Dominion Power 2005 Annual Report Download - page 75

Note 14. Regulatory Assets and Liabilities
Our regulatory assets and liabilities include the following:
At December 31, 2005 2004
(millions)
Regulatory assets:
Unrecovered gas costs $179 $52
Regulatory assets — current(1) 179 52
Income taxes recoverable through future rates(2) 260 250
Deferred cost of fuel used in electric generation(3) 171 248
Other postretirement benefit costs(4) 80 96
Customer bad debts(5) 70 73
RTO start-up costs and administration fees(6) 47 41
Termination of certain power purchase agreements(7) 24 —
Other 106 80
Regulatory assets — non-current 758 788
Total regulatory assets $937 $840
Regulatory liabilities:
Provision for future cost of removal(8) 567 595
Other(9) 48 30
Total regulatory liabilities $615 $625
(1) Reported in other current assets.
(2) Income taxes recoverable through future rates resulting from the recognition of additional
deferred income taxes, not recognized under ratemaking practices.
(3) In connection with the settlement of the 2003 Virginia fuel rate proceeding, we agreed
to recover previously incurred costs through June 30, 2007 without a return on a portion
of the unrecovered balance. Remaining costs to be recovered totaled $139 million at
December 31, 2005.
(4) Costs recognized in excess of amounts included in regulated rates charged by our regulated
gas operations before rates were updated to reflect a new method of accounting and the
cost related to the accrued benefit obligation recognized as part of accounting for our
acquisition of CNG.
(5) Instead of recovering bad debt costs through our base rates, the Public Utilities Commission
of Ohio (Ohio Commission) allows us to recover all eligible bad debt expenses through a bad
debt tracker. Annually, we assess the need to adjust the tracker based on the preceding year’s
unrecovered deferred bad debt expense. The Ohio Commission also has authorized the
collection of previously deferred costs associated with certain uncollectible customer
accounts from 2001 over five years through the tracker rider. Remaining costs to be recovered
totaled $35 million at December 31, 2005.
(6) The Federal Energy Regulatory Commission (FERC) has conditionally authorized our deferral
of start-up costs incurred in connection with joining an RTO and ongoing administrative fees
paid to PJM. We have deferred $41 million in start-up costs and administration fees and
$6 million of associated carrying costs. We expect recovery from Virginia jurisdictional
retail customers to commence at the end of the Virginia retail rate cap period, subject to
regulatory approval.
(7) The North Carolina Utilities Commission has authorized the deferral of previously incurred
costs associated with the termination of certain long-term power purchase agreements
with nonutility generators. The related costs are being amortized over the original term of
each agreement.
(8) Rates charged to customers by our regulated businesses include a provision for the cost of
future activities to remove assets that are expected to be incurred at the time of retirement.
(9) Includes $8 million and $15 million reported in other current liabilities in 2005 and 2004,
respectively.
At December 31, 2005, approximately $471 million of our regu-
latory assets represented past expenditures on which we do not
earn a return. These expenditures consist primarily of unrecovered
gas costs, RTO start-up costs and administration fees, customer
bad debts and a portion of deferred fuel costs. Unrecovered gas
costs, the ongoing portion of bad debts and deferred fuel are recov-
ered within two years. The previously deferred bad debts will be
recovered over a 3-year period.
Note 15. Asset Retirement Obligations
Our AROs are primarily associated with the decommissioning of our
nuclear generation facilities and dismantlement and removal of gas
and oil wells and platforms. However, in 2005 we recognized addi-
tional AROs due to the adoption of FIN 47, which clarified when
sufficient information is available to reasonably estimate the fair
value of conditional AROs. These additional AROs totaled $161 mil-
lion and relate to interim retirements of natural gas gathering,
transmission, distribution and storage pipeline components; the
retirement of certain nonutility off-shore natural gas pipelines; and
the future abatement of asbestos in our generation facilities. These
obligations result from certain safety and environmental activities
we are required to perform when any pipeline is abandoned or
asbestos is disturbed.
We also have AROs related to the retirement of the approxi-
mately 2,300 gas storage wells in our underground natural gas
storage network, certain electric transmission and distribution
assets located on property that we do not own, hydroelectric gener-
ation facilities and LNG processing and storage facilities. We cur-
rently do not have sufficient information to estimate a reasonable
range of expected retirement dates for any of these assets. Thus,
AROs for these assets will not be reflected in our Consolidated
Financial Statements until sufficient information becomes available
to determine a reasonable estimate of the fair value of the activities
to be performed. Generally, this will occur when the expected retire-
ment or abandonment dates are determined by our operational
planning. The changes to our AROs during 2005 were as follows:
Amount
(millions)
Asset retirement obligations at December 31, 2004(1) $1,707
Obligations incurred during the period(2) 337
Obligations settled during the period (15)
Accretion expense 102
Revisions in estimated cash flows (29)
Obligations recognized upon adoption of FIN 47 161
Other (8)
Asset retirement obligations at December 31, 2005(1) $2,255
(1) Includes $2 million and $6 million reported in other current liabilities in 2004 and 2005,
respectively.
(2) Approximately $309 million of the obligations incurred relate to the acquisition of Kewaunee.
We have established trusts dedicated to funding the future
decommissioning of our nuclear plants. At December 31, 2005
and 2004 the aggregate fair value of these trusts, consisting
primarily of debt and equity securities, totaled $2.5 billion and
$2.0 billion, respectively.
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