Dive Brief:
- Dominion Resources reported earnings of $536 million for Q1 2015 on Tuesday, up over 40% from last year's Q1 earnings of $379 million. The earnings beat analyst expectations.
- The earnings were driven by the performance of Dominion's regulated utility unit, whose earnings grew from $131 million last year to $140 million this year. The utility experienced colder-than-usual weather conditions in its service territory during Q1 that led to favorable earnings. Dominion Virginia Power, the company's regulated distribution utility in Virginia, experienced a new peak demand record of 21,651 MW in February, eclipsing the previous winter and summer peaks by 9% and 8%, respectively.
- The earnings were negatively impacted by the performance of Dominion's merchant generation business, whose earnings fell 9% from $309 million in Q1 2014 to $282 million in Q1 2015. The drop was "largely due to lower power prices in New England," Dominion EVP and CFO Mark McGettrick told analysts on an earnings call.
Dive Insight:
The earnings are Dominion's first since Virginia passed a controversial law freezing Dominion's base rates until 2020. The law exempts the utility from reviews of its finances by the Virginia State Corporation Commission (SCC).
Dominion has been accused by Virginia officials of seeking to avoid financial scrutiny. Dominion maintains it will continue to provide state regulators with "full access to our financials," according to a statement by Dominion Virginia Power President Robert Blue. However, in a recent filing with the SCC, Dominion said that with the rate freeze, certain types of information are no longer necessary, such as data "that relates to forward-looking adjustments to determine the company’s projected costs and revenues."
The law was passed in order to preserve the current rates for electric customers while the state decides whether it will comply with any aspect of the EPA's Clean Power Plan, according to the state senator who proposed the legislation. The EPA is seeking to reduce carbon emissions 30% nationwide below 2005 levels by 2030. The agency has set a 38% by 2030 carbon emissions reduction target for the state of Virginia.
Dominion believes EPA compliance will put significant upward pressure on electricity rates for its Virginia utility. A study by SCC staff found that EPA compliance would cost between $5.5-6 billion, while also placing several billions of dollars worth of existing coal-fired generation assets at risk of early retirement, according to comments filed with the EPA. Environmentalists dispute the findings.
Dominion Virginia Power, the company's regulated electric utility in the state, has about 2.5 million customers and made up for about 22% of the holding company's earnings last year.