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Rating Action:

Moody's upgrades Virginia Electric and Power Company and Dominion Gas Holdings; confirms Dominion Resources at Baa2; rating outlooks stable

30 Jan 2014

Approximately $23 Billion of Debt Affected

New York, January 30, 2014 -- Moody's Investors Service, ("Moody's") today upgraded the senior unsecured ratings of Virginia Electric and Power Company (VEPCO) and Dominion Gas Holdings (DomGas) to A2 from A3. In addition, Moody's confirmed the Baa2 senior unsecured rating for Dominion Resources (Dominion). This rating action completes our review of Dominion, VEPCO and DomGas initiated on November 8, 2013. The outlook for Dominion, VEPCO and DomGas are stable.


The primary driver of today's rating action for VEPCO and DomGas was Moody's more favorable view of the relative credit supportiveness of the US regulatory environment, as detailed in our September 2013 Request for Comment titled "Proposed Refinements to the Regulated Utilities Rating Methodology and our Evolving View of US Utility Regulation."

The primary driver of today's rating action for Dominion was the high debt loads and weak near-term cash flow generation at its non-utility businesses. Dominion's non-utility businesses include a heavy capital expenditure program related to an LNG export terminal, which introduces execution risk, as well as a growing presence in the mid-stream gas businesses.


The A2 senior unsecured rating for VEPCO reflects a very supportive regulatory environment in both Virginia and North Carolina that provide a constructive and transparent suite of recovery mechanisms. The supportive recovery mechanisms help VEPCO produce a stable suite of financial credit metrics, including the ratio of CFO Pre-WC/Debt in the low to mid 20%'s range.

DomGas' A2 rating reflects its lower risk, rate regulated natural gas business profile, a well positioned, diversified asset base and stable and predictable financial profile. About two thirds of DomGas' revenues and cash flows are expected to be derived from its interstate gas pipeline businesses, with the remaining third coming from local gas distribution operations (LDC). The rating also reflects the constructive and supportive regulatory environments associated with both natural gas pipelines (via the Federal Energy Regulatory Commission, or FERC) and the LDC (via the Public Utility Commission of Ohio, or PUCO). The supportive nature of these two regulators are viewed as a material credit positive. Prospectively, we incorporate a view that DomGas's debt to capitalization will be in the mid-to upper 40% range and the ratio of cash flow to debt will be in the mid-20% range. The rating is primarily constrained by a weak liquidity profile.

With this rating action, Dominion's Baa2 rating is now 3 notches below its principal utility subsidiaries (VEPCO and DomGas rated A2) in part due to high leverage at the parent holding company. We also see weak near term cash flow generation at the non-utilities businesses; a sustained period of high capital investments, much of which is associated with a risky, multi-year construction program to construct an LNG export terminal (which will also create some asset concentration risk), and; a more welcoming stance towards corporate financial engineering, which contribute to a more complex capital structure and a net reduction of financial flexibility.


VEPCO's ratings could be upgraded with a material improvement to its financial profile, where its ratio of cash flow to debt rose to the high 20% range for a sustained period of time. Ratings could be upgraded if DomGas can sustainably produce ratios of cash flow to debt in the high 20% range, and if its liquidity profile is improved by implementing its own alternate liquidity sources. Dominion's ratings could be upgraded with a material improvement to its financial profile, where its ratio of CFO Pre-WC/Debt is in the high teens ranges for a sustained period of time.


VEPCO's ratings could be downgraded if the financial profile began to exhibit an unexpected deterioration, perhaps triggered by an unexpectedly negative regulatory outcome, significant political intervention in the rate making process, or a decision to embark on a new-build nuclear construction in the absence of metrics that are more robust for its current rating category. However, we view a more contentious regulatory environment as highly unlikely at this time. The ratings could be also downgraded if VEPCO's CFO Pre-WC/Debt fell to the high teens range or CFO Pre-WC - Dividends/Debt fell to the mid teens range for a fairly sustained period of time without any clear path to recovery.

Ratings could be downgraded if DomGas unexpectedly pursues a more highly levered capital structure, where the ratio of cash flow to debt fell into the high-teens range for a sustained period of time; if DomGas subordinates its new bondholders by issuing secured debt or financing directly out of its operating subsidiaries; if Dominion moved certain qualifying assets of DomGas to a new MLP structure without an associated deleveraging; or if Dominion experienced some material negative event, which has a contagion effect on DomGas.

Dominion is vulnerable to some ratings pressures due to the high leverage at its non-utility businesses. The plan to form an MLP for the Blue Racer and Cove Point assets will create some cash flow leakage, so managing the total consolidated debt load will be important. If the consolidated ratio of CFO Pre-WC to Debt were remain in the mid teens range or if CFO pre-W/C - Dividends to Debt were to fall below the 12% range for a sustained period of time, ratings would be pressured. Ratings could also be downgraded if there were deterioration in the liquidity profile, a failure to finance the capital expenditure program with an appropriate mix of debt and equity, a material delay or cost over-run at the Cove Point LNG export terminal or a material increase in structural subordination or an unexpectedly more contentious regulatory environment at VEPCO.

The principal methodology used in this rating was Regulated Electric and Gas Utilities published in December 2013. Please see the Credit Policy page on for a copy of this methodology.

Rating's Upgrades and Affirmations:

..Issuer: Virginia Electric and Power Company

.Long Term Issuer Rating to A2 from A3

.Senior Unsecured to A2 from A3

.Senior Unsecured MTN to (P)A2 from (P)A3

.Preferred Stock to Baa1 from Baa2

.Backed senior unsecured to A2 from A3

.Senior Secured Shelf to (P)Aa3 from (P)A1

.Senior Unsecured Shelf to (P)A2 from (P)A3

.Junior Subordinate Shelf to (P)A3 from (P)Baa1

.Commercial Paper to P-1 from P-2

.Backed Long Term IRB to A2 from A3

.Backed Short Term IRB to VMIG 1 from VMIG 2

.Backed Other Short Term to VMIG 1 from VMIG 2

.Outlook to Stable from RUR

..Issuer: Dominion Gas Holdings

.Senior Unsecured to A2 from A3

..Issuer: Dominion Resources

.Senior Unsecured Rating confirmed at Baa2.

.Junior Subordinate Rating confirmed at Baa3

.Backed Senior Unsecured Rating confirmed at Baa2

.Backed Preferred Stock Rating confirmed at Baa3

.Senior Unsecured Shelf confirmed at (P)Baa2

.Junior Subordinate Shelf confirmed at (P)Baa3

.Preferred Shelf Rating confirmed at (P)Ba1

.Commercial Paper affirmed at P-2


For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on for additional regulatory disclosures for each credit rating.

James Hempstead
Associate Managing Director
Infrastructure Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

William L. Hess
MD - Utilities
Infrastructure Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's upgrades Virginia Electric and Power Company and Dominion Gas Holdings; confirms Dominion Resources at Baa2; rating outlooks stable
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