Dominion Power 2007 Annual Report Download - page 101

We determine the expected long-term rates of return on plan
assets for pension plans and other postretirement benefit plans by
using a combination of:
‰Historical return analysis to determine expected future risk
premiums;
‰Forward-looking return expectations derived from the yield
on long-term bonds and the price earnings ratios of major
stock market indices;
‰Expected inflation and risk-free interest rate assumptions; and
‰The types of investments expected to be held by the plans.
We develop assumptions, which are then compared to the
forecasts of other independent investment advisors to ensure rea-
sonableness. An internal committee selects the final assumptions.
We determine discount rates from analyses of AA/Aa rated
bonds with cash flows matching the expected payments to be
made under our plans.
Assumed health care cost trend rates have a significant effect
on the amounts reported for our retiree health care plans. A
one-percentage-point change in assumed health care cost trend
rates would have had the following effects:
Other
Postretirement
Benefits
One
percentage
point
increase
One
percentage
point
decrease
(millions)
Effect on total service and interest cost
components for 2007 $ 20 $ (17)
Effect on postretirement benefit obligation at
December 31, 2007 184 (140)
In addition, we sponsor defined contribution thrift-type sav-
ings plans. During 2007, 2006 and 2005, we recognized $37
million, $36 million and $33 million, respectively, as con-
tributions to these plans.
Certain regulatory authorities have held that amounts recov-
ered in utility customers’ rates for other postretirement benefits,
in excess of benefits actually paid during the year, must be
deposited in trust funds dedicated for the sole purpose of paying
such benefits. Accordingly, certain of our subsidiaries fund post-
retirement benefit costs through Voluntary Employees’ Benefi-
ciary Associations (VEBAs). Our remaining subsidiaries do not
prefund postretirement benefit costs but instead pay claims as
presented. We expect to contribute $32 million to the Dominion
VEBAs in 2008.
N OTE 24. C OMMITMENTS AND
C ONTINGENCIES
As the result of issues generated in the ordinary course of business,
we are involved in legal, tax and regulatory proceedings before
various courts, regulatory commissions and governmental agen-
cies, some of which involve substantial amounts of money. The
ultimate outcome of such proceedings cannot be predicted at this
time, however, for current proceedings not specifically reported
herein, management does not anticipate that the liabilities, if any,
arising from such proceedings would have a material effect on our
financial position, liquidity or results of operations.
Long-Term Purchase Agreements
At December 31, 2007, we had the following long-term commit-
ments that are noncancelable or are cancelable only under certain
conditions, and that third parties have used to secure financing
for the facilities that will provide the contracted goods or services:
2008 2009 2010 2011 2012 Thereafter Total
(millions)
Purchased electric
capacity(1) $383 $364 $349 $348 $352 $1,857 $3,653
(1) Commitments represent estimated amounts payable for capacity under
power purchase contracts with qualifying facilities and independent
power producers, the last of which ends in 2021. Capacity payments
under the contracts are generally based on fixed dollar amounts per
month, subject to escalation using broad-based economic indices. At
December 31, 2007, the present value of our total commitment for
capacity payments is $2.4 billion. Capacity payments totaled $410 mil-
lion, $437 million and $472 million, and energy payments totaled
$360 million, $291 million and $378 million for 2007, 2006 and
2005, respectively.
Lease Commitments
We lease various facilities, vehicles and equipment primarily
under operating leases. Payments under certain leases are escalated
based on an index such as the consumer price index. Future
minimum lease payments under noncancelable operating and
capital leases that have initial or remaining lease terms in excess of
one year as of December 31, 2007 are as follows:
2008 2009 2010 2011 2012 Thereafter Total
(millions)
$81 $72 $58 $50 $41 $151 $453
Dominion 2007 Annual Report 99