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Rating Action:

MOODY'S PLACES THE RATINGS FOR DOMINION RESOURCES AND SUBSIDIARIES UNDER REVIEW FOR POSSIBLE DOWNGRADE

09 Jan 2006

Approximately $20 Billion of Debt and Preferred Securities Affected

New York, January 09, 2006 -- Moody's Investors Service placed the ratings for Dominion Resources, Inc. (Dominion) and its principal subsidiaries, Virginia Electric and Power Company (VEPCO) and Consolidated Natural Gas Company (CNG) on review for possible downgrade. The ratings that have been placed on review for possible downgrade include: Dominion's Baa1 senior unsecured and (P) Baa2 trust preferred and (P) Baa3 preferred stock ratings; VEPCO's A2 senior secured, A3 senior unsecured, Baa1 trust preferred, Baa2 preferred stock and Prime-1 commercial paper ratings, and CNG's A3 senior unsecured, Baa1 trust preferred and (P) Baa2 preferred stock ratings. The Prime-2 commercial paper ratings for both Dominion and CNG have been affirmed.

Dominion's review for possible downgrade reflects weaker than expected recent financial performance with a decline in funds from operations and higher than expected leverage. In our opinion, Dominion has a relatively high degree of business risk in comparison to most companies in the utility sector, primarily related to its investments in oil and gas exploration and production, but also including non-regulated merchant generation and a sizeable commodity risk management business.

The ratings had previously incorporated an expectation that Dominion would improve its financial profile by lowering its over-all debt capitalization to less than 60%, increase its funds from operations (FFO) to adjusted total debt ratio to over 20% and reverse its negative free cash flow generation. The company failed to realize these goals for the latest twelve months ended September 2005 and financial performance in 2006 is not projected to be significantly better than in 2005.

Funds from operations have deteriorated from approximately $3.3 billion for the year-ended 2004 to approximately $2.9 billion for the latest twelve months ended September 2005. Moody's does not expect a material improvement for Dominion's cash flows in 2006. Since capital expenditures are estimated at approximately $3.0 billion and shareholder dividends are projected to grow to approximately $925 million, this would result in another year of sizeable negative free cash flow in 2006.

The affirmation of Dominion's P-2 commercial paper rating reflects the likelihood that the rating review will not result in a downgrade of the long term rating by more than one notch. The affirmation also incorporates the expectation that Dominion will maintain sufficient reliable liquidity. The company has approximately $7.7 billion of total committed credit facilities. However, this total includes about $3.1 billion of short term bilateral facilities that expire within the next few months. It is our understanding that management will address these substantial near-term expirations of bilateral facilities.

The review will focus on Dominion's expected financial profile and projected credit metrics over the next 12 to 18 months and the expected adjustments or refinements to its available liquidity capacity. The review for potential downgrade is expected to be completed within approximately 3 months, but may be completed after Moody's evaluates certain information expected to be filed in Dominion's 2005 SEC form 10-K.

The review for possible downgrade for VEPCO is primarily related to the review for possible downgrade at its parent company, Dominion. Given limited regulatory insulation and relatively unrestricted flow of funds in a centralized money pool, the notching among Dominion's rated entities are expected to remain close (Dominion rated one notch below its primary subsidiaries CNG and VEPCO).

While VEPCO's financial metrics would not be inconsistent with the existing rating on a stand-alone basis, its financial performance may weaken due to limitations on its ability to pass through higher fuel costs during the term of its current rate freeze. VEPCO is expected to commence a fuel recovery re-set proceeding in late 2006 (to be in effect for mid-2007), which could help alleviate fuel cost leakage.

Moody's expects VEPCO to produce FFO to adjusted total debt of approximately 25% and FFO to interest of over 5x. In addition, while Moody's continues to view VEPCO's upstream dividend payout ratio negatively (averaging over 100% recently), we recognize the income statement mark-to-market (MTM) effects related to its hedging activities at Virginia Power Energy Marketing (VPEM), and view the parent company's willingness to infuse equity positively. For the period ended September 2005, Dominion made an approximately $200 million equity infusion into VEPCO through the forgiveness of inter-company debt. As noted in a recent 8-K filing, effective December 31, 2005, VPEM will no longer be a subsidiary of VEPCO thereby eliminating any future MTM fluctuations from VPEM on VEPCO's financial statements.

The review for possible downgrade at CNG reflects shortfalls in oil and gas production and weaker than expected financial performance. Production has been below expectations for oil and gas operations at CNG as well as the operations that are directly held by Dominion.. Due to production curtailments following hurricanes Katrina and Rita, CNG's production volumes will be noticeably lower than previous expectations in 2005 and early 2006. The company expects meaningful insurance recoveries to partially mitigate the loss of cash flow but the timing and amount of recovery remains uncertain. CNG also faces large liquidity demands from margin requirements on its out-of-the-money hedges.

The review of CNG will consider the likely timing for achieving higher production levels and a free cash flow neutral financial position. The review will consider the credit implications from large capital projects on the horizon (e.g., the proposed expansion of its Cove Point LNG facility) and their likely financing, as well as the potential for event risk over the medium term. The company's FAS 69 information in its 2005 10-K will be reviewed to gauge its recent E&P operating performance.

Dominion is an integrated energy company that is headquartered in Richmond, Virginia.

On Review for Possible Downgrade:

..Issuer: Chesapeake (City of) VA, Ind. Dev. Auth.

....Senior Unsecured Revenue Bonds, Placed on Review for Possible Downgrade, currently A3

..Issuer: Chesterfield County Industrial Dev. Auth., VA

....Senior Unsecured Revenue Bonds, Placed on Review for Possible Downgrade, currently A3

..Issuer: Consolidated Natural Gas Company

....Issuer Rating, Placed on Review for Possible Downgrade, currently A3

....Junior Subordinated Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently Baa1

....Junior Subordinated Shelf, Placed on Review for Possible Downgrade, currently (P)Baa1

....Preferred Stock Shelf, Placed on Review for Possible Downgrade, currently (P)Baa2

....Senior Unsecured Bank Credit Facility, Placed on Review for Possible Downgrade, currently A3

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently A3

....Senior Unsecured Shelf, Placed on Review for Possible Downgrade, currently (P)A3

..Issuer: Dominion CNG Capital Trust II

....Preferred Stock Shelf, Placed on Review for Possible Downgrade, currently (P)Baa1

..Issuer: Dominion Oklahoma Texas Expl. & Prod., Inc.

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently A3

..Issuer: Dominion Resources Capital Trust I

....Preferred Stock, Placed on Review for Possible Downgrade, currently Baa2

..Issuer: Dominion Resources Capital Trust II

....Preferred Stock, Placed on Review for Possible Downgrade, currently Baa2

..Issuer: Dominion Resources Capital Trust III

....Preferred Stock, Placed on Review for Possible Downgrade, currently Baa2

..Issuer: Dominion Resources Capital Trust IV

....Preferred Stock Shelf, Placed on Review for Possible Downgrade, currently (P)Baa2

..Issuer: Dominion Resources Inc.

....Junior Subordinated Shelf, Placed on Review for Possible Downgrade, currently (P)Baa2

....Preferred Stock Shelf, Placed on Review for Possible Downgrade, currently (P)Baa3

....Senior Unsecured Conv./Exch. Bond/Debenture, Placed on Review for Possible Downgrade, currently Baa1

....Senior Unsecured Medium-Term Note Program, Placed on Review for Possible Downgrade, currently Baa1

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently Baa1

....Senior Unsecured Shelf, Placed on Review for Possible Downgrade, currently (P)Baa1

..Issuer: Dominion-CNG Capital Trust I

....Preferred Stock, Placed on Review for Possible Downgrade, currently Baa1

....Preferred Stock Shelf, Placed on Review for Possible Downgrade, currently (P)Baa1

..Issuer: Grant (County of) WV, County Commission

....Revenue Bonds, Placed on Review for Possible Downgrade, currently VMIG 1

....Senior Unsecured Revenue Bonds, Placed on Review for Possible Downgrade, currently VMIG 1

..Issuer: Louisa (Town of) VA, I.D.A.

....Revenue Bonds, Placed on Review for Possible Downgrade, currently VMIG 1

....Senior Secured Revenue Bonds, Placed on Review for Possible Downgrade, currently A2

....Senior Unsecured Revenue Bonds, Placed on Review for Possible Downgrade, currently MIG 1

..Issuer: Mecklenburg (County of) VA, Ind. Dev. Auth.

....Senior Unsecured Revenue Bonds, Placed on Review for Possible Downgrade, currently A3

..Issuer: Panda-Rosemary Funding Corporation

....Senior Secured Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently A3

..Issuer: UAE Mecklenburg Cogeneration LP

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently A3

..Issuer: Virginia Electric and Power Company

....Commercial Paper, Placed on Review for Possible Downgrade, currently P-1

....Issuer Rating, Placed on Review for Possible Downgrade, currently A3

....Junior Subordinated Shelf, Placed on Review for Possible Downgrade, currently (P)Baa1

....Preferred Stock, Placed on Review for Possible Downgrade, currently Baa2

....Preferred Stock Shelf, Placed on Review for Possible Downgrade, currently (P)Baa2

....Senior Secured First Mortgage Bonds, Placed on Review for Possible Downgrade, currently A2

....Senior Secured Shelf, Placed on Review for Possible Downgrade, currently (P)A2

....Senior Unsecured Medium-Term Note Program, Placed on Review for Possible Downgrade, currently A3

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently A3

....Senior Unsecured Shelf, Placed on Review for Possible Downgrade, currently (P)A3

..Issuer: Virginia Power Capital Trust II

....Preferred Stock, Placed on Review for Possible Downgrade, currently Baa1

....Preferred Stock Shelf, Placed on Review for Possible Downgrade, currently (P)Baa1

Outlook Actions:

..Issuer: Consolidated Natural Gas Company

....Outlook, Changed To Rating Under Review From Stable

..Issuer: Dominion CNG Capital Trust II

....Outlook, Changed To Rating Under Review From Stable

..Issuer: Dominion Oklahoma Texas Expl. & Prod., Inc.

....Outlook, Changed To Rating Under Review From Stable

..Issuer: Dominion Resources Capital Trust I

....Outlook, Changed To Rating Under Review From Stable

..Issuer: Dominion Resources Capital Trust II

....Outlook, Changed To Rating Under Review From Stable

..Issuer: Dominion Resources Capital Trust III

....Outlook, Changed To Rating Under Review From Stable

..Issuer: Dominion Resources Capital Trust IV

....Outlook, Changed To Rating Under Review From Stable

..Issuer: Dominion Resources Inc.

....Outlook, Changed To Rating Under Review From Stable

..Issuer: Dominion-CNG Capital Trust I

....Outlook, Changed To Rating Under Review From Stable

..Issuer: UAE Mecklenburg Cogeneration LP

....Outlook, Changed To Rating Under Review From Stable

..Issuer: Virginia Electric and Power Company

....Outlook, Changed To Rating Under Review From Stable

..Issuer: Virginia Power Capital Trust II

....Outlook, Changed To Rating Under Review From Stable

New York
Daniel Gates
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
James Hempstead
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

MOODY'S PLACES THE RATINGS FOR DOMINION RESOURCES AND SUBSIDIARIES UNDER REVIEW FOR POSSIBLE DOWNGRADE
No Related Data.
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