Dominion Power 2007 Annual Report Download - page 60

the full cost method of accounting. Under the full cost method,
all direct costs of property acquisition, exploration and develop-
ment activities are capitalized. If net capitalized costs exceed the
present value of estimated future net revenues based on hedge-
adjusted period-end prices from the production of proved gas and
oil reserves (the ceiling test) at the end of any quarterly period,
then a permanent write-down of the assets must be recognized in
that period.
We may not complete plant construction or expansion projects that
we commence, or we may complete projects on materially different
terms or timing than initially anticipated and we may not be able to
achieve the intended benefits of any such project, if completed. We
have announced several plant construction and expansion projects
and may consider additional plant construction and expansion
projects in the future. We anticipate that we will be required to
seek additional financing in the future to fund our current and
future plant construction and expansion projects and we may not
be able to secure such financing on favorable terms. In addition,
we may not be able to complete the plant construction or
expansion projects on time as a result of weather conditions,
delays in obtaining or failure to obtain regulatory approvals,
delays in obtaining key materials, labor difficulties, difficulties
with partners or other factors beyond our control. With respect to
our LNG and gas transmission pipeline operations, if we do not
meet designated schedules for approval and construction of our
plant and expansion projects, certain of our customers may have
the right to terminate their precedent agreements relating to the
expansion projects. Certain of our customers may also have the
right to receive liquidated damages. Even if plant construction
and expansion projects are completed, the total costs of the plant
construction and expansion projects may be higher than antici-
pated and the performance of our business following the plant
construction and expansion projects may not meet expectations.
Additionally, regulators may disallow recovery of some of the
costs of a plant or expansion project if they are deemed not to be
prudently incurred. Any of these or other factors could adversely
affect our ability to realize the anticipated benefits from the plant
construction and expansion projects.
An inability to access financial markets could affect the execution
of our business plan. Dominion and our subsidiary, Virginia Pow-
er, rely on access to short-term money markets, longer-term capi-
tal markets and banks as significant sources of liquidity for capital
requirements and collateral requirements, related to hedges of
future sales of merchant generation and gas and oil production,
not satisfied by the cash flows from our operations. Management
believes that Dominion and Virginia Power will maintain suffi-
cient access to these financial markets based upon current credit
ratings. However, certain disruptions outside of our control may
increase our cost of borrowing or restrict our ability to access one
or more financial markets. Such disruptions could include an
economic downturn, the bankruptcy of an unrelated energy
company or changes to our credit ratings. Restrictions on our
ability to access financial markets may affect our ability to execute
our business plan as scheduled.
Market performance and other changes may decrease the value of
decommissioning trust funds and benefit plan assets or increase our
liabilities, which then could require significant additional funding. The
performance of the capital markets affects the value of the assets
that are held in trust to satisfy future obligations to decommission
our nuclear plants and under our pension and postretirement
benefit plans. We have significant obligations in these areas and
hold significant assets in these trusts. These assets are subject to
market fluctuation and will yield uncertain returns, which may
fall below our projected return rates. A decline in the market
value of the assets may increase the funding requirements of the
obligations to decommission our nuclear plants and under our
pension and postretirement benefit plans. Additionally, changes
in interest rates affect the liabilities under our pension and post-
retirement benefit plans; as interest rates decrease, the liabilities
increase, potentially requiring additional funding. Further,
changes in demographics, including increased numbers of retire-
ments or changes in life expectancy assumptions, may also
increase the funding requirements of the obligations related to the
pension benefit plans. If we are unable to successfully manage the
decommissioning trust funds and benefit plan assets, our results
of operation and financial position could be negatively affected.
Changing rating agency requirements could negatively affect our
growth and business strategy. As of February 1, 2008, Dominion’s
senior unsecured debt is rated A-, stable outlook, by Standard &
Poor’s; Baa2, stable outlook, by Moody’s; and BBB+, stable out-
look, by Fitch. In order to maintain our current credit ratings in
light of existing or future requirements, we may find it necessary
to take steps or change our business plans in ways that may
adversely affect our growth and earnings per share. A reduction in
Dominion’s credit ratings or the credit ratings of our Virginia
Power subsidiary by Standard & Poor’s, Moody’s or Fitch could
increase our borrowing costs and adversely affect operating results
and could require us to post additional collateral in connection
with some of our price risk management activities.
Potential changes in accounting practices may adversely affect our
financial results. We cannot predict the impact that future changes
in accounting standards or practices may have on public compa-
nies in general, the energy industry or our operations specifically.
New accounting standards could be issued that could change the
way we record revenues, expenses, assets and liabilities. These
changes in accounting standards could adversely affect our
reported earnings or could increase reported liabilities.
Failure to retain and attract key executive officers and other skilled
professional and technical employees could have an adverse effect on
our operations. Our business is dependent on our ability to recruit,
retain and motivate employees. Competition for skilled employees
in some areas is high and the inability to retain and attract these
employees could adversely affect our business and future operat-
ing results.
58 Dominion 2007 Annual Report