Dominion Res On Rtg Watch Neg After Proposed Nuclear Acquisition.

Business Editors

NEW YORK--(BUSINESS WIRE)--Aug. 8, 2000

Fitch has placed the 'BBB+' ratings of Dominion Resources Inc. (DRI), on Rating Watch Negative following the company's announced agreement to acquire the three-unit Millstone Nuclear Station from Northeast Utilities for $1.3 billion. DRI's 'F2' commercial paper rating, and the 'F2' commercial paper rating of DRI's financial services subsidiary, Dominion Capital Inc., are unaffected. At the same time, because of the greater financial stress at DRI, the long-term credit ratings of its subsidiaries Virginia Electric and Power Company (VPC) and Consolidated Natural Gas Company (CNG) are also placed on Rating Watch Negative (see list of ratings below). The commercial paper ratings of VPC and CNG are unaffected.

The rating actions reflect the additional debt that will be incurred to complete the Millstone acquisition. At closing, which is expected in April 2001, DRI proposes to fund the nuclear purchase with $1.3 billion of new bridge debt, which follows the $4.5 billion of debt incurred to close the CNG acquisition in Jan. 2000. Although, management has pledged to issue an appropriate mix of debt, equity and assets sales to reduce the debt incurred in the two transactions and to maintain its financial condition, the company's ability to issue sufficient equity (or equity-like instruments) on a timely basis is contingent on market conditions. DRI has not yet placed the equity needed to reduce the CNG debt. Accordingly, the ratings will remain on Rating Watch Negative until the prospects for enhancing equity capital or reducing debt becomes better defined.

DRI's Millstone acquisition includes the entire 870 MW unit 2 (100% owned by subsidiaries of Northeast Utilities) and 93.5% of the 1,150 MW unit 3 (68% owned by Northeast and 25.5% owned by other entities). The purchase also includes Millstone unit 1, a 660 MW facility retired from operation in July 1998. The $1.3 billion purchase price, which consists of $105 million for nuclear fuel and $1.19 billion for plants assets, equates to about $611 per KW, which is the highest resale price paid for a nuclear facility in recent years. DRI will assume the decommissioning trusts (which management anticipates will be adequately funded with an expected balance of $768 million at close) and the future obligation to decommission all three units. DRI will also assume existing power purchase agreements. The entire output of unit 2 and 65% of unit 3 is sold through Dec. 31, 2001. The transaction is expected to close by April 2001. DRI already owns the North Anna and Surry Nuclear Stations, consisting of four units and 3,429 MWs of owned capacity and has an excellent operating record.

To complete the CNG acquisition, DRI issued a total of $4.5 billion of new debt in Jan. 2000, including $3.5 billion of commercial paper and $1.0 billion of privately placed money market notes. DRI plans to term out $3.1 billion of the bridge debt with a combination of long-term debt and hybrid securities and to pay off $1.4 billion with the proceeds of assets sales. The company has already completed the sale of its Latin American assets for $403 million and announced agreements to sell the Corby generating station in the UK, Virginia Natural Gas Company and CNG's Argentine assets for a total net cash proceeds of about $675 million. The company also plans to sell Dominion Capital, a financial services subsidiary, and CNG's Australian assets.

The ratings on Rating Watch Negative are as follows:

Dominion Resources Inc.:

--Senior unsecured debt, 'BBB+'

Virginia Electric and Power Company:

--First & refunding mortgage bonds, 'A+';

--Pollution control revenue bonds, 'A+';

--Senior notes, 'A';

--Medium term notes, 'A';

--Jr. subordinated debentures, 'A-';

--Preferred stock, 'A-';

--Money market municipals, 'A/F1'.

Virginia Power Capital Trust I:

--Trust preferred stock, 'A-`.

Consolidated Natural Gas Co.:

--Senior unsecured debt, 'A'.

Fitch is an international rating agency that provides global capital market investors with the highest quality ratings and research. Dual headquartered in New York and London with a major office in Chicago, Fitch rates entities in 75 countries and has some 1,100 employees in more than 40 local offices worldwide. The agency, which is a combination of Fitch IBCA and Duff & Phelps Credit Rating Co., provides ratings for financial institutions, insurance, corporates, structured finance, sovereigns and public finance markets worldwide.