Dominion Announces Third-Quarter 2005 Earnings

Dominion reports unaudited net income determined in accordance with Generally Accepted Accounting Principles (GAAP) for the three months ended Sept. 30, 2005, of $15 million (4 cents per share) compared to net income of $337 million ($1.02 per share) for the same period last year.

Operating earnings, which are defined as GAAP earnings adjusted for certain items, amounted to $373 million ($1.08 per share) for the three months ended Sept. 30, 2005. This compares to the company's operating earnings guidance of $1.20 to $1.25 per share, originally provided on August 3. Approximately 14 billion cubic feet equivalent of expected natural gas and oil production was delayed in the quarter due to Hurricanes Katrina and Rita, resulting in a 20-cents per share shortfall compared to guidance. Were it not for the hurricanes, Dominion would have exceeded the upper end of its operating earnings guidance range by 3-cents per share. Operating earnings in the third quarter of 2004 were $400 million ($1.21 per share).

Included in third quarter 2005 GAAP earnings but excluded from operating earnings are $358 million in net after-tax charges primarily related to certain impacts of Hurricanes Katrina and Rita, largely reflecting a non-cash charge due to the discontinuation of hedge accounting for certain cash flow hedges related to forecasted production.

Dominion uses operating earnings as the primary performance measurement of its earnings outlook and results for public communications with analysts and investors. Dominion also uses operating earnings internally for budgeting, reporting to the board of directors and for the company's annual incentive plan. Dominion management believes operating earnings provide a more meaningful representation of the company's fundamental earnings power.

Business segment results and detailed descriptions of items included in 2005 and 2004 GAAP earnings but excluded from operating earnings can be found on Schedules 1, 2 and 3 of this release.

Thos. E. Capps, chairman and chief executive officer, said:

"We faced incredible challenges in the third quarter. Hurricanes Katrina and Rita, both Category 5 storms while in the Gulf of Mexico, and Categories 4 and 3 respectively when they made landfall, occurred just as we were nearly finished recovering from Hurricane Ivan. These events not only disrupted the natural gas and oil business industry-wide, they had a profound effect on our workforce. Immediately following Katrina we went to work finding and safely relocating our employees and their families to Houston.

"Fortunately, the impact of the hurricanes on our earnings is only timing in nature. While the non-cash charge from de-designating hedges on delayed production had a big impact on our third-quarter GAAP earnings, the effect is temporary since we will record future net income when those volumes are produced. Additionally, we expect to recover proceeds for delayed production through our business interruption insurance, subject to policy deductibles."

Dominion's business interruption insurance covers delays caused both by damage to its own production facilities and by damage to third-party facilities downstream. Dominion's policy coverage for Hurricane Katrina has a 30-day deductible period, while its policy covering Hurricane Rita has a 45-day deductible period.

Third-quarter 2005 operating earnings compared to guidance

Dominion's third-quarter 2005 operating earnings of $1.08 per share compares to the company's third-quarter operating earnings guidance of $1.20 to $1.25 per share. Approximately 14 billion cubic feet equivalent of expected natural gas and oil production was delayed in the quarter due to the hurricanes resulting in a 20-cent-per-share shortfall compared to guidance. Also, Virginia fuel expenses were higher than expected. Commodity price escalation, in part driven by the hurricanes, and a warmer-than-normal summer were the principal causes for the fuel-expense variance. These negatives were partially offset by the benefits of warmer-than-normal weather in the company's electric utility service area; the sale of excess emissions allowances, and higher contributions from the company's merchant generation business.

Complete details of third-quarter 2005 results compared to company guidance can be found on Schedule 4 of this release.

Third-quarter 2005 operating earnings compared to 2004

Third-quarter 2005 operating earnings of $1.08 per share compares to operating earnings of $1.21 per share in the third quarter of 2004. The decrease is primarily attributable to higher Virginia fuel expenses and the effects of Hurricanes Katrina and Rita. These negatives were partially offset by the benefit of warmer-than-normal weather in the company's electric utility service area; an increase in the sale of emissions allowances, and higher contributions from the company's merchant generation and producer services businesses.

Complete details of third-quarter 2005 operating earnings compared to 2004 can be found on Schedule 5 of this release.

Fourth-quarter 2005 operating earnings guidance

Dominion expects fourth-quarter 2005 operating earnings in the range of 60 cents to 70 cents per share resulting in full-year operating earnings of approximately $4.11 to $4.21 per share. This compares to operating earnings of $1.22 in the fourth quarter 2004. Drivers that compare unfavorably to 2004 include an increase in Virginia fuel expenses, and the continued effect of delayed production due to the hurricanes. Expected offsets include customer growth; a return to normal weather in the gas and electric service areas, and contributions from the company's merchant generation assets. For guidance purposes, no revenue recovery through the business interruption insurance claim process has been assumed for the fourth quarter.

In providing operating earnings guidance, there could be differences between expected GAAP and operating earnings, beyond those differences recorded through the third quarter, for matters such as, but not limited to, changes in accounting principles. At this time Dominion is not able to provide a corresponding GAAP equivalent for fourth-quarter or full-year 2005 earnings per share guidance. GAAP earnings in 2004 amounted to 67 cents per share in the fourth quarter and $4.61 per share for the full-year.

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