Dominion Resources' Management Presents at 2013 Wolfe Research Power and Gas Leaders Conference (Transcript)

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Dominion Resources, Inc. (NYSE:D)

2013 Wolfe Research Power and Gas Leaders Conference Call

September 24, 2013, 8:00 AM ET


Mark McGettrick - Executive Vice President and Chief Financial Officer


Steve Fleishman - Wolfe Research

Steve Fleishman - Wolfe Research

So our first panel today is titled, Gas Infrastructure and the LNG Export story. This has obviously been a very hot story recently. And we're happy to have today, speaking will be Dominion Resources, where Mark McGettrick, will be speaking. Mark's the EVP and Chief Financial Officer of Dominion.

So let me turn it over to Mark, to get his quick thoughts. Thanks.

Mark McGettrick

Thank you and good morning. So Steve called us couple of weeks ago into conference, and we said, Steve, how long would you like us have us talk? And he said, well, Mark, you have all the time you need. You can go at least 25 to 30 minutes. As you saw, couple of minutes ago, my time has now been cut in half. So be patient, because I'm going to talk very quickly I guess.

Let's remind everybody of our disclosure note, in the front. Just take a good hard look at it, as we go through some relevant information as we start today.

Today's agenda, I want to go through a quick review of the growth plan. As you know, this time every year we update our five year growth outlook. We're one of the few companies in the sector that actually give five year project-by-project growth in all of our lines of business, and I have an update for you. Now, we'll talk about few of the key projects, but focused mainly today on some new events that we announced over the last couple of weeks around our gas business, particularly around infrastructure, financing and MLP.

We'll remind everybody where we are in Cove Point Export process and also where we stand on an important regulatory proceeding that we're in currently, which is called biennial review. And then finally, we'll talk about, remind everybody what our dividend policy is going forward and what the history outlook looks there.

Growth plan. This growth plan is amazingly similar to what you've seen in the past. The first four years are virtually unchanged. We have added 2018 to this picture and you can see we have a CapEx program that's diverse across all of our business lines. We anticipate spending about $16 billion over next five years across the company. We'll have an average spend of about $2.6 billion and obviously the biggest spend in this period will be for our Cove Point Export facility, which we expect to spend $3.4 billion to $3.8 billion.

But to remind you, we've been doing this for about five years, where we put these growth projects out there. Our story is one about infrastructure execution, and we think we've done a very good job at that. Our shareholders have rewarded us well for that and we're going to continue with this program to give that clarity of earnings in CapEx growth long-term.

Touching on some of the highlights. First, utility generation. This Slide has not changed in the last five years. We told everybody what we're going to do to catch-up on our generation-short position in the state of Virginia. We've executed on these projects. The two I will highlight for you today are Warren County and Brunswick County. Warren County is $1.1 billion project, building a combined-cycle facility for 1,300 megawatts. It's about 60% complete. All regulatory approvals are there. The project is wrapped. It's on budget and on schedule for completion in early 2015.

And then we've got an award from our regulatory body, last month, at Brunswick County, which is the next large combined-cycle unit for us. Again, about 1,300 megawatts. It's about $1.3 billion. That project is under construction currently. And those are really -- what's shown here are the only projects that will be done this decade with the addition of one combined-cycle late in the period. So again an execution story, where we showed you five years ago, what we were going to spend, how we're going to build it, and that plan has been on schedule and on budget.

I do note one other item at the bottom here. We are keeping all of our options open for various potential generation options. As you may have seen recently, we were the winner of lease out of offshore wind acreage for about $14 an acre. About 112,000 acres will be in development of that over time. And if that project makes economic sense, we will move ahead with it.

Electric transmission, again, a huge growth engine for us, it's going to continue to be a growth engine for the rest of the decade. We're going to spend $500 million to $600 million in transmission projects. We've talked about these for some time. Most of the projects shown in these slides are all approved by regulators and moving forward. Two are currently pending before the regulatory body. They are Skiffes Creek and the Cloverhill to Liberty. We have a detailed long-term transmission build-out plan, which focuses on reliability and rebuilding our 500 kV system.

But there are some new news here that we haven't talked about until just recently, which is going to add incremental CapEx in all probability to this plan, and that involves critical substation infrastructure and competitive generation projects, which I'll talk about just for a moment.

First, on critical substation infrastructure. This is now a keen focus with the federal regulators. You're going to see expenditure for us, an incremental $300 million to $500 million from what we just showed in the CapEx program over the next five to 10 years. About half of that's going to come between 2014 and 2016.

And this is all about providing additional security protection to key substation facilities in the state of Virginia for us. We're in active discussions on what there should be and what the right design and structure should be around these substations. But it's clear to us now that this will be a $300 million to $500 million incremental CapEx spend for us over the period.

And then finally, we have been active recently in competitive transmission opportunities, different than a lot of our peers. We kept our transmission planning function, when we went into the RTO, some six or seven years ago now. It is now time for us to take advantage of opportunities that are coming in place on a PJM grid.

We bid on the first one, which is called the Artificial Island project. We provided three proposals to the RTO. They will make a decision on who the winning bidder will be for this in early 2014. But as you can see from this Slide, there's at least 26 other opportunities that will now be bid out to transmission providers to solve congestion issues on the grid and PJM.

We expect to be very active here. We have no capital in our plan for this, but we plan to be successful on a number of these projects going forward. These are not expenditures you'll see in next year or two and all likely between 2015 and 2020. So this is a new opportunity for us, we're well-positioned and we're very optimistic on the first bid that we put in at the Artificial Island.

Dominion Energy. Dominion Energy is really the story of the day. As you look at our gas infrastructure business, we have opportunities, multiple opportunities in a number of different areas. I'm going to touch on a couple today. The first will be new pipeline projects that we've announced here over the last six month or so. We should expect these types of projects to pick up pace over the next several years, as the Utica and Marcellus infrastructure issues are resolved.

There are huge backlog issues in terms of infrastructure to move gas in these areas. We believe we will be one of the beneficiaries in infrastructure to do this. And I think the three projects I will talk about, just to give you a flavor for the opportunities down the road. Also give you a brief update, this morning on to Blue Racer JV and on Cove point.

First, on our pipeline projects. Again, these are not long-haul pipes. These are regional opportunities for us to move gas for producers in a number of different ways. If you're a producer in Utica today or in the Marcellus, you're looking to how to take the gas out of this region, get it processed and move it most efficiently to different parts of the country.

There are a number of different opportunities, whether it'd be Northeast, Northwest, Southwest or Southeast, producers all have different strategic plans on this. We are extraordinarily well-positioned to move this gas for them and these projects are great examples of these.

Our projects here are running $90 million to $200 million. One of them is moving gas west, one of them is moving gas north and one of them is moving gas to the Northeast. We look for more projects like this in the $50 million to $200 million range. We're going to take advantage of our existing infrastructure in terms of our pipeline system. Many of these projects will be just compression additions. So there are short duration in terms of construction. They will have very good returns and there's a scramble in this area to get these types of project build. Look for additional one from us to be announced.

Blue Racer. Blue Racer is our joint venture, if you're not familiar with it. In the Utica and Marcellus shale, and the highlighted blue area that's referenced here, is going extraordinarily well. And we've already announced -- I should say, the JV has already announced four new processing plants that are on the drawing board. And the first two will be Natrium II and Berne, which are in the southern portion of the Utica.

These two facilities, we have already had letters of intent for 150,000 to 200,000 acres from producers to support these facilities. Natrium II will be online this year. Berne will be online either late this year or early next year. You should expect firm contractual commitments announced between now and the end of year to support these facilities.

You can see from the dots on this map and the red line, which is our pipeline infrastructure, that we are appropriately positioned to take advantage of where the most successful drilling has occurred in the Utica, that is in the central part of the state and the southern part of the state and what's the opportunities here. We are investing our assets and dropping them down into the JV for agreed upon valuations.

The JV has spent their capital to build the processing and most recently they've announced they have an $800 million credit facility, which can be expanded to $1 billion down the road for future opportunities, should they exit. It's an exciting area. We're well-positioned. We're actively in discussions with producers. And we believe that the first two plants, again, are well underway to being fully contracted.

I want to give everybody just kind of a feel for, I once talked about the opportunities in these regions. This is information provided by Wood Mackenzie. And what it shows is the Marcellus and Utica opportunities over the next 10 to 15 years. You can see Marcellus is dwarfed, Utica is still, in terms of the gas that will flow out of this region.

The black lines here depict what the firm capacity and pipeline projects are to move this gas out of the region and the dotted line show potential to backhaul or change flow in this region moving in other areas, which have been a keen focus of producers in early development of Marcellus and Utica. But the top area really shows the opportunity. And you can see almost 10 B-plus of opportunity over the next 10 to 15 years to build pipeline infrastructure to move this gas.

It will be not only long-haul pipe, but it will be a significant amount or regional pipe, gathering and processing. Again, Dominion through either its Blue Racer joint venture or Dominion as a standalone entity, we believe we're extraordinarily well-positioned to take advantage of this.

First area that we talked about in terms of new announcements in last several weeks is we are in the process of farming-out acreage in West Virginia. This is about 100,000 acres, which is in and around our storage fields in West Virginia. We are in very late stages of negotiations with counterparties for this acreage.

You should expect a structure that will support a lease payment for us, which will give us earnings over a period of time. It also will give providers royalty opportunities, as producers drill this acreage. And you should expect pipeline gathering and/or processing opportunities to come out of this as well. We think this gives us a great foothold to a new JV in West Virginia. A 100,000 acres is not insignificant.

Again, folks are looking to move gas in different directions already there. So watch for announcements in terms of who our counterparties will be here and what comes along with it. It will not only be an initial announcement, but it will be build-on announcements, as we work with different producers to move and relocate gas infrastructure in the area. But we are well down the path on this. We'll have an announcement on this shortly.

A summary on the growth plan. We are very consistent with what we've shown in the last five years, about $3 billion per year growth CapEx, a large infrastructure build out at Cove Point. But I think the most important point is, we are extraordinarily well-positioned versus others to take advantage of our gas opportunities and we have significant electric opportunities in generation and electric transmission. And in combination, we think gives one of the best infrastructure build-out stories over the next five years in the industry.

Moving quickly to gas infrastructure. We felt for some time that our gas assets have been undervalued in the market and we've been determining how to extract that value and give clarity around these gas infrastructure assets, whether be gas transmission or associated gas assets. And we've elected to do two things. The first, we are forming Dominion Gas Holdings LLC. We did that in September of this year. We will finance it with private debt this fall. And I will show you in a moment our timeline and when it will become officially registered with the SEC.

We did this because we've never really given investors clarity on the EBITDA around our gas transmission business. We've never given them clarity on how we finance this business. And so now you're going to have a very clear financing vehicle for our Virginia Power, VEPCO, entity or electric entity and our gas regulated entity on transmission. We think by doing this, showing the EBITDA associated with these assets, with the opportunity to potentially drop them into an MLP down the road that our valuation should increase significantly from where we stood just a few months ago.

This is the timeline for that structure. As I mentioned in September, we formed the entity. We are in a process of realigning our Dominion subsidiaries into that entity. And we will issue debt externally for Dominion Gas here in the fourth quarter. And it will become a public reporting company in the second quarter of next year. We'll also begin to show everyone what the debt mix is by legal entity being VEPCO, the GasCo and in Dominion proper, as you get a much better feel for financing around all of these assets.

That was the first piece. And after that, this is what the structure would look like. This is effective really today and you can see that that we have still three assets that are funded under the Dominion umbrella, but outside the Virginia Power entity and outside the Dominion Gas entity, those being Cove Point, Blue Racer and our Merchant Generation.

We announced earlier this month that in addition to given clarity around our regulated gas transmission assets, we advise everyone, we planned to move into an MLP structure in 2014. The first two assets that we are focused on moving into this structure over time will be Cove Point and Blue Racer. Those assets by themselves, by 2018, will have $1 billion worth of EBITDA associated with them. Again, you should think about these assets being dropped down over time. But just as importantly we wanted to point out that we have an incremental billion dollars of EBITDA in regulated assets on to this Dominion Gas entity that are MLP eligible.

We have not said that we're going to move them into the MLP at this time, but we want to give everybody clarity on what those assets were, and you should again look for Cove Point and Blue Racer to be the assets we focus on in the near-term for the MLP structure. So another way to give clarity to investors and try to get the appropriate value for these gas assets that have been undervalued thus far.

Apologize for this quick here, it's a little delayed. Let me finish up with just a few items. Cove Point LNG Export, I think everybody has probably heard by now, we did get our export license from the DOE in early September, a little bit ahead of the 60-day window per license review that they had previously announced. We're very happy with that.

Our facility is fully contracted. We have an EPC contract construction in terms of early lead time items is underway. We have two items left to get approvals on. One is air permit out of Maryland, for the generation facilities onsite. And the second is the FERC application that we have pending, which we expect to get in the spring of 2014.

And we're very excited about this project. This project is moving along extraordinarily well that there was a big hurdle for us and based on our confidence of the Cove Point bill, we felt it was important to go ahead and announce our strategy on the MLP. We think the first process, although it will be detailed, we're familiar with that process and very comfortable with where we are with it. So again, are expecting approval in 2014.

The biennial review. Again, this is the regulatory process in Virginia that occurs every two years. The most important part of this process is the commission and interveners will determine and make recommendations on, did the company over earn in this two year period. The good news here for us is that no intervener opposed our position that we did not over earn. And because of that we will not have our base rates adjusted for another four years.

So the issues in this biennial will be around ROE, around some technical accounting issues. The proceeding is about halfway through. It started last week. We expect it will probably be done by the end of this week. But again, the takeaway going forward is Virginia will have stable rate for Dominion Resources going forward through at least December 1, 2017. So it gives clarity to investors in terms of rate structure and revenue streams for the state and takes out regulatory uncertainty that might occur otherwise.

So its investment decision, dividend. As you know, we have a strong record of increasing our dividends over the last many years, on average about 7% a year. Our board changed our payout ratio from 65% to 70% of operating earnings going forward. We expect regulated earnings to be in the range of 80% to 90% to support this. We're right on target for this. We increased our dividend to $2.25 this past year. Our board always reviews this in the fall and makes determination going forward. But we fully expect a dividend increase, as we move forward into next year in or about in this range.

And in summary, again, $16 billion of regulated infrastructure investment over the next five years. The Blue Racer joint venture continues to do extraordinarily well. Look for incremental announcements on that as we go forward. We think a terrific new opportunity in the Marcellus in West Virginia. Watch for announcements on our farm-out partners and what preliminary infrastructure opportunities that may give us, I think they're going to give you a good read on what the growth might there on the potential JV.

And again, finally, we have formed two entities or are in a process of forming two entities to give visibility around our gas transmissions assets. The first is GasCo, which will be financed this fall. And the second is our MLP announcement, which we will complete in 2014. So a lot of exciting things going on. We think great opportunities for investors down the road. And we again have a very diverse, very clear and visible earning stream across our businesses and we appreciate your support.

Question-and-Answer Session

Steve Fleishman - Wolfe Research

Before we open up to the audience, just a couple of questions. Obviously, both Cove Point and Cameron are big projects for the companies with big construction, et cetera. What do you see as kind of, once you have your approvals, what are the kind of the key hurdles and risk on kind of things like construction and delay issues? And is there any risk once you've kind of started the commodity markets going against you or you kind of locked in, that's a risk to the off-takers. So it's kind of a question, just how much risk is there once you have your approvals?

Mark McGettrick

Yes, just to be clear in our project, we have tolling agreements, there is no commodity risk. The customers are responsible for delivering gas and taking the LNG once it's been produced. So that risk is off the table. With regards to the first part of the question, obviously, I mean, can we do a $10 billion project. There is a lot to do, a lot of logistics, a lot of project management and certainly a lot of our protection will be through the EPC contract that we're negotiating and it is a fixed price EPC contract.

A lot of what we're doing is building an organization and enhancing our organization to be able to manage the construction as an activity, like over the next five years. That's a very big part of what we're doing. We got to make sure that there are knowledgeable people on the ground while managing these projects.

And I think overall we feel very confident we'll do that. And lastly, I would say there are certain protections that our tolling agreements provide us with regards to future changes that they may occur to make us feel very comfortable about managing our capital exposure risk. For the Cove Point project, similarly we don't carry any commodity risk and this is take-or-pay contract. [indiscernible] contract we have currently, so we don't carry commodity risk at all.

In 2007, when we saw a huge build out coming within Dominion, whether be for gas transmission, electric transmission, electric generation, we developed an internal project management group to manage all these large projects. We have significant experience with sizeable project with multiple contractors. We're well prepared for the Cove Point construction.

We are taking advantage of currently low commodity prices by again ordering long lead time equipment. It's a lot [indiscernible], which is a major expenditure within the $3.5 billion project that we have. I think we're well-positioned as we go forward and we expect the construction start [indiscernible] as soon as we get our work permit in the third quarter next year.

Steve Fleishman - Wolfe Research

Just on maybe related opportunities to the LNG export, when you look at the flows of gas and changes that will occur, because of these large projects, kind of moving gas off out of the country. Do you see opportunities each company to benefit from that whether it's pipeline, storage, other things around your projects that could also be kind of value enhancing?

Mark McGettrick

Again on the Dominion portfolio, we referenced some of that earlier, because we're so close at Cove Point to the Marcellus and Utica Shale, and because of the extraordinary pricing that exist, the delivery points in Utica and Marcellus now are significantly lower than we have. And then that there is such a backlog of gas that the people are looking to move to different directions.

We expect significant pipeline opportunities. We expect significant gathering opportunities and processing opportunities. Not so much associated with the export, but associated with the shale plants that are being developed currently. If you look at the gas that's actually flowing in Utica versus what has been permitted, it's about a-tenth of what that opportunity is.

In terms of wells that are actually drilled only about a quarter of the wells have been drilled that are actually flowing and that's not because there is not gas or by-products there, that's because there is no infrastructure there. So again, I think there is a huge backlog of opportunity for companies like Dominion in these shale plays to optimize their position and build pipelines gathering and processing.

Unidentified Company Representative

Yes, I guess for us it's a little bit different, because I think it is driven by the LNG exports especially, we're moving -- we're going to be moving 1.7Bs a day through this facility. And the location of our facility is very much in an area, where you have several other liquefaction facilities, so I think the logistics of the infrastructure needed and the marketing and the sourcing that's needed to provide all that gas for LNG exports in that area of Louisiana and Southern Texas is very much a great opportunity for Sempra to be over with these other assets. And remember we have several storage and pipeline assets already in the region that we have developed as part of the regas facility, so great opportunities for us there.

Steve Fleishman - Wolfe Research

And your EBITDA contribution does that include those other opportunities or is that just from the project?

Unidentified Company Representative

The information I was showing is the liquefaction project, high share of the 50% of the JV.

Steve Fleishman - Wolfe Research

And then one other question just on the -- I guess the famous three-letter word, MLP, the other famous three-letter word, beside the LNG. Mark, obviously people had asked you about MLP, I think every, I don't know quarter, six month, year, for many years now. What made it the right time, this time, I guess this is a just a financing need of Cove Point? And then, I guess to Sempra, what are the considerations you look at when you're considering something like MLP?

Mark McGettrick

Well, for Dominion we look at Cove Point, obviously we look at MLPs for gas, at least the last six years or so. And each time we looked it, we wanted not to do it, but there is some significant changes that occur in the Dominion model over the last 12 months. The first as we entered into this midstream JV and that was not until December of last year. So we were evaluating what the midstream opportunities might be, where we're actually fairly small midstream player. And by entering into that it changed the dynamics around our thinking of the MLP.

Second, we did not have a Cove Point Export facility on the table until last 18 months or so. We've had great confidence that it was going to be approved, where actually going through the process we have more and more confidence. And if you think about the revenue stream and the risk associated with Cove Point in terms of taking no commodity risk with counterparties it's a beautiful asset for MLP dropdown.

So those two items really changed our thinking over the last 12 months or so, and we elected to go ahead and announce that even though we will not move it until 2014, just to give clarity again around these assets. And that combined with really the valuation shortfall, which we saw in these assets. And so we are thinking that we need to move into this structure at least with Cove Point and Blue Racer and ultimately potentially cover assets, depending on what those options might be down the road.

Unidentified Company Representative

I would say again there, I want to emphasize our priorities, given the liquefaction project done, but I'll use the words beautiful aspect, when you saw the EBITDA of a project like that. But definitely the focus is to first give the liquefaction facility fully going and build it before we talk about MLP.

Steve Fleishman - Wolfe Research

The question from the audience, I'm going to start. There is a microphone that's coming.

Unidentified Analyst

George, could you speak about the opportunities in Mexico for natural gas from the perspective, I think you've indicated in your opening remarks that could actually begin exporting LNG from Mexico. So could you talk about the potential opportunities there in terms of how much natural gas you think could be exported from the U.S. into Mexico and how you see that market developing? And perhaps just a regulatory regime within Mexico, could there be a lot more experience and the experience that we have seen in United States?

Unidentified Company Representative

Well first, I want to emphasize Sempra's position in Mexico in the sense that Cameron is the priority and also our Costa Azul facility, because it's fully contracted. It's really not an issue for us in the sense that we're getting fully paid for the investments that we've made. Having said that there is a lot of people in Mexico looking for export opportunities and the priority has been on a West Coast facility, and right now, our facilities, the only regas facility that would be the only brownfield site that could do something like that.

So we got a deal with our priorities. First Cameron, I will think there are some issues that Mexico has in having regulations to export. That's not a very difficult thing to do, once we decide that that's what they want to do. Also, there is a need for a pipeline infrastructure to do export of the scale that's required for our facility, like a liquefaction facility. And I think those issues need to be resolved. Obviously, they're solvable. Again, when you're looking at -- dealing with issues like that right now we need to put our emphasis on the Cameron facility, but more to come.

Unidentified Analyst

Just on Mexico, more around that topic. There is obviously a lot of discussion of energy reforms in the country. Can you maybe give us a little color on does that create more opportunities for Sempra or is there some risks from that just maybe a little color on the -- how that might impact your story?

Unidentified Company Representative

Absolutely, I mean this is a very positive development. Any outcome in the future from what we're trying to do would mean that there is more private investment in energy in Mexico. And I think something that -- it's kind of hard to tell what's going to happen with the E&P part of Mexico energy business, but one area that we definitely see more opportunities, which is really the area that we're in. It's really the infrastructure, the pipes, the storage, the treatment facilities that are needed in Mexico.

And there is going to be an emphasis, a strong emphasis by the government to have diminishing investment from PEMEX and CFE in those areas and have their money put more into the E&P side. And that's where our business is building pipeline and facilities like that. So I think a lot more opportunities for us and you got to remember, we are one of the few companies even though there -- we have sizeable competitors in Mexico.

We're like a local company now that can source the local debt and equity market. So our ability to raise capital, to fund these projects is a much better structured than what some of these other foreign investors have in Mexico. So we're very optimistic about the LNG reforms.

Unidentified Analyst

Just a quick question for Dominion, I know it's only been two weeks since your big announcement, but should we anticipate in 2014 an S-1 filing?

Mark McGettrick

Well, what we've said is that we anticipate forming the MLP in 2014, we have to file this one before that, so I think that's a pretty safe assumption.

Unidentified Analyst

You both talked about very robust EBITDA. How would you translate that into return on equity or so?

Mark McGettrick

Well, let's talk about Dominion. We're a complex company in terms of financing. We announced our open financings in different ways. We're very focused on FFO-to-debt and investment grade ratings at Dominion. We work closely with the credit agencies to ensure that whatever the ratio is, however we're producing, we meet their expectations. And we really have been and we'll always be committed to do that.

But we also do some different financing. We're taking advantage of I mean to emerge our Cove Point facility, and we said that that will be plan going forward, which we take advantage of the credit agency treatment during construction, which eliminates dilution for us and our shares do not mature until three years afterwards.

But that's all factored in to how the different agencies review us, and again our focus is on our FFO-to-debt. And again, if you look at our ratings were very strong, investment grade I mean across our system. And really think based on the GasCo announcement that we made, it will give you even greater clarity on the investment quality of the assets that we have, which was difficult for investors to really believe without showing them exactly what that balance sheet is going to look like for that gas company.

Unidentified Company Representative

Now, I just want to tell you whether the source of our investment is primarily the $1 billion of existing investment that we have made. Secondary, the cash flows from the first and second train, because the production facilities comes in operation, staggered every six months. And at the very tailend there is the possibility, some fresh equity that Sempra puts in, but the primary source upon would be number one and number two that I mentioned.

Unidentified Analyst

What kind of [indiscernible] you see in a crazy politics and I wonder whether there are specific political risk to either of you and the project that you face. For example the concept that increased LNG exports will impact increased price of gas to domestic users and that being picked up or the pipeline, construction business being affected by the fact that there has been pipelines explosion and potentially that somebody getting out there a lot [indiscernible] and domestic generation kind of thing, apart of hat treatment, so where do you see the opposition to where you're going come again, if any?

Mark McGettrick

Well, in terms of the economics around LNG export and what the impact might be on the commodity price in U.S. I think as you've been bided to cost more by a number of independent entities. It's one of the main factors being considered by DOE, when they issue their permits, not now, in the future. So again I think that that was an issue for debate six months, 12 months ago, but we're beyond that.

Now, in terms of pipelines, fracking, other potential environmental issues around that, I think that's alarming for producers. Once the technology has been moved or used for sometime, the economics around it are tremendous. And I think the appropriate environmental regulations that are not there today, will be there, but it will not slowdown, my opinion. But the infrastructure build out that's needed to move gas in number of these basins and I think we could see that from the investments being made by producers today.

And the requirement by infrastructure companies to move quicker than they historically have, to put infrastructure in place, if you don't be a major infrastructure player in shale play. So all the challenges, I think all have been overcome and will be overcome, but there will be continuous scrutiny I am sure as the technologies evolve and as the opportunities evolve.

Steve Fleishman - Wolfe Research

Mark, just the question given your involvement as you mentioned in Utica and Marcellus together with your -- still some merchant energy business, merchant power business, has that kind of created an increasing point of view of, hey, gas going to stay really low and if so why you're still in that business. Obviously in New England, you have a little bit of unique locational benefit for gas, but just how is that kind of impacting your impression of the merchant business and what you're seeing there?

Mark McGettrick

Well, as most people know I think we essentially exited the merchant business except for three facilities. The principal facility is [indiscernible] power station, which has most of the value both currently and in the future. And if you look at the Northeast power market, they're all driven by gas and there are extraordinarily constrained. So they are very sensitive to price movement to whether, the changes in terms of inflow from Canada or other areas.

And this is not a short-term solution. There will be volatile markets. You can see for example, when Vermont Yankee was shutdown. That market moved $3, not only in the current period but in future period, just from that one announcement. So that particular market, we see a very good upside for base load generation on the merchant side, just based on volatility and the way we hit, we take advantage of the volatility long-term

Marcellus sales hits market every hour, every day that's running that's around their first dispatch unit in Northeast. The only other Marcellus facility we have and still has worked, which is combined-cycle facility outside Philadelphia. It's in a very attractive zone, dispatching is at a rate now between 65% and 75% capacity factor. It's deeply in the mining field with these gas prices and as the markets continue to tighten with PJM over a longer period with coal shutdowns, environmental constrains and the newbuilds on coal that we think the combined-cycle and location value there was very good, we like the opportunity and the optionality by the merchant fleet in upside is part of our portfolio.

Steve Fleishman - Wolfe Research

I think we have time for one more question, I don't know I'll give it to the audience if they would like it. Wow, not even a taker. Well, gentlemen, thank you very much.

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