Dominion Power 2005 Annual Report Download - page 69

Under the primary guidance of EITF Issue No. 99-19, Reporting
Revenue Gross as a Principal versus Net as an Agent, we present the
sales and purchases related to our crude oil buy/sell arrangements on
a gross basis in our Consolidated Statements of Income. These trans-
actions require physical delivery of the crude oil and the risks and
rewards of ownership are evidenced by title transfer, assumption of
environmental risk, transportation scheduling and counterparty non-
performance risk. Sale activity included in operating revenue was
$377 million, $290 million and $181 million in 2005, 2004 and
2003, respectively. Purchase activity included in other energy-related
commodity purchases expense was $362 million, $271 million and
$163 million in 2005, 2004 and 2003, respectively.
In September 2005, the FASB ratified the EITF’s consensus on
Issue No. 04-13, Accounting for Purchases and Sales of Inventory
with the Same Counterparty, that will require buy/sell and related
agreements to be presented on a net basis in the Consolidated
Statements of Income if they are entered into in contemplation of
one another. This new guidance is required to be applied to all new
arrangements entered into, and modifications or renewals of exist-
ing arrangements, beginning April 1, 2006. We are currently
assessing the impact that this new guidance may have on our
income statement presentation of these transactions; however,
there will be no impact on our results of operations or cash flows.
Note 5. Acquisitions
USGen Power Plants
In January 2005, we completed the acquisition of three fossil fired
generation facilities from USGen New England, Inc. for $642 million
in cash. The plants, collectively referred to as Dominion New
England, include the 1,560-megawatt Brayton Point Station in
Somerset, Massachusetts; the 754-megawatt Salem Harbor
Station in Salem, Massachusetts; and the 432-megawatt
Manchester Street Station in Providence, Rhode Island. The
operations of Dominion New England are included in the Dominion
Generation operating segment.
Kewaunee Power Station
In July 2005, we completed the acquisition of the 556-megawatt
Kewaunee nuclear power station (Kewaunee), located in northeast-
ern Wisconsin, from Wisconsin Public Service Corporation, a sub-
sidiary of WPS Resources Corporation (WPS), and Wisconsin Power
and Light Company (WP&L), a subsidiary of Alliant Energy Corpora-
tion for approximately $192 million in cash. We sell 100% of
the facility’s output to WPS (59%) and WP&L (41%) under two
power purchase agreements that will expire in 2013. The opera-
tions of Kewaunee are included in the Dominion Generation
operating segment.
The purchase price was allocated to the assets acquired and lia-
bilities assumed based on their estimated fair values as of the date
of the acquisition. We may make adjustments to the initial purchase
price allocation to reflect the receipt of additional information.
Note 6. Operating Revenue
Our operating revenue consists of the following:
Year Ended December 31, 2005 2004 2003
(millions)
Electric sales:
Regulated $ 5,543 $ 5,180 $ 4,876
Nonregulated 3,113 1,249 1,130
Gas sales:
Regulated 1,763 1,422 1,258
Nonregulated 2,945 2,082 1,718
Other energy-related commodity sales 1,672 1,272 588
Gas transportation and storage 900 802 740
Gas and oil production 1,704 1,636 1,503
Other 401 348 282
Total operating revenue $18,041 $13,991 $12,095
Note 7. Income Taxes
Income from continuing operations before provision for income
taxes (pre-tax income), classified by source of income, and the
details of income tax expense for continuing operations were
as follows:
Year Ended December 31, 2005 2004 2003
(millions)
Income from continuing operations before
income tax expense:
U.S. $1,587 $1,938 $1,506
Non-U.S. 29 26 40
Total 1,616 1,964 1,546
Income tax expense:
Current
Federal 410 62 121
State 104 82 22
Non-U.S. — (3) 1
Total current 514 141 144
Deferred
Federal 88 580 433
State (18) (16) 32
Non-U.S. 15 12 6
Total deferred 85 576 471
Amortization of deferred investment tax credits — net (17) (17) (18)
Total income tax expense $ 582 $ 700 $ 597
For continuing operations, the statutory U.S. federal income tax
rate reconciles to our effective income tax rates as follows:
Year Ended December 31, 2005 2004 2003
U.S. statutory rate 35.0% 35.0% 35.0%
Increases (reductions) resulting from:
Valuation allowance 1.2 (0.3) 4.0
State income taxes, net of federal benefit 3.4 2.2 2.2
Utility plant differences — 0.1 (0.4)
Preferred dividends 0.3 0.3 0.4
Amortization of investment tax credits (0.8) (0.7) (0.9)
Other benefits and taxes/foreign operations (0.4)
— (0.5)
Employee pension and other benefits (1.2) (0.5) (0.7)
Employee stock ownership plan and restricted
stock dividends (0.8) (0.5) (0.7)
Other, net (0.7) — 0.2
Effective tax rate 36.0% 35.6% 38.6%
Dominion 2005 67