Dominion Power 2007 Annual Report Download - page 45

well as charges associated with the early retirement of debt with
proceeds from the sale. See Note 6 to our Consolidated Financial
Statements for discussion of these items.
U.S. NON -A PPALACHIAN E&P D IVESTED O PERATIONS
The lower contribution in 2007 as compared to 2006 is due
primarily to a partial year of gas and oil production in 2007 as
compared to 2006 and the absence of business interruption
insurance revenue received in 2006, associated with the 2005
hurricanes. These decreases were partially offset by higher realized
gas and oil prices.
The higher contribution in 2006 as compared to 2005 primar-
ily reflects the absence of a $357 million after-tax loss in 2005
related to the discontinuance of hedge accounting in August and
September 2005 for certain gas and oil derivatives resulting from
an interruption in gas and oil production in the Gulf of Mexico
caused by 2005 hurricanes and subsequent changes in the fair
value of those derivatives during the third quarter.
P
EOPLES AND H OPE
The net loss in 2006 primarily reflects a $104 million after-tax
charge resulting from the write-off of certain regulatory assets
related to the planned sale of Peoples and Hope.
O
THER C ORPORATE O PERATIONS
The net expenses associated with other corporate operations for
2007 decreased by $183 million as compared to 2006, primarily
due to a reduction in interest expense following completion of the
debt tender offer in July 2007, the absence of a charge in 2006 to
eliminate the application of hedge accounting for certain interest
rate swaps as described below and a reduction in charges asso-
ciated with the impairment of DCI investments. In addition,
income tax benefits were lower in 2006, resulting primarily from
the recognition of deferred tax liabilities in connection with the
planned sale of Peoples and Hope.
The net expenses associated with other corporate operations
for 2006 increased by $101 million as compared to 2005, primar-
ily reflecting a $37 million after-tax charge to eliminate the appli-
cation of hedge accounting for certain interest rate swaps
associated with our junior subordinated notes payable to affiliated
trusts and the $85 million impairment of a DCI investment in
2006. The recognition of deferred tax liabilities in 2006 was offset
by a reduction in valuation allowances to reflect the expected uti-
lization of federal and state loss carryforwards to offset income
that was expected to be generated from the sale of Peoples and
Hope.
S ELECTED I NFORMATION —E NERGY
T RADING A CTIVITIES
We engage in energy trading, marketing and hedging activities to
complement our integrated energy businesses and facilitate our
risk management activities. As part of these operations, we enter
into contracts for purchases and sales of energy-related commod-
ities, including natural gas, electricity, oil and coal. Settlements of
contracts may require physical delivery of the underlying
commodity or cash settlement. We also enter into contracts with
the objective of benefiting from changes in prices. For example,
after entering into a contract to purchase a commodity, we typi-
cally enter into a sales contract, or a combination of sales con-
tracts, with quantities and delivery or settlement terms that are
identical or very similar to those of the purchase contract. When
the purchase and sales contracts are settled either by physical
delivery of the underlying commodity or by net cash settlement,
we may receive a net cash margin (a realized gain), or may pay a
net cash margin (a realized loss). We continually monitor our
contract positions, considering location and timing of delivery or
settlement for each energy commodity in relation to market price
activity.
A summary of the changes in the unrealized gains and losses
recognized for our energy-related derivative instruments held for
trading purposes during 2007 follows:
Amount
(millions)
Net unrealized gain at December 31, 2006 $42
Contracts realized or otherwise settled during the period (43)
Net unrealized gain at inception of contracts initiated during the
period —
Change in unrealized gains and losses 53
Changes in unrealized gains and losses attributable to changes
in valuation techniques —
Net unrealized gain at December 31, 2007 $52
The balance of net unrealized gains and losses recognized for
our energy-related derivative instruments held for trading pur-
poses at December 31, 2007, is summarized in the following table
based on the approach used to determine fair value:
Maturity Based on Contract Settlement or Delivery Date(s)
Source of Fair Value
Less
than 1
year
1-2
years
2-3
years
3-5
years
In excess
of 5 years Total
(millions)
Actively-quoted(1) $39 $ 6 $ 6 $— $— $51
Other external
sources(2) 1 — (2) 1 1 1
Total $40 $6 $4 $1 $1 $52
(1) Exchange-traded and over-the-counter contracts.
(2) Values based on prices from over-the-counter broker activity and industry
services and, where applicable, conventional option pricing models.
L IQUIDITY AND C APITAL R ESOURCES
We depend on both internal and external sources of liquidity to
provide working capital and to fund capital requirements. Short-
term cash requirements not met by cash provided by operations
are generally satisfied with proceeds from short-term borrowings.
Long-term cash needs are met through issuances of debt and/or
equity securities.
At December 31, 2007, we had $3.0 billion of unused
capacity under our credit facilities. See additional discussion
under Credit Facilities and Short-Term Debt.
Dominion 2007 Annual Report 43