DUK) have begun filing for permits for construction of new nuclear plants. As of January 2008, Dominion has filed for permits to expand one of its existing nuclear generation plants. Dominion operates four nuclear plants on the east cost of the United States.
Weather aids Dominion's bottom line
Weather fluctuations can impact Dominion's business. Warmer than expected winters can lead to lower demand for heating energy, whereas a cooler than expected summer can lead to lower energy demand for cooling. According to Dominion's 2007 annual report, the weather in 2007 was more volatile leading to stronger electricity demand versus 2006. The exact figures are as follows: a combination of a 15% increase in cooling degree days and a 10% decrease in heating degree days led to a $22 million dollar increase to net income for the year. [10]
Competition
| D | AYE | EIX | AEP | DUK | Entergy | Exelon | PEG | |
|---|---|---|---|---|---|---|---|---|
| Revenue (FY 2007, USD Billions) | 15.7[11] | 3.3[12] | 13.1[13] | 13.4[14] | 12.7[15] | 11.5[16] | 18.9[17] | 12.8[18] |
| Generation Capacity (Megawatts) | 26,555[19] | 9,670[20] | 14,500[21] | 38,000[22] | 40,000 (include int'l)[23] | 30,000[24] | 33,000[25] | 16,000[26] |
| Customers (Millions) | 2.4[27] | 1.5[28] | 4.8 (SCE)[29] | 5[30] | 3.9[31] | 2.7[32] | 5.68[33] | 3.8[34] |
| After Tax Profit Margins (%) | 16.1[35] | 12.5[36] | 8.4[37] | 8.1[38] | 11.8[39] | 9.9[40] | 14.5[41] | 10.4[42] |
| D[43] | AYE [44] | EIX [45] | AEP[46] | DUK[47] | Entergy [48] | Exelon[49] | PEG [50] | |
|---|---|---|---|---|---|---|---|---|
| % Coal Power | 25.5 | 80 | 7.4 | 73 | 43 | 10.1 | 5.7 | 28 |
| % Natural Gas & Oil | 32.8 | 9 | 10.5 | 16 | 27 | 66 | 21.7 | 49 |
| % Nuclear Power | 21.5 | 0 | 24.8 | 8 | 13 | 23 | 66 | 23 |
| % Renewable Power | 8.0 | 11 | 57.3 | 3 | 17 | .3 | 6.3 | N/A |
Electrical Generation Fleet Mix
The above table encapsulates the utilities' current electrical generation fleet broken down by power source (e.g. coal, natural gas, oil etc.). It is worth noting that these percentages do not necessarily reflect the actual source percentages for electricity generated as power-plants are used at various capacities depending on the market demand and price of electricity.
To further clarify, if each one of Dominion's power plants were operating at 100% capacity, coal would power 25.5% of the generated electricity. However, since coal plants were cheaper to operate than their natural gas/oil power plants during 2007, Dominion tended to utilize its coal power-plants to a greater degree. This explains why 40%+ of electricity generated from Dominion in 2007 was from coal.
References
- ↑ Power of Electricity
- ↑ D - Electric Generating Facilities
- ↑ D's 2007 10-k (Pg 31)
- ↑ D's 2007 10-k (Pg 53)
- ↑ D's 2007 10-k (Pg 53)
- ↑ D's 2007 Q2 2007 Earning Call
- ↑ D's Environmental Palns
- ↑ Dominion Virginia Power Seeks State Approval for Natural Gas-Fired Power Station in Central Virginia
- ↑ Scientific American (9/26/07) - Nuclear Power Reborn
- ↑ D 2007 10-K (Page 34)
- ↑ D's 2007 10-k (Pg 53)
- ↑ AYE's 2007 10-k (Pg 58)
- ↑ EIX's 2007 Annual Report (Pg 102)
- ↑ AEP's 2007 10-k (Part 1)
- ↑ DUK's 2007 10-k (Pg 38)
- ↑ ETR's 2007 10-k (Pg 1)
- ↑ EXC's 2007 10-k (Pg 67)
- ↑ PEG's 2007 10-k (Pg 40)
- ↑ D's 2007 10-k (Pg 18)
- ↑ AYE - About Us
- ↑ EIX's 2006 Annual Report (Pg 18 & 29)
- ↑ AEP's Investor Page)
- ↑ DUK's Energy Business Segments
- ↑ Entergy - About Us
- ↑ Exelon - Power Generation
- ↑ PEG's 2006 10-k (Pg 40)
- ↑ D's 2007 10-k (Pg 1)
- ↑ AYE's About Us
- ↑ EIX's 2006 Annual Report (Pg 17)
- ↑ AEP's Investor Page)
- ↑ DUK's Energy Business Segments
- ↑ Entergy - About Us
- ↑ Exelon - About Us
- ↑ PEG's 2006 10-k (Pg 10)
- ↑ D's 2007 10-k (Pg 53)
- ↑ AYE's 2007 10-k (Pg 58)
- ↑ EIX's 2007 Annual Report (Pg 102)
- ↑ AEP's 2007 10-k (Part 1)
- ↑ DUK's 2007 10-k (Pg 38)
- ↑ ETR's 2007 10-k (Pg 1)
- ↑ EXC's 2006 10-k (Pg 67)
- ↑ PEG's 2007 10-k (Pg 47)
- ↑ D's 2007 10-k (Pg 18)
- ↑ AYE's Generation Facilities
- ↑ EIX's 2006 Annual Report (Pg 19)
- ↑ AEP's Power Plants and other assets
- ↑ DUK's 2006 10-k (Pg 34)
- ↑ Entergy's 2006 10-k (Pg 173)
- ↑ Exelon's 2006 10-k - Properties
- ↑ PSEG's 2006 10-k (Pg 41)
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