Dominion Power 2000 Annual Report Download - page 64

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Notes to Consolidated Financial Statements (continued)
and maintain it in a safe and stable condition, then to decontami-
nate the reactor and station site in accordance with a plan
approved by the NRC. Dominion’s nuclear property insurance
is provided by Nuclear Electric Insurance Limited (NEIL), a mutual
insurance company, and is subject to retrospective premium
assessments in any policy year in which losses exceed the funds
available to the insurance company. The maximum assessment for
the current policy period is $21 million. Based on the severity of the
incident, the board of directors of Dominion’s nuclear insurer has
the discretion to lower or eliminate the maximum retrospective
premium assessment. For any losses that exceed the limits or for
which insurance proceeds are not available because they must first
be used for stabilization and decontamination, Dominion has the
financial responsibility for these losses.
Dominion purchases insurance from NEIL to cover the cost of
replacement power during the prolonged outage of a nuclear unit
due to direct physical damage of the unit. Under this program,
Dominion is subject to a retrospective premium assessment for
any policy year in which losses exceed funds available to NEIL.
The current policy period’s maximum assessment is $7 million.
As part owner of the North Anna Power Station, Old Dominion
Electric Cooperative is responsible for its share of the nuclear
decommissioning obligation and insurance premiums applicable to
that station, including any retrospective premium assessments and
any losses not covered by insurance.
Guarantees
Dominion has issued guarantees to various third parties in relation
to the payment obligations by certain of its subsidiaries and offi-
cers. At December 31, 2000, Dominion had issued $1.8 billion of
guarantees, and the subsidiaries’ debt subject to such guarantees
totaled $1.2 billion.
DEI
Subsidiaries of DEI have general partnership interests in certain of
its energy ventures. These subsidiaries may be required to fund
future operations of these investments, if operating cash flow is
insufficient.
DCI
At December 31, 2000, DCI had commitments to fund loans of
approximately $230 million.
Note 23 Fair Value of Financial Instruments
The fair value amounts of Dominion’s financial instruments have
been determined using available market information and valuation
methodologies deemed appropriate in the opinion of management.
However, considerable judgment is required to interpret market
data to develop the estimates of fair value. Accordingly, the esti-
mates presented herein are not necessarily indicative of the
amounts that could be realized in a current market exchange. The
use of different market estimation assumptions may have a mater-
ial effect on the estimated fair value amounts.
(millions) At December 31, Carrying Amount Estimated Fair Value
2000 1999 2000 1999
Assets:
Cash and cash equivalents(1) $ 360 $ 280 $ 360 $ 280
Investment securities, trading(2) 275 2275 2
Mortgage loans held for sale(3) 104 119 104 119
Commodity-based swaps,
trading(4) 281 25 281 25
Commodity-based options,
trading(4) 29 629 6
Available-for-sale securities(2) 292 512 292 512
Loans and notes receivable
and finance receivables
held for sale(5) 676 2,131 676 2,131
Nuclear decommissioning
trust funds(2) 851 818 851 818
Liabilities:
Short-term debt(6) 3,237 870 3,237 870
Commodity-based swaps,
trading(4) 325 24 325 24
Commodity-based options,
trading(4) 56 656 6
Long-term debt(6) 10,491 7,317 10,555 7,185
Preferred securities of
subsidiary trusts(7) 385 385 383 359
Preferred stock(8) 180 181
Loan commitments(9) 230 937
Unrecognized financial
instruments:
Interest rate-swaps(10) 17 (15)
Total return equity swap(11) (19)
Swaps, collars and options,
hedging(4) (277) 5
Notes:
(1) The carrying amount of these items is a reasonable estimate of their fair value.
(2) The estimated fair value is based on quoted market prices, dealer quotes, and prices
obtained from independent pricing sources.
(3) The fair value is based on outstanding commitments from investors.
(4) Fair value reflects the Company’s best estimates considering over-the-counter quotations,
time value and volatility factors of the underlying commitments.
(5) The carrying value approximates fair value due to the variable rate or term structure.
(6) Market values are used to determine the fair value for debt securities for which a market
exists. For debt issues that are not quoted on an exchange, interest rates currently available
to the Company for issuance of debt with similar terms and remaining maturities are used to
estimate fair value. The carrying amount of debt issues with short-term maturities and
variable rates refinanced at current market rates is a reasonable estimate of their fair value.
(7) The fair value is based on market quotations.
(8) Preferred stock matured in 2000. See Note 18.
(9) The fair value of commitments is estimated using the fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreements and the
present credit-worthiness of the counterparties.
(10) The fair value is based upon the present value of all estimated net future cash flows, taking
into account current interest rates and the creditworthiness of the swap counterparties.
(11) The fair value of the total return equity swap is estimated by obtaining quotes from brokers.