Dominion Power 2003 Annual Report Download - page 27

25.Dominion 2003
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Management’s Discussion and Analysis of Financial Condition and
Results of Operations (MD&A) discusses the results of operations
and general financial condition of Dominion. MD&A should be
read in conjunction with the Consolidated Financial Statements.
The term “Dominion” is used throughout MD&A and, depending
on the context of its use, may represent any of the following: the
legal entity, Dominion Resources, Inc.; one of Dominion Resources,
Inc.’s consolidated subsidiaries; or the entirety of Dominion
Resources, Inc. and its consolidated subsidiaries.
Contents of MD&A
The reader will find the following information in this MD&A:
• Forward-Looking Statements
•Introduction
• Accounting Matters
• Dominion’s Results of Operations
• Segment Results of Operations
• Dominion’s Sources and Uses of Cash
• Future Issues and Other Matters
• Market Rate Sensitive Instruments and Risk Management
• Risk Factors and Cautionary Statements that May Affect
Future Results
• Selected Financial Data
Forward-Looking Statements
This report contains statements concerning Dominion’s expecta-
tions, plans, objectives, future financial performance and other
statements that are not historical facts. These statements are “for-
ward-looking statements” within the meaning of the Private Secu-
rities Litigation Reform Act of 1995. In most cases, the reader can
identify these forward-looking statements by words such as
“anticipate,” “estimate,” “forecast,” “expect,” “believe,”
“should,” “could,” “plan,” “may” or other similar words.
Dominion makes forward-looking statements with full knowl-
edge that risks and uncertainties exist that may cause actual
results to be materially different from predicted results. Factors
that may cause actual results to differ are often presented with the
forward-looking statements themselves. Additionally, other risks
that may cause actual results to differ from predicted results are
set forth in Risk Factors and Cautionary Statements That May
Affect Future Results.
Dominion bases its forward-looking statements on manage-
ment’s beliefs and assumptions using information available at the
time the statements are made. Dominion cautions the reader not
to place undue reliance on its forward-looking statements
because the assumptions, beliefs, expectations and projections
about future events may, and often do, materially differ from
actual results. Dominion undertakes no obligation to update any
forward-looking statement to reflect developments occurring after
the statement is made.
Introduction
Dominion is a diversified, fully integrated electric and gas hold-
ing company headquartered in Richmond, Virginia. Dominion
concentrates its efforts largely in what Dominion refers to as the
“MAIN to Maine” region. In the power industry, “MAIN” means
the Mid-America Interconnected Network, which comprises all
of Illinois and portions of the states of Missouri, Iowa, Wisconsin,
Michigan and Minnesota. Under this strategy, Dominion focuses
its efforts on the region stretching from MAIN, through its pri-
mary Mid-Atlantic service areas in Ohio, Pennsylvania, West
Virginia, Virginia and North Carolina, and up through New
York and New England. The MAIN-to-Maine region is home to
approximately 40% of the nation’s demand for energy.
Operating in all aspects of the energy supply chain positions
Dominion to optimize the value of its energy portfolio and
enhance its return on invested capital. Dominion has the capabil-
ity to discover and produce gas, store it, sell it or use it to gener-
ate power; it can generate electricity to sell to customers in its
retail markets or in wholesale transactions. These capabilities
give Dominion the ability to produce and sell energy in whatever
form it finds most useful and economic. Dominion also operates
North America’s largest natural gas storage system, which gives it
the flexibility to provide supply when it is most economically
advantageous to do so.
Maintaining and improving Dominion’s financial condition
and flexibility is of paramount importance to its management.
Important measures of an entity’s financial strength and credit-
worthiness are the credit ratings assigned by Moody’s and
Standard & Poor’s. Dominion Resources, Inc., and its subsidiaries,
Virginia Electric and Power Company (Virginia Power) and Con-
solidated Natural Gas Company (CNG), are each rated by those
agencies and have ratings that are considered investment grade.
Dominion has responded to recommendations by those agencies
to reduce the percentage of debt in Dominion’s overall capital
structure by focusing on minimizing incremental debt issuance,
delaying certain capital projects and raising capital by issuing
equity securities in proportion to debt so as to reduce overall
debt to capital.
Dominion’s businesses are managed along four primary operat-
ing segments: Dominion Generation, Dominion Energy, Dominion
Delivery and Dominion Exploration & Production. These segments,
and their composition, reflect changes made to Dominion’s man-
agement structure during the fourth quarter of 2003.
The contributions to net income by Dominion’s primary operat-
ing segments are determined based on a measure of profit that
executive management believes represents the segments’ “core”
earnings. As a result, certain specific items attributable to those
segments are not included in profit measures evaluated by execu-
tive management in assessing segment performance or allocating
resources among the segments. Those specific items are reported
in the Corporate and Other segment.