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Rating Action:

MOODY'S CONFIRMS THE RATINGS OF DOMINION RESOURCES AND ITS REGULATED OPERATING SUBSIDIARIES

24 Aug 2000

About $36 Billion of Debt Securities Affected.

New York, August 24, 2000 -- Moody's Investors Service confirmed the ratings of Dominion Resources, Inc. (DRI, the parent company) and its regulated operating subsidiaries, Virginia Electric Power Company (VEPCO) and Consolidated Natural Gas Company (CNG). These rating actions end the review for possible downgrade begun on August 8, 2000 when DRI announced its agreement to acquire the three-unit Millstone nuclear station for approximately $1.3 billion. The confirmations are based on expectations that this acquisition will not further weaken the financial position of DRI. The rating outlooks are negative for DRI, CNG, and VEPCO.

DRI is already heavily leveraged with the $4.5 billion of debt it incurred to acquire CNG in January. By the time the Millstone purchase closes in April 2001, we expect that all DRI's CNG-related bridge debt will have been either refinanced (about $3.1 billion of debt and hybrid securities) or paid down with asset sales (about $725 million of divestitures completed or agreed to). However, the Millstone acquisition will add a new slug of bridge debt to the parent's balance sheet.

On a parent only basis, coverage measures are already weak (FFO/Interest in the one-time range). Nevertheless, we confirm DRI's ratings, because the Millstone acquisition should have little effect on these measures. Not only do the Millstone assets generate more than enough cash to meet the incremental interest expense, they also require minimal maintenance capital (the plants are in good condition, after roughly a billion dollars were spent over the last three years to refurbish them), leaving substantial cash for debt service at the parent level, where the acquisition debt will be incurred. DRI anticipates refinancing the $1.3 billion of Millstone bridge debt sometime next year with a combination of debt, hybrids, and common stock.

However, with higher level of debt overall, we do expect some pressure on coverages in the near term, particularly if the company is unable to sell assets it has targeted to sell or to issue a sufficient amount of equity to alleviate its leverage. In order to maintain its ratings at its current levels, DRI may consider additional asset sales. Our rating actions anticipate that the benefits from such debt reduction would outweigh the loss of cash flow generated by the assets sold. The DRIP plan, restarted this month, should also add to its equity base and help incrementally to control leverage.

The rating outlooks on Dominion's rated entities are all negative until the company reduces more of its acquisition debt with proceeds from sales of non-core assets and an equity issue. All rated entities are exposed to event risk, as DRI considers further asset purchases or sales, which may have credit implications, and prepares to restructure itself, separating its regulated and unregulated businesses.

Ratings confirmed are:

DRI's senior unsecured debt, rated Baa1; senior unsecured shelf registration, rated (P)Baa1; junior subordinated debt, rated Baa2; junior subordinated shelf registration, rated (P)Baa2; preferred stock, rated "baa1"; and preferred stock shelf registration, rated (P)"baa1";

VEPCO's senior secured debt, rated A2; senior secured shelf registration, rated (P)A2; issuer rating and senior unsecured debt, rated A3; commercial paper rated Prime-1; senior unsecured shelf registration, rated (P)A3; preferred stock, rated "a3"; preferred stock shelf registration, rated (P)"a3"; and junior subordinated shelf registration, rated (P)Baa1; and

CNG's issuer rating and senior unsecured debt, rated A2; preferred stock shelf registration, rated (P)"a3"; and commercial paper rated Prime-1.

Dominion Resources, Inc., is a fully integrated gas and electric energy holding company based in Richmond, Virginia.

New York
Susan D. Abbott
Managing Director
Corporate Finance
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653

New York
Mihoko Manabe
Vice President - Senior Analyst
Corporate Finance
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653

MOODY'S CONFIRMS THE RATINGS OF DOMINION RESOURCES AND ITS REGULATED OPERATING SUBSIDIARIES
No Related Data.
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