The ratings on Dominion Resources Inc. are supported by cash flow stability and a favorable regulatory environment for its utility subsidiary. These strengths are offset by relatively riskier exploration and production (E&P) operations, which the company has expanded. Richmond, Va.-based Dominion had about $19 billion of debt (including hybrid and off-balance-sheet debt) as of March 31, 2004. Subsidiary Virginia Electric&Power Co. (Virginia Power) is rated higher than parent Dominion due to regulatory insulation. Virginia statutes do not allow the utility to subsidize holding company expansion into nonregulated activities or pay dividends if it would impair the utility and its bondholders. Regulatory insulation does not weaken the business risk profile of the enterprise as a whole, but it does
