Dominion Power 2010 Annual Report Download - page 8

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rating agencies, and we are positioned to report future
dividend and earnings growth from our ongoing
infrastructure investments. Here is a summary of our
progress, our operating achievements in 2010, and our
outlook for the future.
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In 2006, senior management and the Board of Direc-
tors decided on a new direction for Dominion. At the
time, there was a growing gap in our Virginia franchise
area between demand and available generation — and
uncertainty in putting vast amounts of capital into
new infrastructure projects. We were producing large
amounts of natural gas and oil in wells across the U.S.,
the Gulf of Mexico and Canada, adding commodity
price exposure and volatility to our earnings and the
need for significant credit capacity and cash to cover
hedging programs. Three-fifths of Dominion’s oper-
ating earnings were derived from commodity-based
businesses, such as gas and oil exploration and produc-
tion (E&P) and power stations in the Northeast selling
electricity into non-regulated markets. That percentage
was expected to increase.
Investors asked, Is Dominion a utility? An E&P
company? An independent power producer? Our price-
to-earnings ratio — a common metric to value a stock
— reflected those concerns. Back then our P/E valu-
ation was at a 12 percent discount to the average P/E
ratio of the 14 companies we identified as representing
our peer group.*
7+(  3/$1
Seeking to alleviate investor concerns, senior manage-
ment unveiled a plan whose philosophy was simple:
Reduce risk by shifting the operating earnings mix to
focus on regulated businesses and decreasing earnings
sensitivity to commodity prices.
We developed a strategy to grow federal- and state-
regulated assets. In the Virginia General Assembly,
Dominion supported a regulatory model that allowed
the State Corporation Commission to set customers’
rates while providing forward-looking cost-recovery
mechanisms and performance incentives for new infra-
structure to meet rising demand. We considered selling
* As of December 31, 2010, our peer companies consisted of Ameren, AEP,
Constellation Energy Group, DTE Energy, Duke Energy, Entergy, Exelon,
FirstEnergy, NextEra Energy, NiSource, PPL, Progress Energy, Public
Service Enterprise Group, and Southern Company. Going forward, CMS
Energy and Xcel Energy will be part of Dominion’s peer group.