Dominion Power 2003 Annual Report Download - page 35

33.Dominion 2003
• Goodwill impairment associated with the purchase of the
remaining interest in the telecommunications joint venture held by
another party ($60 million);
• A charge for the restructuring of certain electric sales con-
tracts recorded as derivative assets ($64 million);
• Accretion expense for asset retirement obligations
($86 million);
• Decrease in net pension credits and an increase in other
postretirement benefit costs ($87 million) and
• Expenses associated with nuclear outages for refueling in
2003 ($13 million).
These increases were partially offset by a decrease attribut-
able to lower outage costs at Millstone ($28 million).
Other taxes increased 11% to $476 million, primarily due to
higher severance taxes and gross receipts taxes, as well as the
effect of a favorable resolution of sales and use tax issues in
2002. Such benefits were not recognized in 2003.
Other income decreased 138% to a net loss of $40 million,
which included the following items:
• $57 million of costs associated with the acquisition of DFV
senior notes;
• $27 million for the reallocation of equity losses between
Dominion and the minority interest owner of DFV;
• $62 million for the impairment of certain equity-method invest-
ments and
• A $32 million increase in net realized losses associated with
nuclear decommissioning trust fund investments.
Partially offsetting these reductions to other income was an
increase of $28 million, reflecting equity losses on Dominion’s
investment in DFV in 2002; DFV was consolidated beginning in
the first quarter of 2003. In 2003, the operating losses of DFV’s
subsidiary, DTI, were classified in discontinued operations.
Income taxes Dominion’s effective tax rate increased 5.3% to
38.6% for 2003. The increase primarily resulted from the expira-
tion of nonconventional fuel credits beginning in 2003, an
increase in the valuation allowance related to the impairment of
goodwill associated with the telecommunications investment and
federal loss carryforwards at CNG International and DCI that
are not expected to be utilized, partially offset by a reduction in
Canadian tax rates applied to deferred tax balances.
Loss from discontinued operations reflects the results of
operations of Dominion’s telecommunications business, which is
classified as held for sale. The loss includes the following:
• Impairment of network assets of $566 million. Dominion has
not recognized any deferred tax benefits related to the impair-
ment charges, since realization of tax benefits will be dependent
upon Dominion’s future tax profile and taxable earnings. In addi-
tion, Dominion also increased the valuation allowance on
deferred tax assets recognized by its telecommunications invest-
ment, resulting in a $48 million increase in deferred income tax
expense and
• DTI operating losses of $28 million.
Cumulative effect of changes in accounting principles
During 2003 Dominion was required to adopt several new
accounting standards, resulting in a net after-tax gain of $11 mil-
lion which included the following:
• A $180 million after-tax gain (SFAS No. 143), partially
offset by;
• A $67 million after-tax loss (EITF 02-3);
• A $75 million after-tax loss (Statement 133 Implementation
Issue No. C20) and
• A $27 million after-tax loss (FIN 46R).
2002 vs. 2001
Operating Revenue
Regulated electric sales revenue increased 5% to $4.9 billion,
primarily due to:
• Favorable weather conditions ($195 million), reflecting
increased cooling and heating degree-days in 2002;
• Customer growth ($60 million) and
• Fuel rate recoveries ($65 million), which were generally offset
in fuel expense and do not materially affect net income.
These increases were partially offset by other factors not sepa-
rately measurable, such as the impact of economic conditions on
customer usage, as well as variations in seasonal rate premiums
and discounts.
Regulated gas sales revenue decreased 38% to $876 mil-
lion, reflecting $550 million for lower gas cost recoveries attribut-
able to lower prices and customer migration, partially offset by
the impact of slightly colder weather and other factors. The
decline was offset by a corresponding $491 million decrease in
purchased gas expense, reflecting the matching of purchased
gas costs and gas cost recoveries in rates, and increased gas
transportation service revenue.
Nonregulated electric sales revenue increased 1% to
$1.0 billion, primarily reflecting the combined effects of:
• A $21 million decrease in sales revenue from Dominion’s mer-
chant generation fleet, reflecting a $201 million decline due to
lower prices partially offset by sales from assets acquired and
constructed in 2002 and the inclusion of Millstone operations for
all of 2002;
• A $74 million decrease in revenue from the wholesale market-
ing of utility generation. Due to the higher demand of utility ser-
vice territory customers during 2002, less production from utility
plant generation was available for profitable sale in the whole-
sale market;
• A $71 million increase in revenue from retail energy sales,
reflecting primarily customer growth over the prior year and
• A $33 million increase in Clearinghouse electric revenue, net
of applicable trading purchases, reflecting the effect of favorable
price changes on unsettled contracts and higher margins.