Dominion Power 2007 Annual Report Download - page 71

eration operations to cost-of-service rate regulation. As a result,
we reapplied the provisions of SFAS No. 71 to those operations
on April 4, 2007, the date the legislation was enacted. In con-
nection with the reapplication of SFAS No. 71 to these oper-
ations, we prospectively changed certain of our accounting
policies to those used by cost-of-service rate-regulated entities.
Other than the extraordinary item discussed here, the overall
impact of these changes was not material to our results of oper-
ations or financial condition in 2007. These policy changes are
discussed further in Derivative Instruments,Investment Securities,
Property, Plant and Equipment and Asset Retirement Obligations.
E XTRAORDINARY I TEM
The reapplication of SFAS No. 71 to the Virginia jurisdiction of
our utility generation operations resulted in a $259 million ($158
million after tax) extraordinary charge and the reclassification of
$195 million ($119 million after tax) of unrealized gains from
accumulated other comprehensive income (AOCI), related to
nuclear decommissioning trust funds. This established a $454
million long-term regulatory liability for amounts previously col-
lected from Virginia jurisdictional customers and placed in
external trusts (including income, losses and changes in fair value
thereon) for the future decommissioning of our utility nuclear
generation stations, in excess of amounts recorded pursuant to
SFAS No. 143, Accounting for Asset Retirement Obligations (SFAS
No. 143).
P ENSION AND O THER P OSTRETIREMENT B ENEFITS
Upon reapplication of SFAS No. 71 to the Virginia jurisdiction
of our utility generation operations, we reclassified $110 million
($67 million after tax) of pension and other postretirement bene-
fit costs attributable to those operations previously recorded in
AOCI to a regulatory asset. These costs represent net unrecog-
nized actuarial (gains) losses, unrecognized prior service cost
(credit) and unrecognized transition obligation remaining from
our initial adoption of SFAS No. 106, Employers’ Accounting for
Postretirement Benefits Other Than Pensions (SFAS No. 106), that
will be recognized as a component of future net periodic benefit
cost and are expected to be recovered through future rates.
Operating Revenue
Operating revenue is recorded on the basis of services rendered,
commodities delivered or contracts settled and includes amounts
yet to be billed to customers. Our customer receivables at
December 31, 2007 and 2006 included $305 million and $267
million, respectively, of accrued unbilled revenue based on esti-
mated amounts of electricity or natural gas delivered but not yet
billed to our utility customers. We estimate unbilled utility rev-
enue based on historical usage, applicable customer rates, weather
factors and, for electric customers, total daily electric generation
supplied after adjusting for estimated losses of energy during
transmission.
The primary types of sales and service activities reported as
operating revenue are as follows:
‰Regulated electric sales consist primarily of state-regulated
retail electric sales, and federally-regulated wholesale electric
sales and electric transmission services;
‰Nonregulated electric sales consist primarily of sales of elec-
tricity from merchant generation facilities at market-based
rates, sales of electricity to residential and commercial custom-
ers at contracted fixed prices and market-based rates, and elec-
tric trading revenue;
‰Regulated gas sales consist primarily of state-regulated retail
natural gas sales and related distribution services;
‰Nonregulated gas sales consist primarily of sales of natural gas
production at market-based rates and contracted fixed prices,
sales of gas purchased from third parties, gas trading and
marketing revenue, and sales activity related to agreements
used to facilitate the marketing of gas production and gas
transportation (buy/sell arrangements) described in Note 3.
Revenue from sales of gas production is recognized based on
actual volumes of gas sold to purchasers and is reported net of
royalties. Sales require delivery of the product to the pur-
chaser, passage of title and probability of collection of pur-
chaser amounts owed. Revenue from sales of gas production
includes the sale of Company produced gas and the recog-
nition of revenue previously deferred in connection with the
volumetric production payment (VPP) transactions described
in Note 13. We use the sales method of accounting for gas
imbalances related to gas production. An imbalance is created
when Company volumes of gas sold pertaining to a property
do not equate to the volumes to which we are entitled based
on our interest in the property. A liability is recognized when
our excess sales over entitled volumes exceeds our net remain-
ing property reserves;
‰Other energy-related commodity sales consist primarily of sales of
oil production and condensate, coal, emissions allowances
held for resale and extracted products and sales activity related
to agreements used to facilitate the marketing of oil pro-
duction (buy/sell arrangements) described in Note 3;
‰Gas transportation and storage consists primarily of regulated
sales of gathering, transmission, distribution and storage serv-
ices. Also included are regulated gas distribution charges to
retail distribution service customers opting for alternate
suppliers; and
‰Other revenue consists primarily of miscellaneous service rev-
enue from electric and gas distribution operations, gas and oil
processing and handling revenue, revenues from DCI oper-
ations and business interruption insurance revenue associated
with delayed gas and oil production caused by hurricanes.
Electric Fuel, Purchased Energy and Purchased Gas—
Deferred Costs
Where permitted by regulatory authorities, the differences
between actual electric fuel, purchased energy and purchased gas
expenses and the related levels of recovery for these expenses in
current rates are deferred and matched against recoveries in future
periods. The deferral of costs in excess of current period fuel rate
recovery is recognized as a regulatory asset, while rate recovery in
excess of current period fuel expenses is recognized as a regulatory
liability.
For electric fuel and purchased energy expenses, effective
January 1, 2004, the fuel factor provisions for our Virginia retail
customers were locked in until July 1, 2007. Effective July 1,
2007, the fuel factor was adjusted as discussed under Virginia
Fuel Expenses in Note 24. Approximately 83% of the cost of fuel
used in electric generation and energy purchases used to serve
utility customers is currently subject to deferral accounting.
Dominion 2007 Annual Report 69