Fitch Affirms Ratings of Dominion Resources and VEPCo; Outlook Stable

  Fitch Affirms Ratings of Dominion Resources and VEPCo; Outlook Stable

Business Wire

NEW YORK -- July 22, 2013

Fitch Ratings has affirmed the ratings of Dominion Resources, Inc. (Dominion)
and its regulated utility subsidiary, Virginia Electric Power Company (VEPCo).
The Rating Outlook for both companies is Stable. A full list of ratings is
provided at the end of this press release.

KEY RATING DRIVERS:

--Large diverse asset base, including significant contribution from low-risk
regulated businesses;

--Balanced regulatory treatment supports predictable utility cash flows;

--Sufficient liquidity and unrestricted bank and debt capital market access;

--Timely execution of an aggressive capital spending plan;

--High level of parent debt relative to peers.

Dominion Resources Affirmation

Stable Outlook: Dominion's ratings and Stable Outlook reflect predictable cash
flows from a large diverse asset base, including significant contribution from
low-risk regulated businesses. Recent divestitures and the closure of certain
non-economic merchant assets, coupled with execution of a partnership to
develop midstream assets are viewed by Fitch to lower commodity price
sensitivity, business risk and related capital needs, and as supportive of
credit quality. Fitch's assessment also considers the company's aggressive
capital investment plan, funding of which limits near-term de-levering of
parent level debt which is considered high relative to peers.

Capital Plan: Dominion's five-year capital plan is large at over $20 billion,
with capital investments focused on investments in new utility generation,
natural gas gathering and processing infrastructure assets and the Cove Point
LNG export project. Utility projects are driven by a growing customer base and
positive service territory demographics. Regulated investments are supported
by regulatory mechanisms that provide timely recovery of invested capital.
Dominion's natural gas business is uniquely positioned to capture midstream
growth opportunities related to the Utica and Marcellus shale development. The
primary rating concern relates to execution risk, and exposure to material
delays and / or cost overruns, particularly related to Cove Point, that could
put downside pressure on the company's financial metrics.

Financial and Debt Profile: Fitch remains concerned with the sizeable amount
of parent company debt, approximately $11 billion (Fitch adjusted), or 34% of
total capital at March 31, 2013. Dominion finances all operations, excluding
VEPCo at the parent level. Fitch expects leverage metrics to remain high
relative to guidelines for the rating category and risk profile.
Debt-to-EBITDA (as calculated by Fitch) at 4.5 times (x) for the latest
12-month period ended March 31, 2013 is not likely to improve in the near term
as funding of a large capital plan limits near-term de-levering opportunities,
and will keep leverage metrics high during the forecast period.

Sufficient Liquidity: Dominion's (consolidated) liquidity position as of March
31, 2013 is sufficient at $1.5 billion, and includes bank credit totaling $1.5
billion and $35 million cash-on-hand. Total borrowing capacity is $3.5
billion, with bank credit facilities expiring in September 2017. VEPCo's
sub-limit is currently set at $1.25 billion, and can be changed on an
as-needed basis.

VEPCo Affirmation

Stable Outlook: VEPCo's rating and Stable Outlook is supported by strong
financial metrics, balanced regulatory treatment, sufficient liquidity, and
manageable funding needs.

Utility Capital Plan: Capital expenditures will be elevated over the next
several years as VEPCo executes a capital plan focused largely on electric
transmission and new generation. Fitch considers execution of the capital plan
as material to maintaining ratings stability, and the ratings assume a
balanced mix of debt and internal cash flow during this capital intensive
period, as well as continued regulatory support. The utility capital structure
can sustain additional leverage.

Regulatory Treatment: Fitch views the regulatory environment in Virginia and
North Carolina as balanced, and continues to expect supportive treatment for
timely recovery of fuel and capital costs. Fitch considers the inclusion of
riders that provide timely recovery of invested capital and incentive returns
on equity (ROEs) on approved rider projects (up to and including Brunswick
County) as supportive of credit quality during this capital intensive period.

In March 2013 the utility submitted its 2013 Biennial Review with the Virginia
State Corporate Commission. The filing did not seek an increase in base rates.
The earned ROE was 10.11% on its electric generation and distribution
operations for the combined test period (2011 and 2012). The authorized ROE is
10.9% with a plus or minus 50 basis point earnings band. Effective Dec. 21,
2012 the North Carolina Utilities Commission authorized VEPCo a $36.4 million
rate increase, based on a 10.2% authorized ROE.

Financial Metrics: Financial metrics, as calculated by Fitch, are forecast to
remain robust relative to guidelines for the rating category and risk profile.
Fitch forecasts EBITDA-to-Interest to range at or near 6.8x through 2015 and
FFO to debt to drop from 28.6% for the latest 12 month period ended March 31,
2013, to around 23% in 2015. Fitch attributes the reduced FFO to the absence
of bonus depreciation. While the utility growth plan is supported by positive
service territory demographics, Fitch would consider the utility exposed to
lower sales volumes due to the impact of sequestration and/or energy
efficiency.

RATING SENSITIVITIES

--Execution of a sizeable capital investment plan limits positive rating
action at this time. Fitch considers timely execution of the new projects as
critical to maintaining a stable company credit profile.

--A material increase in parent level debt due to the financing of higher risk
investments could adversely affect the company's credit profile.

--Less supportive regulatory treatment in Virginia and North Carolina and/ or
the FERC could limit the ability of VEPCo to earn an adequate and timely
return on investments.

Fitch has affirmed the following ratings:

Dominion Resources

--IDR at 'BBB+';

--Senior unsecured debt at 'BBB+';

--Preferred and junior subordinated debt at 'BBB-';

--Short-term IDR at 'F2';

--Commercial paper (CP) at 'F2'.

Consolidated Natural Gas Co. (debt assumed by Dominion Resources)

--IDR at 'BBB+';

--Senior unsecured debt and revenue bonds at 'BBB+'.

VEPCo

--IDR at 'BBB+';

--Senior secured debt and revenue bonds at 'A';

--Senior unsecured debt and revenue bonds at 'A-';

--Preferred securities at 'BBB';

--Short-term IDR at 'F2';

--CP at 'F2'.

The Rating Outlook is Stable.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology', Aug. 8, 2012;

--'Parent and Subsidiary Rating Linkage', Aug. 8, 2012;

--'Recovery Ratings and Notching Criteria for Utilities', Nov. 13, 2012;

--'Short-term Ratings Criteria for Non-Financial Corporates', Aug. 9, 2012;

--'Rating North American Utilities, Power, Gas and Water Companies', May 16,
2011;

--'Treatment and Notching of Hybrids in Non-Financial Corporate and REIT
Credit Analysis', Dec. 13, 2012.

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

Parent and Subsidiary Rating Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685552

Recovery Ratings and Notching Criteria for Utilities

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=693750

Short-Term Ratings Criteria for Non-Financial Corporates

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685553

Rating North American Utilities, Power, Gas, and Water Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=625129

Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=693773

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=797295

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,
COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM
THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER
PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS
OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN
EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER
ON THE FITCH WEBSITE.

Contact:

Fitch Ratings
Primary Analyst
Lindsay Minneman, +1-212-908-0592
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 1004
or
Secondary Analyst
Rob Hornick, +1-212-908-0523
Senior Director
or
Committee Chairperson
Glen Grabelsky, +1-212-908-0577
Managing Director
or
Media Relations
Brian Bertsch, New York, +1-212-908-0549
brian.bertsch@fitchratings.com
 
Press spacebar to pause and continue. Press esc to stop.