Dominion Resources (D)

Transcription

1 Americas/United States Equity Research Electric Utilities Rating OUTPERFORM Price (20-Jan-17, US$) Target price (US$) week price range (US$) Market cap (US$ m) 47,501 Target price is for 12 months. Research Analysts Share price performance Michael Weinstein w.weinstein@credit-suisse.com Khanh Nguyen, CFA khanh.l.nguyen@credit-suisse.com D.N Radi Sultan radi.sultan@credit-suisse.com A p r Ju l O c t Ja n S& P IN D EX On 20-Jan-2017 the S&P 500 INDEX closed at Daily Jan25, Jan20, 2017, 01/25/16 = US$69.56 Quarterly EPS Q1 Q2 Q3 Q4 2015A E E Dominion Resources (D) INITIATION Gassing Up their Future Initiating at Outperform: We initiate coverage of D with an Outperform rating and $81 TP, with the company well positioned heading into despite a guidance update next month which we expect to rebase 2017E lower. D is more exposed than peers to a faster growing midstream sector (vs electric utilities) and we see future EPS and dividend growth supported by significant cash flows from its dropdown strategy into MLP Dominion Midstream. An extended rate freeze in Virginia should help keep utility earnings at or above historical ROEs through the early 2020s. See a 7-9% EPS CAGR in but off a Lower Base: With lower energy pricing for merchant nuclear plant Millstone largely responsible for the lower 2017E rebase, we expect the company to maintain 7%-9% growth through We are also monitoring the legislative session in Connecticut for the introduction of a bill that could modify, supplement, or extend the current large Zero Renewable Energy Credit (ZREC) program to allow up to half of nuclear plant output to be contracted by the state s utilities. Dropdown Strategy into MLP Could Produce Enough Cash for Buybacks in 2018/19: The first major dropdown after the recently acquired Questar Pipeline is set to be the Cove Point liquefaction and export terminal, ~75% complete toward the planned late-2017 in-service date. Our estimates assume a $200M buyback in 2018 and $400M each in 2019 and Catalysts: These include ACP final EIS (mid-2017), Cove Point in-service date (late 2017), and Greensville project in-service date (late 2018). Risks: These include large capital project execution risk (ACP, Cove Point) and Power Market risk for Millstone; MLP capital markets risk for dropdown strategy and interest rate risk around Dominion Midstream (MLP); and regulatory risk, which is partially mitigated by the rate freeze in Virginia. Valuation: We forecast FY EPS of $3.80, $3.70, and $4.04, respectively. Our $81 TP equates to an implied upside of 7% and 3.7% yield. Financial and valuation metrics Year 12/15A 12/16E 12/17E 12/18E EPS (CS adj.) (US$) Prev. EPS (US$) P/E (x) P/E rel. (%) EBITDA (US$ m) 5,335 5,829 6,517 7,248 EV/EBITDA (current) Net debt (US$ m) 28,344 36,741 38,119 40,070 FFO/Interest FFO/Total Debt Number of shares (m) 627 BV/Share (Next Qtr., US$) 24 Net debt (Next Qtr., US$ m) 36,741 Dividend (current, US$) 2.8 Net debt/tot eq (Next Qtr., %) Dividend yield (%) 3.71 Source: Company data, Thomson Reuters, Credit Suisse estimates DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

2 Dominion Resources (D) Price (20 Jan 2017): US$75.79; Rating: OUTPERFORM; Target Price: US$81.00; Analyst: Michael Weinstein Income Statement 12/15A 12/16E 12/17E 12/18E Revenue (US$ m) 11, , , ,466.6 EBITDA 5,335 5,829 6,517 7,248 Depr. & amort. (1,389) (1,589) (1,797) (1,853) EBIT (US$) 3,946 4,239 4,719 5,395 Net interest exp (898) (991) (1,190) (1,249) PBT (US$) 3,048 3,249 3,529 4,146 Income taxes (984) (816) (1,043) (1,388) Profit after tax 2,065 2,432 2,486 2,757 Minorities 21 (55) (55) (55) Reported net income (US$) 2,086 2,378 2,431 2,703 Other NPAT adjustments (187) (35) (88) (107) Adjusted net income 1,899 2,342 2,343 2,596 Cash Flow 12/15A 12/16E 12/17E 12/18E EBIT 3,946 4,239 4,719 5,395 Net interest (898) (991) (1,190) (1,249) Change in working capital CAPEX (5,575) (7,265) (5,377) (4,666) Free cashflow to the firm (1,100) (2,702) (935) 113 Aquisitions (2,241) (5,458) 0 0 Divestments 1, Cash flow from investments (6,503) (12,087) (5,377) (4,366) Cashflow from financing activities (26,316) (873) (443) (2,364) Changes in Net Cash/Debt (28,344) (8,397) (1,379) (1,951) Balance Sheet (US$) 12/15A 12/16E 12/17E 12/18E Assets Cash & cash equivalents Total current assets 4,191 3,799 3,799 3,799 Total assets 58,797 72,123 75,464 77,719 Liabilities Total current liabilities 8,120 7,266 7,266 7,266 Total liabilities 45,195 55,694 57,134 59,157 Total liabilities and equity 58,797 72,123 75,464 77,719 Net debt 28,344 36,741 38,119 40,070 Per share 12/15A 12/16E 12/17E 12/18E No. of shares (wtd avg) CS adj. EPS Prev. EPS (US$) Dividend (US$) Free cash flow per share (1.85) (4.38) (1.48) 0.18 Earnings 12/15A 12/16E 12/17E 12/18E Sales growth (%) EBIT growth (%) Net profit growth (%) EPS growth (%) (2.7) 9.3 EBITDA margin (%) EBIT margin (%) Pretax margin (%) Net margin (%) Valuation 12/15A 12/16E 12/17E 12/18E EV/Sales (x) EV/EBITDA (x) EV/EBIT (x) P/E (x) Price to book (x) Asset turnover Returns 12/15A 12/16E 12/17E 12/18E ROE stated-return on (%) ROIC (%) Gearing 12/15A 12/16E 12/17E 12/18E Net debt/equity (%) Interest coverage ratio (X) Quarterly EPS 2015A Q Q Q Q E E Source: Company data, Thomson Reuters, Credit Suisse estimates Company Background Blue/Grey Sky Scenario Our Blue Sky Scenario (US$) Under our blue sky scenario we assume various favorable outcomes across D's businesses. We assume favorable regulatory outcomes for VEPCO in VA for the various rider reviews and the eventual earnings review. We assume a power market recovery which should boost gross margins in the merchant business. We also assume successful expansion, re-contracting, and successful execution of projects at the gas transmission and storage business. Our Grey Sky Scenario (US$) Under our grey sky scenario we assumes various unfavorable outcomes across D's businesses. We assume unfavorable regulatory outcomes for the various rider reviews for VEPCO in VA. We assume further deterioration in power markets/a lack of recovery in the power markets, which would weaken gross margins in the merchant businesses. We also assume future expansion issues and re-contracting issues for D's gas transmission and storage business Share price performance A p r Ju l O c t Jan D.N S& P IN D EX On 20-Jan-2017 the S&P 500 INDEX closed at Daily Jan25, Jan20, 2017, 01/25/16 = US$69.56 Dominion Resources (D) 2

3 Table of Contents Focus Charts 5 Investment Thesis A Midstream Play Within the Utility Universe 6 (1) See a 7-9% EPS CAGR in but off a Lower Base than Prior Guidance Due to Millstone....6 (2) Acquisition of Questar (STR) Extends DM Dropdown Pipeline...7 Cove Point liquefaction and Export Terminal Project Is 75% Complete 7 Atlantic Coast Pipeline (ACP) and Supply Header Delayed to Late Blue Racer Remains Internally Funded; Management Is Cautious on New Investment 7 (3) VEPCO Operations Benefiting from Suspension of Biennial Reviews, Effectively Freezing Utility Rates Through Dec 2022; See Healthy ROEs...7 (4) Virginia Legislation Allows the Utility to Retain Solar ITCs and Deemphasize Commercial (Non-Utility) Solar...8 Summary of Estimates and Credit Metrics...8 Catalysts and Events to Monitor...9 Company Overview 10 Key Topics Feb 2015 Analyst Day Guidance About to Be Rebased Lower: Blue Racer Remains Internally Funded; Management Is Cautious on New Investment Cove Point Liquefaction and Export Terminal Project Is 75% Complete Atlantic Coast Pipeline (ACP) and Supply Header Delayed to Late Acquisition of Questar (STR) Extends DM Dropdown Pipeline Dominion Midstream s GP Continues to Be the Primary Source of Value Creation from the MLP, even as Lower LP Pricing Offsets Much of It Dominion Using DM Cash Flow for Deleveraging and Dividend Growth No More D Equity Expected After 2017 Buybacks Are Possible and even Likely in 2018+, Assuming Cash Flows Come in as Expected Regulated Utility Operations Benefiting from Suspension of Biennial Reviews, Effectively Freezing Utility Rates Through Dec 2022; See Healthy ROEs Benefits from Capacity Payments in New CCGTs for VEPCO: Strategic Undergrounding of Distribution Lines Integrated Resource Plan Filed in May 2016 Another Update Expected in May Dominion Resources (D) 3

4 14. VEPCO Gas and Solar Investments Position Well for a Clean Power Plan (CPP) Virginia Legislation Allows the Utility to Retain Solar ITCs Looking for Clean Support for Millstone Merchant Nuclear 31 Regulatory Overview 35 Virginia...35 North Carolina...36 Valuation 38 The Base Case...39 The Upside (Blue Sky) Case...41 The Downside (Grey Sky) Case...42 Risks 44 HOLT Analysis 45 Management, Compensation, & Governance 46 Questions for Management 48 Financial Appendix 49 Dominion Resources (D) 4

5 Focus Charts Figure 1: D EPS Growth Chart EPS (0.50) VEPCO STORAGE / PIPES / LNG RETAIL GAS LDCS MERCHANT GENERATION CORPORATE/Redeployed Figure 2: 2018 Integrated P/E Group Multiple Figure 3: 2017 Integrated Group Dividend Yield 20.0x 19.0x 18.0x 17.0x 5.0% 4.0% 3.0% Group Average 3.7% 16.0x 15.0x 14.0x Group Average 15.2x 2.0% 1.0% 13.0x 12.0x D PNM AEE EE NEE PEG SRE ETR FE EXC 0.0% ETR FE D PEG EXC AEE NEE SRE EE PNM Figure 4: D Ratebase Growth 10% 8% 6% 4% 6.4% 6.4% 6.3% 6.1% 5.7% 5.5% 5.3% 4.9% 4.9% 4.7% 4.1% 2% 0% ES DTE CMS EXC D SR DUK NWE BKH* ED SO * BKH: based on our projections for Dominion Resources (D) 5

6 Investment Thesis A Midstream Play Within the Utility Universe We initiate D at Outperform with an $81 TP. While we expect the upcoming February 2017 long-term guidance update to be rebased lower off 2017E $ , we still expect the company to maintain 7-9% growth for , albeit off the lower base. This remains driven primarily from projected annual sales growth of ~1% (including ~9% growth of data centers) and a $20B growth capital plan from 2016 to 2020, split roughly one-third each among regulated utility investment, Dominion Generation (regulated and merchant power), and Dominion Energy. In September 2016, the company highlighted $1-2B of annual potential growth opportunities in 2019 and 2020, which we ve already embedded in our assumptions. These include additional VA solar, pipeline expansions, possible environmental and clean power compliance (subject to reduced expectations under the Trump administration), Questar pipeline and storage expansion, and nuclear license extensions for Surry and North Anna generating stations. At Pipeline and LNG-focused Dominion Energy, over $2B is slated for ~1.6 bcf/d of Producer Outlet and demand-driven Market Access gas transmission projects. Another $1B is planned for the Atlantic Coast Pipeline (ACP), with project financing covering the remaining $1.1B of D capital (45% ownership). D will also invest ~$479M for the associated DTI Supply Header project, which will supply gas to ACP. Note that the ACP is now expected to be in service by 2H19, one year later than originally planned, although management has said the impact to earnings and capital growth are not expected to be material. The Cove Point LNG export terminal remains on track for a late-2017 commercial operations date (CoD), with another $1.5B investment planned through then. D also plans to drop the vast majority of its midstream operations, most notably the Cove Point LNG export terminal, into MLP Dominion Midstream over the coming decade. While management has forecasted $7-8B of cash flow from DM for (including dropdown proceeds), we currently forecast ~$6.3B from based on $30-$35 pricing for DM LP units. However, we acknowledge DM and the entire MLP sector is in the midst of a recovery of late, also showing strength in a recent private placement for the acquisition of Questar. The company believes it may be possible to initiate stock repurchases and/or beef up its dividend growth as early as 2018 or 2019 while still reinvesting as much of the cash as possible into its capital plan. Our estimates embed buybacks of $200M in 2018 and $400M each in 2019 and As more exposed than peers to the higher-growth midstream sector, we see D as positioned well for 2017 should interest rates continue to rise as expected, placing pressure on utilities with less growth and more reliance on debt markets. (1) See a 7-9% EPS CAGR in but off a Lower Base than Prior Guidance Due to Millstone. The company s last guidance update was released at its February 2015 Analyst Day, which had a 6-7% EPS CAGR through 2020, including 5-6% in E and 7-9% in based on 2014A $3.48. At the midpoint, this had implied a 2017E of $4.08, but we expect the company to refresh formal guidance in February 2017 materially lower at about $ due largely to a decline in forward New England energy (and capacity pricing) ~$20/MWh since early 2015 on its Millstone merchant nuclear plant, equivalent to ~$0.30 EPS. We are monitoring the legislative session in Connecticut for the introduction of a bill that could modify, supplement, or otherwise extend the state s current large Zero Renewable Energy Credit (ZREC) program to allow up to half of nuclear plant output to be contracted by CL&P. We are also keeping an eye out for any similar legislative initiatives in Massachusetts. As has been the case in New York and Illinois recently, these types of programs may improve the financial picture for Millstone materially. Dominion Resources (D) 6

7 (2) Acquisition of Questar (STR) Extends DM Dropdown Pipeline The acquisition was announced in February 2016 and closed in September (immediately accretive to EPS), with D paying $4.4B of cash plus the assumption of $1.5B STR outstanding debt. The combination provides a new dropdown asset for Dominion Midstream (Questar Pipeline) and adds some geographic diversity to the utility business with the addition of a western-states gas utility that may benefit from a future Clean Power Plan. There are no plans to drop the regulated Wexpro producing properties into the MLP. Cove Point liquefaction and Export Terminal Project Is 75% Complete: D reports that engineering and procurement of engineered equipment is over 99% complete, with the project now 75% complete toward the planned late-2017 in-service date. Cove Point currently operates as an import and storage terminal under various long-term contracts that have been renegotiated to tail off from 2017 to 2028 as the facility is converted to export operations.. Atlantic Coast Pipeline (ACP) and Supply Header Delayed to Late 2019: The proposed 1.5 bcf/d fully-subscribed ACP (potential expansion to 2.0) is a joint venture owned 48% by Dominion, 47% by Duke Energy, and 5% by Southern Company that will bring gas through a 564-mile, 36in-42in pipeline from West Virginia through Virginia and into eastern North Carolina. The project will accrue AFUDC and is now expected to be in service no later than 4Q19, about one year later than originally planned due to the FERC schedule and associated discussions among the consortium owners. We expect D to begin financing these projects in conjunction with capital spend beginning around mid- 2018, and we ve assumed a dropdown into Dominion Midstream MLP in 2020/21/22. Blue Racer Remains Internally Funded; Management Is Cautious on New Investment: The company s 50%/50% Blue Racer joint venture with Caiman Energy is funded internally without the need for capital injection from Dominion. This midstream platform includes ~850 miles of gas, natural gas liquids (NGLs) and condensate pipelines, 800 mmcf/d of processing capacity, and 123k bbls/d of fractionation capacity. It holds longterm contracts with over ten shale producers with ~95% of revenues fee-based without commodity spread exposure. There has been a material pickup in fractionation spreads since Jan 2016, and some customer interest has piqued as a result. However, management remains cautious on capital investment, with none in 2H16 and maybe none in 1H17. (3) VEPCO Operations Benefiting from Suspension of Biennial Reviews, Effectively Freezing Utility Rates Through Dec 2022; See Healthy ROEs In Feb 2015, Virginia legislation suspended VEPCO s biennial rate review process through the end of 2019 under the premise that the company would assume the risk of any expenditures required to comply with the U.S. Environmental Protection Agency s (EPA) proposed Clean Power Plan (CPP). During this period, the utility also assumes the risk associated with adverse weather and any other contingency as well. In exchange, VEPCO effectively keeps the benefits from cost savings and non-rider rate changes (such as PJM capacity payments) through the period. Through year-end 2019 at least, we expect the utility to earn low-mid teen ROEs as a result of cost efficiencies and any other benefits that are not subject to interim rider true-ups during the suspension. Dominion Resources (D) 7

8 (4) Virginia Legislation Allows the Utility to Retain Solar ITCs and Deemphasize Commercial (Non- Utility) Solar D has announced plans for 500 MW of solar across Virginia and North Carolina, taking advantage of Virginia energy legislation in Feb 2015 that deemed up to 500 MW of utility-scale solar to be in the public interest and allows VEPCO to charge rates for solar based on a market index determined through competitive bids rather than traditional costof-service. Combined with an IRS private letter ruling (PLR) issued in Feb 2016, VEPCO is now effectively able to place owned (but not technically ratebase) solar projects into customer rates through a market-rate PPA and still claim the ITC benefit despite the usual tax normalization prohibition, as long as Virginia regulators approve the PPA. D s operating commercial solar portfolio outside of Virginia stands at net ~690 MW (AC) at year-end The company has announced its post-2016 intention to shift investment away from this form of non-regulated long-term purchased power agreement toward utility solar in Virginia and North Carolina. Summary of Estimates and Credit Metrics Figure 5: Summary of Estimates and Credit Metrics D VEPCO STORAGE / PIPES / LNG RETAIL GAS LDCS MERCHANT GENERATION CORPORATE/Redeployed (0.01) (0.10) (0.12) (0.10) 0.05 Total EPS Consensus EPS % growth (2.8%) 9.3% 7.7% 7.8% VEPCO Earned ROE 12.1% 12.3% 12.0% 11.9% 12.0% Gas LDCs Earned ROE 9.6% 8.9% 9.2% 9.0% 9.1% Dividends per Share Consensus Dividends per Share % growth 8.0% 8.0% 8.0% 8.0% Payout Ratio 73.7% 81.8% 80.8% 81.0% 81.2% Shares Outstanding Consensus Shares Outstanding 627 Equity Issuance / Repurchase 2,179 1,300 (200) (400) (400) Debt Issuance / Repurchase 6,705 1,599 1,951 1,729 (1,385) Net Debt ex. Securitization 36,741 38,119 40,070 41,799 40,414 Consensus Net Debt 30,406 31,381 31,776 29,708 29,201 % Corp Net Debt 57.5% 57.2% 57.8% 58.0% 55.0% Net Debt / Cap (ex. Securitization) 69.1% 67.5% 68.3% 69.3% 68.7% FFO / Debt (ex. Securitization) 14.3% 14.9% 15.3% 15.9% 18.1% FFO Interest Coverage 5.6x 4.9x 4.9x 4.9x 5.1x Debt/ EBITDA 6.3x 5.8x 5.5x 5.2x 4.6x EBITDA/ Interest Expense 6.3x 5.6x 5.8x 5.9x 6.1x Dominion Resources (D) 8

9 Catalysts and Events to Monitor Dominion Generation Greensville Project Expected In-Service Late 2018 Cove Point In-Service Late 2017 ACP Final Environmental Impact Statement (EIS) No Later than September 28, 2017 ACP Construction Start 2H 2017 ACP Expected Completion 2H 2019 VEPCO Rider Decisions: VEPCO Decision on Rider B, Rider GV, Rider R, Rider S, and Rider W Expected February 28, 2017 VEPCO Decision on Rider BW, Rider US-2 April 30, 2017 VEPCO Decision on Rider DSM May 31, 2017 Dominion Resources (D) 9

10 Figure 6: Corporate Structure Chart Company Overview Dominion Resources is a large-cap integrated power company based in Richmond, Virginia, and focused on serving the eastern U.S. regions. Dominion is one of the largest power producers in the country, with 24.3GW of generation capacity, 6.5k miles of electric transmission lines, and 57.3k miles of electric distribution. The company also operates one of the largest gas storage systems in the country, with 933Bcf of storage capacity, 12.2k of gas transmission lines, and 22k miles of gas distribution lines. The company has ~5M utility/retail customers across 14 states. Dominion Resources, Parent Dominion Virginia Power Electric Distribution Dominion Energy Gas Distribution Dominion Generation Utility Generation Dominion Questar Questar Gas Dominion Midstream (DM) 100% GP and 64.6% LP Unit Ownership Electric Transmission Gas Transmission Merchant Generation Questar Pipeline Wexpro Figure 7: Dominion Business Profile The company recently completed its acquisition of Questar, which is made up of three primary businesses: retail gas distribution, interstate gas transportation & storage, and gas development & production operating under the Questar Gas, Questar Pipeline, and Wexpro segments, respectively. The company also formed a midstream business, Dominion Midstream (DM), in 2014 to house a portfolio of gas terminaling, processing, storage, transportation, and related assets. Dominion owns the entire GP of Dominion midstream and 64.6% of the LP units (discussed in further detail below). Dominion Resources (D) 10

11 Key Topics Figure 8: D 2017E vs 2016E, Year-over-Year Impacts 1. Feb 2015 Analyst Day Guidance About to Be Rebased Lower: To date, this projection has not yet been revised from a 6-7% EPS CAGR through 2020, which includes 5-6% in E and 7-9% in based on 2014A $3.48. At the midpoint, this had implied a 2017E of $4.08, but we expect the company to initiate formal guidance in February materially lower at about $ due largely to a decline in forward New England energy (and capacity pricing) ~$20/MWh, equivalent to ~$0.30 EPS. D 2017E vs 2016E, Year-over-Year Impacts E (0.15) ITC rolloff from $0.45 to $0.30 (0.06) PJM Capacity Performance benefit of $0.16 in 2016 and $0.10 in 2017 due to sale of capacity with requirement to serve only 60% of load in the auction 0.09 PPA/NUG contract rolloff benefits $90M in 2017 or $0.09 (0.17) Millstone effective pricing 2017E $41 vs 2016 $51.51 (0.10) Millstone 2 outages in 2017 (vs 1 norm) 0.08 for small unit and 0.10 for the big Millstone capacity pricing $3.08 vs 2017 $5.29 (0.00) Fairless capacity pricing 2016 $4.46 vs 2017 $4.39 (0.13) Cove Point import contract rolloff begin May 1. $150M annualized reservation payment, or $0.10-$0.15 effect in Regulated Utility and Midstream growth from $3B capex 0.09 STR accretion $0.10-$0.15 net of $500M equity issued in Mar 2016 for the deal 0.10 Other (0.07) Share dilution from $250M equity plus $1.1B mand convert in Mar/July 2016 and $1B mand convert in 7/1/2017. Also $300M DRiP in E We still expect the company to maintain 7-9% in , albeit off the lower base. This is driven primarily from projected annual sales growth of ~1% (including ~9% growth of data centers) and a $20B growth capital plan in , split roughly one-third each among regulated utility investment, Dominion Generation (regulated and merchant power), and Dominion Energy. In September 2016, the company highlighted $1-2B of annual potential growth opportunities in 2019 and 2020, which we ve already embedded in our assumptions. These include additional VA solar, pipeline expansions, possible environmental and clean power compliance (subject to reduced expectations under the Trump administration), Questar pipeline and storage expansion, and nuclear license extensions for Surry and North Anna generating stations. Dominion Resources (D) 11

12 Figure 9: Growth Capex Plan Growth capex plan, 2016E-2020E 2016E 2017E 2018E 2019E 2020E Total Notes Electric Distribution Customer growth $136 $138 $140 Stategic undergrounding $113 $146 $175 Other $188 $200 $206 $500 $500 About $500M/yr total for distribution Electric transmission Physical security $99 $84 $77 $95 $95 $450 $450M from Major projects $225 $148 $15 $0 $0 $388 At least 12 major projects from , including 500 kv loop rebuild Reliability upgrades and other $517 $522 $575 $605 $605 $2,824 Strategic undergrounding & over 100 total transmission projects Total VEPCO T&D subtotal $1,278 $1,238 $1,188 $1,200 $1,200 $6,104 Utility CCGTs, Offshore wind Brunswick 1,358 MW CCGT in-svc April 2016 $131 $5 $0 Greensville 1,588 MW CCGT in-svc late-2018 $605 $414 $198 $1.3B began construction 6/17/16 Other $305 $470 $177 $100 $100 Merchant generation May do some VEPCO solar under PPA if makes more sense Contracted solar $814 $0 $0 $0 $0 $814 Focus shifts away from contracted solar to utility solar Utility solar $145 $511 $425 $300 $300 $1,681 Orig projection $700M from for 400 MW Additional utility solar opportunity 2019/20 $1,300 $1,300 $2,600 $1B-$2B total annual capital opportunity for 2019/20, mostly for solar VA Utility solar MWs in service (cumulative) Now likely >500 MW by 2020 in VA and NC Total Dominion Generation subtotal $2,000 $1,400 $800 $1,700 $1,700 $7,600 Demand-driven Market Access projects Edgemoor in svc Dec dth/d firm transport to serve SCE&G and Columbia Energy Center CPV Power in svc June 2016 ($31M total) $ dth/d firm transport from Cove Point Pipeline to CPV s St. Charles Eastover in svc 4Q16 $25 18 dth/d firm transport to serve International Paper New Market in svc 4Q16 $97 $0 $0 112 dth/d firm transport from Leidy, PA to serve the NY market Keys Power in svc 1Q17 $31 $6 107 dth/d firm transport from Cove Point Pipeline to Keys Energy Center Lordstown in svc 3Q17 $17 $ dth/d firm transport to serve power generation Leidy South in svc 4Q17 $74 $135 $0 155 dth/d firm transport to move Leidy supplies to Mid-Atlantic market Charleston in svc 4Q17 $56 $56 80 dth/d firm transport to serve SCE&G and industrial customers Dominion Carolina Gas $51 $95 $0 Producer Outlet projects and other gas transmission $126 $213 $340 $300 $400 $2,013 Includes $150M Market Access project for 2018 and 4 PO projects (~$400M) by yearend 2016 Dom East Ohio Pipe Infrastructure Replacement $160 $180 $200 $200 $200 $940 $4B, 25-yrs at $160M/yr rider recovery; requested $200M/yr by 2018 Other gas distribution $86 $97 $71 $100 $100 $454 Cove Point LNG Export in svc late-2017 $1,225 $192 $31 $0 $0 $1,448 Total $3.4B-$3.8B capex Atlantic Coast Pipeline (ACP) in svc by 4Q19, 1.5 bcf $100 $87 $250 $511 $0 $948 Total $4.5B-$5.0B capex; 48% ownership by D; mostly project financed DTI Supply Header in svc Nov 2018 or 1H19 $61 $76 $250 $92 $0 $479 $500M in conjunction with ACP Total Dominion Energy subtotal $2,125 $1,153 $1,142 $1,203 $700 $6,323 Total Dominion Growth Capex $5,403 $3,791 $3,130 $4,103 $3,600 $20,027 Notably, this includes about $500M/yr for Virginia Electric Power s (VEPCO) distribution utility and another $450M/year for physical security at transmission substations. Over $3B is designated for over 100 transmission projects and a strategic undergrounding program. On the generation side, about $1.2B is planned for the construction of the 1.5 GW Greensville CCGT (total $1.3B project) and over $5B is planned for solar, mostly on the regulated utility side after At Dominion Energy, over $2B is slated for ~1.6 bcf/d of Producer Outlet and demand-driven Market Access gas transmission projects. Another $1B is planned for the Atlantic Coast Pipeline (ACP), with project financing covering the remaining $1.1B of D capital (45% ownership). D will also invest ~$479M for the associated DTI Supply Header project, which will supply gas to ACP. Note that the ACP is now expected to be in service by 2H19, a year later than originally planned, although management has said the impact to earnings and capital growth are not expected to be material. In Ohio, the company recently requested $200M/yr (by 2018) from regulators for pipeline infrastructure replacement at gas utility Dominion East Ohio (DEO) for what is expected to be a $4B, 25-year rate-tracked program. Legislation in West Virginia also allows Hope Gas to file for a similar program at $20M/year. The Cove Point LNG export terminal remains on track for a late-2017 commercial operations date (CoD), with another $1.5B investment planned through then. Dominion Resources (D) 12

13 Figure 10: EBITDA Guidance & Credit Suisse Projections Dominion EBITDA Guidance & CS Projections ($M rounded midpoints) 2014A 2015A 2016G 2017G/E 2018G/E 2019G/E 2020G/E Dominion Energy (ex DCG, BR, Cove Pt & ACP) 1, ,033 CS estimated growth Dominion Carolina Gas (DCG) $38 $42 $46 $50 $50 $50 Guidance $50M in 2018 Dominion Generation Utility $1,726 $1,850 $2,045 $2,450 $2,650 $3,050 $3,050 Company guidance Merchant $459 $594 $563 $451 $547 $568 $531 About $250M lower than analyst day guidance Dominion Virginia Power $1,493 $1,525 $1,623 $1,430 $1,373 $1,177 $1,370 CS estimated growth "Foundational" EBITDA ($M) $4,747 $4,896 $5,079 $5,200 $5,400 $5,700 $6,000 CAGR 4.0% Blue Racer guidance ranges $85-$95 $140- $150 $185- $195 $220- $230 $245- $255 $265- $275 >90% fee-based contract revenues Blue Racer midpoint $45 $90 $145 $190 $225 $250 $270 Midpoint of explicit guidance Cove Pt & ACP $55 $499 $875 $1,086 CS estimated growth; ACP delayed 2H19 Total D EBITDA pre-str acquisition ($M) $4,800 $5,000 $5,200 $5,400 $6,100 $6,800 $7,400 CAGR 7.5% % Regulated 89% 86% 87% 88% 80% 75% 74% STR Pipeline $178 $178 $179 $179 To be dropped into DM in 2017/18 STR Wexpro $249 $227 $206 $183 No plan to drop into DM; ROE mix is dropping Wexpro 1 (19.76% auth ROE) & 2 (7.64% auth ROE) blended ROE 16.9% 16.3% 15.4% 14.3% Wexpro 2 ROE replacement prod at lower ROE STR Gas Utilities $214 $247 $277 $309 Assume ratebase growth from 2.5% cust grow Total D EBITDA ($M) $4,800 $5,000 $5,200 $6,000 $6,800 $7,500 $8,100 CAGR 9.1% % Regulated 89% 86% 87% 91% 89% 88% 90% 2. Blue Racer Remains Internally Funded; Management Is Cautious on New Investment: The company s 50%/50% Blue Racer joint venture with Caiman Energy is funded internally without the need for capital injection from Dominion. This midstream platform includes ~850 miles of gas, natural gas liquids (NGLs) and condensate pipelines, 800 mmcf/d of processing capacity, and 123k bbls/d of fractionation capacity. It holds long-term contracts with over ten shale producers with ~95% of revenues fee-based without commodity spread exposure. The company reports over 95% utilization rates for current processing capacity, with its two largest facilities, Natrium and Berne, located within the Marcellus and Utica shale regions. Original guidance from Feb 2015 had planned for a total of five processing plants (Natrium I&II, Berne I&II, and Lewis), but weaker fractionation spreads driven by lower oil and NGL prices reduced producer interest throughout 2015 to the extent that the Lewis facility has been postponed. (The other four are running close to 100%.) As illustrated in Figure 11, here has been a material pickup in spreads since Jan 2016, and some customer interest has piqued as a result. However, management remains cautious on capital investment, with none in 2H16 and maybe none in 1H17. Dominion Resources (D) 13

14 Figure 11: Mt. Belvieu Hub Generic Fractionation Spread ($/mmbtu vs Henry Hub), Jan 2015 Jan 2017 Source: Bloomberg, using Blue Racer NGL hedges at 52% propane, 17% normal butane, 10% iso-butane, and 21% natural gasoline. 3. Cove Point Liquefaction and Export Terminal Project Is 75% Complete: D reports that engineering and procurement of engineered equipment is over 99% complete, with the project now 75% complete toward the planned late-2017 inservice date. After obtaining free trade agreement (FTA) and non-fta authorizations from the U.S. Department of Energy in 2013, D received FERC approval for its Environmental Assessment in Sept 2014 and began construction in Oct The project is authorized to export up to 770 mmcf/d natural gas for 20 years and has fully subscribed the facility under 20-year fee-based contracts (no commodity spread exposure) to Sumitomo/Tokyo Gas and GAIL Global, a U.S. subsidiary of its Indian parent. Cove Point currently operates as an import and storage terminal under various long-term contracts that have been renegotiated to tail off from 2017 to 2028 as the facility is converted to export operations. These renegotiations effectively reduce Cove Point s annual import revenue by $150M in , partially offset by a $50M increase in revenues in D s guidance for export operations is $ M EBITDA, resulting in a short period of lower EBITDA during the transition in the latter half of 2017/early Atlantic Coast Pipeline (ACP) and Supply Header Delayed to Late 2019: The proposed 1.5 bcf/d fully-subscribed ACP (potential expansion to 2.0) is a joint venture owned 48% by Dominion, 47% by Duke Energy, and 5% by Southern Company that will bring gas through a 564-mile, 36in-42in pipeline from West Virginia through Virginia and into eastern North Carolina. The pipeline will be built and operated by Dominion, while Duke Energy Carolinas and Duke Energy Progress, among others, will be customers under several 20-year supply contracts, subject to state regulatory approval. Although total construction costs are expected to be $ B, most will be covered with project financing, with D projecting only about $950M capital injection from 2016 to The associated 1.5 bcf/d upstream Supply Header is 100% owned by Dominion and expected to cost about $500M. With the FERC Notice of Schedule in hand on Aug 12, 2016, the route is more or less determined now, with a draft Environmental Impact Statement (EIS) issued on Dec 30, 2016, to be followed by the final version no later than Sept 28, A signed construction contract is in place with Spring Ridge Constructors, Dominion Resources (D) 14

15 and surveying and engineering work is expected to be completed in 2016, with construction beginning in 3Q or 4Q17. The project will accrue AFUDC and is now expected to be in service no later than 4Q19, about a year later than originally planned due to the FERC schedule and associated discussions among the consortium owners. We expect D to begin financing these projects in conjunction with capital spend beginning around mid-2018, and we ve assumed a dropdown into Dominion Midstream MLP in 2020/21/22. Figure 12: Dominion Energy Project Top-Down Economics Dominion Energy Project Top-Down Economics ($M) Capex % D D Own % Proj Debt Int rate assump % ROE Depn Yrs D EBITDA EV/ EBITDA D CFO 30-Yr IRR Cove Point 770 mmcf/d $3, % $3,600 60% 5% 17.5% 20 $ x $ % ACP 1500 mmcf/d $4,750 48% $2,280 60% 5% 17.5% 20 $ x $ % Supply Header 1500 mmcf/d $ % $500 60% 5% 17.5% 20 $94 5.3x $ % Totals $8,850 $6,380 $1, x $1, Acquisition of Questar (STR) Extends DM Dropdown Pipeline. The acquisition was announced in Feb 2016 and closed in Sept (immediately accretive to EPS), with D paying $4.4B of cash plus the assumption of $1.5B STR outstanding debt. The combination provides a new dropdown asset for Dominion Midstream (Questar Pipeline) and adds some geographic diversity to the utility business with the addition of a western-states gas utility that may benefit from a future Clean Power Plan. D acquired: Questar Gas (Not MLP-Eligible), a regulated gas utility in Utah, Wyoming, and Idaho with 2.5% average annual customer growth that is authorized % ROE on 52% equity in a $1.1B ratebase. The utility also runs under an infrastructure replacement rider (although it has no cast iron or bare steel to replace), decoupling, weather normalization, a gas cost tracker, and a bad debt tracker EBITDA was about $170M (28% of total). Under the terms of the acquisition, Questar Gas agreed to the withdrawal of a $22M rate increase request in Utah, stabilizing base rates until It also agreed to a base rate freeze in Wyoming until at least Jan 1, Questar Pipeline (MLP-Eligible), a 2,700-mile, FERC-regulated interstate gas pipeline that includes 56 bcf of working gas storage. It is authorized % ROE on 54% equity in $0.9B ratebase and operates under long-lived, fixed-fee contracts with customers. EBITDA in 2015 was about $182M (30% of total). D has opted to drop this asset into Dominion Midstream MLP (DM) in Nov 2016, allowing the postponement of Blue racer drops to 2020 and beyond. In our modeling, this action postpones tax leakage associated with Blue Racer and allows D to maintain EPS growth rates in the earlier years of the MLP. By our estimate, it also extends the full pipeline of parent-to-mlp dropdowns into 2026 (vs 2025 previously). See below for further detail on DM. Wexpro Regulated Gas Supply (MLP-Eligible but No Plan to Drop into DM). The Wexpro 1&2 agreements have governed cost-plus based returns on these ratebased reserves in Utah and Wyoming since Ratebase of $0.6B earns an average 16-17% realized ROE on 100% equity capitalization (a blend of Wexpro 1 at 19.76% legacy ROE plus Wexpro 2 at 7.64% ROE on new reserve additions). EBITDA in 2015 was about $255M (42% of total). Although this is eligible to be dropped into DM, management has no plans to do so, nor does D have any intention to invest further capital into extending reserves further under the (lower ROE) Wexpro 2 agreement. Questar Could Benefit from Growing Regional Gas Demand: With the potential for a U.S. EPA Clean Power Plan (CPP) to be implemented in the coming years (currently stayed by the U.S. Supreme Court), we see western coal Dominion Resources (D) 15

16 generation affected more than eastern coals due to the lower heat content of PRB coal that results in higher carbon output per kwh. As a consequence of this and lower prices for natural gas in the U.S., we see the possibility of strong gas usage growth in the western U.S., which could spur system and capital growth for Questar s pipeline and storage systems. Figure 13: CPP Target CPP target emission reduction % of gen (2030 vs from coal 2012) (2014A) Renew energy target Target deadline State MT 47% 51% 15% 2015 WY 44% 87% None None CO 40% 60% 30% 2020 UT 37% 76% 20% 2025 NM 36% 63% 20% 2020 AZ 34% 38% 15% 2025 NV 22% 18% 25% 2025 ID 10% 1% None None 6. Dominion Midstream s GP Continues to Be the Primary Source of Value Creation from the MLP, even as Lower LP Pricing Offsets Much of It: Dominion launched the IPO of Dominion Midstream (DM) MLP in Oct 2014 and retains 100% ownership of the General Partner (GP) with incentive distribution rights (IDRs) that are entitled up to 50% of distributable cash flow for LP payments above $0.2625/LP unit ($1.05 annualized). This high splits threshold is reached in 2016 as a result of planned 22% annualized LP distribution growth through at least After 2020, the IDR structure allows GP distributions to grow exponentially faster than LP distributions, providing D with most of the accretive value generated by DM. Dominion Resources (D) 16

17 Figure 14: LP and GP Distributions $900 $800 $700 $600 $500 $400 $300 $200 $100 $0 LP and GP Distributions to D, 2014A-2030E LP Distributions to D ($M) GP Distributions to D ($M) As mentioned above, the company has postponed the dropdown of Blue Racer into the MLP until 2020 or beyond and instead has dropped the Questar Pipeline in Nov/Dec For comparison, we illustrate in Figure 15 and Figure 16 both the original Feb 2015 dropdown guidance as well as our estimate based on the latest information available. In addition to ~$1,065M of annualized EBITDA dropped through 2020, we see up to an additional ~$1.7B-$2.0B of eligible EBITDA waiting to be dropped through (This excludes ~$255M Wexpro EBITDA that D does not intend to drop into DM.) While additional growth is possible, the flattening LP distribution line represents our assumption for no additional contributions beyond those currently identified by the company explicitly. Figure 15: Dominion Analyst Day Guidance Dominion Midstream Guidance at Analyst Day 2014 IPO E 2017E 2018E 2019E 2020E Annual EBITDA contribution to MLP from Dropdowns ($M) Cove Preferred 2014 IPO $50 Cove Preferred, DCG $39 Blue Racer $36 Blue Racer $61 Blue Racer/Cove Equity/ACP $81 Cove Equity/ACP $175 Cove Equity/ACP $349 Dominion Energy PO and MA pipelines, DEO * Annualized carryover from previous year $4 $10 $28 $20 $21 Annual Total Drops $50 $39 $40 $71 $109 $195 $370 Cumulative Total Annual EBITDA ($M) $50 $89 $129 $200 $309 $504 $874 Dominion Resources (D) 17

18 Figure 16: Credit Suisse Projections for DM Latest CS Projections for Dominion Midstream Dropdowns 2014 IPO E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E Annual EBITDA contribution to MLP from Dropdowns ($M) Cove Preferred 2014 IPO $50 DCG, Iroquois 2015 $72 No drop needed in 2016 Questar Pipeline H 2018 $28 $140 Cove Equity 2H $50 $200 $426 $0 ACP & Supply Header $50 $100 $150 $222 Blue Racer $50 $50 $143 Dominion Energy PO and MA pipelines, DEO $100 $350 $350 $350 Questar regulated gas supply (Wexpro) ~$255M eligible EBITDA Annualized Total Drops $50 $72 $28 $140 $50 $200 $526 $150 $293 $322 $350 $350 $350 $0 Total Annual EBITDA ($M) $50 $122 $150 $290 $340 $540 $1,065 $1,215 $1,508 $1,830 $2,180 $2,530 $2,880 $2,880 Dropdown Cash Flows and Accretion from the MLP Has Been Reduced as a Result of Lower LP Pricing: As illustrated in Figure 17, we currently estimate about $6 per D share of incremental value from the MLP vs simply valuing Dominion Energy assets at 8.0x 2018E EV/EBITDA. This is comprised of +$12 from the value of GP distributions (at a 8.5% discount rate equivalent to 26.5x 2020E cash distribution) offset by -$6 from the value of LP distributions (at a 7.5% discount rate equivalent to 3.8% 2020E cash yield) plus cash proceeds from dropdowns at a 10.0x multiple, assuming DM issuance pricing at $35 per LP unit. Note that this is reduced from our original expectations based on Feb 2015 guidance for about $11 per D share of value creation from an ~11x dropdown multiple supported by LP unit issuances at closer to ~$47. However, Questar Pipeline Dropdown Financing Shows Signs of Strength for DM, and Pricing Has Been Improving of Late: For the Questar Pipeline dropdown in Nov 2016, DM assumed $435M of existing Questar debt and issued $300M of term loans through several banks, with the proceeds used to pay down D s affiliated Notes issued to DM for the Iroquois acquisition in About $138M of LP units were issued to an investor group led by Stonepeak Infrastructure Partners with another $313M (12.5M units) issued to the public plus another $47M shoe (2M units). As signs of a stronger market for DM, management notes that this ~$500M of LP equity represents one of the largest deals in the space for 2016 (vs $243M average), representing 140x average daily volume (vs a 35x average for other deals in 2016) and 80% of the public float (vs a 20% average deal in 2016) and which was issued at a relatively low 2.9% re-offer discount to market pricing (vs 7.2% average in 2016). Figure 17: Questar Pipeline Dropdown Financing Questar Pipeline Dropdown Financing Assumed debt $ 435 Bank loans to replace D parent loan to DM $ 300 LP common to Stonepeak $ 138 Up to $600M convert pref 4.75% $ 450 $300M convert pref to D $ 300 LP common to public $ 313 LP common shoe $ 47 Total $ 1,983 Cost of Convertible Preferred vs Issuing Straight LP Units Total converts ($M) $ 750 Convert 15% premium (minus 4Q dist) $ Units issued in 2 years * 28.4 Convert interest paid over % ($M) $ 71.3 Avoided LP distributions on as-if converted basis over 2 years ($M) $ 71.8 Avoided GP IDRs ($M) $ 5.4 Dominion Resources (D) 18

19 In addition, about $500M of convertible preferred notes were issued ($300M to D) at 4.75%, convertible in two years at a 15% premium to the $23.20 LP issuance price minus the Q distribution (forced conversion by DM available in three years). As we illustrate in Figure 17, these converts effectively pay interest equivalent to ~$72M LP unit distributions over the two years but avoid ~$5M IDR payments as the interest payment reduces CAFD. One way to think about this structure is that the converts effectively operate as a surgical delay of IDR payments for a limited subset of DM s balance sheet, rather than a wholesale reset of all IDRs. We expect D to use proceeds to pay down DRI debt, including the one-year term-loan bridge financing in place since D closed the acquisition of Questar in Sept Dominion Resources (D) 19

20 Figure 18: Incremental Value of DM to D Incremental Value of DM to D LP GP Other Assumptions through 2030: Risk-free rate (10-yr Treasury) 1.75% 1.75% DM LP price $35 Market return 6.14% 6.14% D price $77 DM Adjusted Beta vs SPX (Bloomberg) Dropdown multiple 10.0x Premium (CS est) 1.09% 2.09% IDR high splits threshold (annualized) $1.05 Discount rate 7.50% 8.50% Dropped EBITDA % of orig Feb 100% Terminal growth rate (CS est) 2.75% 2.75% 2015 guidance Equiv LP 2020E Cash Dist Yield DM ~4x EBITDA DM LP Per DM Equity LP Unit in Value 2017 Implied 2018E EV/ EBITDA Implied 2020E EV/ EBITDA Equiv GP 2020E Cash Dist Mult Implied 2018E EV/ EBITDA D Avg Shares Out in 2017 Per D share in E- Terminal Total DCF DCF cash flows to all common and subord LP 2030E Value to LP All LP distributions ($M) $6,327 $10,318 $16, % ($11,135) $5,510 $ x 5.2x CS est based on Feb '15 guidance with DM ~$47 $5,602 $8,898 $14, % ($9,900) $4,600 $ x 5.3x At current DM price assumption $14, % ($11,135) $3,192 $35 5.9x 3.0x DCF cash flows to D 2017E- 2030E Terminal Value Total DCF to D Dropdown proceeds to D ($M) $11,864 $0 $11,864 incl'd w/lp in next line 634 $19 LP distributions to D ($M) $1,666 $1,951 $3, x 634 $6 GP distributions to D ($M) $3,277 $4,414 $7, x 634 $12 Total DCF projected cash flows to D with DM ~$35 $23, x $38 CS est based on Feb '15 guidance with DM ~$47 and no STR Pipeline $23, x $38 minus: Dominion Gas debt ($3,300) ($5) Total equity value $19,872 $32 - versus EV/EBITDA value of dropdowns - Project 2018 EBITDA EV/ EBITDA EV EV/sh Dominion Energy (ex DCG, BR, Cove Pt & ACP) $ x $6,484 $10 Dominion Carolina Gas (DCG) $50 8.0x $400 $1 Blue Racer $ x $1,800 $3 Cove Pt $ x $5,406 $9 ACP/Sup Hdr (delay to 2H19; 2020 disc to 7.5%) $ x $3,612 $6 STR Pipeline $ x $1,424 $2 Total non-mlp EV $2,391 $19,126 $30 minus: Dominion Gas debt ($3,300) ($5) Total non-mlp equity value $15,826 $25 CS est based on Feb '15 guidance with DM ~$47 and no STR Pipeline 8.0x $13,569 $21 CS est based on Incremental value of MLP to D $M per D share Feb '15 guidance Incremental EV of dropdown proceeds plus LP distributions vs non-mlp EV above ($M) ($3,645) ($6) $0 Incremental EV from GP distributions ($M) $7,691 $12 $11 Total incremental value of the MLP structure to D in 2020 assuming DM $35.00 $4,047 $6 $11 Under Feb 2015 based assumptions with DM ~$47 per LP unit, the combined DCF of LP unit distributions and cash from dropdowns was equivalent to a 7.7x multiple of EBITDA (breakeven), with almost the entire $11 per D share of value accretion coming from the GP. However, with DM currently trading closer to $35, we see much of that GP value as essentially transferred back to LP investors through increased LP issuances and a lower dropdown multiple. In any event, despite the lower value accretion at $35, we continue to Dominion Resources (D) 20

21 see $6.3B of cash provided to D through 2020 and material EPS accretion to D of $0.31/sh, contributing ~103 bps to the E EPS CAGR. However, this is about ~30 bps lower than what would have been generated by the expected $0.40 of accretion that would occur if DM was trading closer to ~$47 under our original Feb 2015 assumptions. So, the current price for DM LP units represents a possible ~0.3% headwind to management s 2018E-2020E 7-9% forecast CAGR. Figure 19: EPS Accretion from Share Repurchase D EPS Accretion from Stock Repurchase 2014 IPO 2015A 2016E 2017E 2018E 2019E 2020E Total Annualized EBITDA dropped ($M; CS est) $50 $122 $150 $290 $340 $540 $1,065 Depreciation ($12) ($32) ($41) ($61) ($52) ($67) ($110) Dominion Gas interest ($5) ($13) ($16) ($23) ($20) ($24) ($38) Net Income dropped into DM $21 $50 $61 $133 $174 $292 $597 EPS dropped into DM ($0.04) ($0.08) ($0.10) ($0.21) ($0.27) ($0.46) ($0.94) EPS from LP Distributions $0.06 $0.04 $0.05 $0.06 $0.08 $0.13 $0.23 EPS from GP Distributions $0.00 $0.00 $0.00 $0.01 $0.04 $0.12 $0.30 Interest reductions from DRI debt retirement $0.00 $0.00 $0.00 $0.00 $0.00 $0.02 $0.02 Projected cash flow to D ($M; CS est) $6,724 Debt retirement at DRI, ($850) Interest reduction (after tax) ($10) Total proceeds for reinvestment/repurchase in 2019/20 $5,864 D price $77.00 Accretion from reinvestment/stock repurchase in 2019/ Total EPS accretion (dilution) in 2020 $0.31 CS est based on Feb '15 guidance with DM ~$47 $0.40 EPS growth rate impact (bps) +103 CS est based on Feb '15 guidance with DM ~$ Scenario Analysis Shows That an IDR Reset Is Roughly Value Neutral Vs a Lower Drop Multiple but Would Require More LP Issuances. For comparison purposes, we ran the results of several scenarios in Figure 20 to make up our Base, Bear, and Bull cases for our valuation of D. In the final two scenarios, we compare outcomes under a stressed situation with EBITDA cut to only 90% of projections and $25/LP unit issuances. For our Bear case, we apply a 8.0x drop multiple and the current $1.05 annualized IDR high splits threshold compared with the Reset scenario with a 10x drop multiple with an IDR reset to $1.86/unit that pushes IDR high splits out about three years to While both scenarios are roughly value equivalent at $29-$30 per D share, we see the higher value of increased dropdown cash flow in an IDR reset as largely offset by the reduced value of GP cash flows. However, there are other considerations for an IDR reset, including significantly more LP unit issuances as a result of higher dropdown payments and perhaps the need for a more robust capital market (albeit, this might be aided by the higher distributable cash flow and resulting value per unit for the LP). Dominion Resources (D) 21