Dominion Power 2000 Annual Report Download

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The Fully
Integrated
Energy
Company
2000 Annual Report

Table of contents

  • Page 1
    The Fully Integrated Energy Company 2000 Annual Report

  • Page 2
    n o i n i m o D e n o s i s ' a c i r e m A of

  • Page 3
    ...0 o 0 t , 9 fee h1 c t i i b W cu n o i ill 3 tr the f o t cen r n e a his p h t t 0 n ore to 4 us i t m e B f of to hom e r k e r c - ma ns du o o i a... n a , e n 15 niti inte s u t y i m g r om and ding i c ene s v r e o ll th olde n pr i a h e r s r s e fo sha cce f i u l s ' s of ion y n Our t i i...

  • Page 4
    Grow th Cu sto me rs Electricity y g r e En

  • Page 5
    Ex plo rat ion n o i t c u d o Pr Natural Gas Tele com mun icati ons Pe rfo rm an ce

  • Page 6
    Exploration & Production Growth Plan Oil & Gas Production (billion cubic feet equivalent) 13% Compound Annual Growth Rate Targeted Telecom Growth Plan Fiber Miles 190% Compound Annual Growth Rate Targeted Projections of future performance are subject to risks discussed in detail on page 30. 4

  • Page 7
    Electricity Trading & Sales Plan 6th largest in U.S. (million megawatt-hours) 20% Compound Annual Growth Rate Targeted Generation Growth Plan Electric Generation Portfolio (megawatts) 8% Compound Annual Growth Rate Targeted Electricity Distribution Plan Customer Growth (thousands) 2% Compound ...

  • Page 8
    Natural Gas Trading & Sales Plan 21st largest in U.S. (billion cubic feet) 28% Compound Annual Growth Rate Targeted Pipeline Growth Plan Natural Gas Transmission Throughput (billion cubic feet)* *Includes intercompany activity 4% Compound Annual Growth Rate Targeted Natural Gas Distribution Plan...

  • Page 9
    Total Shareholder Return 01/01/00 to 12/31/00 S&P 500 • S&P Utilities • Dominion Resources, Inc. • Operating Earnings Per Share Forecast 7

  • Page 10
    The Fully Integrated Energy Company Electricity Natural Gas N e t w o r k C u s t o m e r s 8

  • Page 11
    ... of volatility in 2000. Nightly newscasts and headlines publicized problems in California, where surging power prices and chronic short supply gave deregulation critics plenty of false ammo. Short on hydropower and facing natural gas constraints, California actually imposed curtailments early in the...

  • Page 12
    ...Gas from our own production company delivered by our own pipeline will fire four of these facilities in Ohio, Pennsylvania and West Virginia. Locally, our work to site and permit these facilities is running smoothly. Expanding Our Pipeline We're expanding our natural gas pipeline and storage system...

  • Page 13

  • Page 14
    ... which will fuel power units. Virtually every major power facility being developed in the United States will use clean-burning natural gas. Increased oil and natural gas prices helped our exploration and production businesses contribute $1.14 to operating earnings in 2000. Dominion offshore platform...

  • Page 15

  • Page 16
    ... for gas slackens and prices go down, we'll burn the gas in our power plants, put it on the wires, and sell the energy as electricity. Sometimes we'll use our storage system to store the gas and wait for a better sales day. In our view, it's critically important to own and operate businesses and...

  • Page 17
    ...operational excellence and customer service. Top Nuclear Performance When our acquisition of Millstone is complete in 2001, its units will join our other top-rated nuclear power stations. In 2000, just as in past years, Nucleonics Week magazine rated our North Anna and Surry facilities in Virginia...

  • Page 18

  • Page 19
    ... during rush hour. Under old ways of business, repairs to the line would have halted traffic on the river for a week to ten days while the cable was lowered and work performed from another barge. Instead, three Bulk Power employees-Mark Allen, Don Koonce and Danny Bowers-acted quickly and decisively...

  • Page 20

  • Page 21
    ... on the hook if, in the interim, we have not made sound business decisions and grown the company profitably. Last year, I purchased an additional ten times my annual salary in shares, making me one of the company's largest individual shareholders. Together, our senior management team also makes...

  • Page 22
    We'll use our expanded network-planned to span more than 9,000 route miles -to provide Internet, video conferencing and other broadband services. Our power technology group is investing in fuel cells and other distributed generation technologies. They're studying new innovations to discover how we ...

  • Page 23
    ... became the latest state to begin deregulating. In Pennsylvania, more than 500,000 customers switched their electricity supplier. In Virginia, our home base for retail electric operations, one of the largest pilot programs in the history of electric utility restructuring lifted successfully off the...

  • Page 24
    ...several hundred more employees in Virginia pitched in to build Habitat for Humanity® houses. United Way recognized our employees with its "Spirit of Caring Award"-the organization's highest honor. Beyond that, our company gave more than $6 million to health and human services, community development...

  • Page 25
    ... to grow our company even more profitably. New Heights Last summer, we offered to help state wildlife officials house five Peregrine falcons in hopes of creating a nesting pair of the endangered species in Thos. E. Capps Chairman, President and Chief Executive Officer Central Virginia. The birds...

  • Page 26
    ... Consolidated Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Notes to Consolidated Financial Statements Selected Consolidated Financial Data 25 30 41 69 70 70 C2H6 Ethane Report of Management's Responsibilities Independent Auditors...

  • Page 27
    ..., except per share amounts) Operating revenue and income: Regulated sales Electric Gas Nonregulated sales Electric Gas Gas transportation and storage Oil and gas production East Midlands Other Total Expenses: Fuel, net Purchased power capacity, net Purchased gas, net Liquids, capacity and other...

  • Page 28
    ... in 2000 and $12 in 1999) Other Inventories: Materials and supplies (average cost method) Fossil fuel (average cost method) Gas stored - current portion Investment securities - trading Mortgage loans held for sale Commodity contract assets Unrecovered gas costs Broker margin deposits Prepayments Net...

  • Page 29
    ... redeemable preferred securities of subsidiary trusts* Preferred stock not subject to mandatory redemption 2,820 147 801 3,768 21,461 1 385 509 1,710 146 223 2,079 12,015 99 385 509 Common shareholders' equity: Common stock - no par; authorized - 500.0 shares; outstanding - 245.8 shares at 2000...

  • Page 30
    ... of stock through public offering Issuance of stock through employee, executive loan and direct stock purchase plans Stock repurchase and retirement Premium income equity securities Other common stock activity Comprehensive income Dividends and other adjustments Balance at December 31, 2000 188...

  • Page 31
    ...amortization Deferred income taxes Deferred fuel expense Changes in current assets and liabilities: Accounts receivable Inventories Unrecovered gas costs Purchase and origination of mortgages Proceeds from sale and principal collections of mortgages Accounts payable, trade Accrued interest and taxes...

  • Page 32
    ... and other utilities. Virginia Power also engages in off-system wholesale purchases and sales of electricity and purchases and sales of natural gas beyond the geographic limits of its retail service territory. CNG operates in all phases of the natural gas industry in the United States, including...

  • Page 33
    ... of the total return equity swap. For more information, see Note 19 to the Consolidated Financial Statements. Regulated Sales Revenue Regulated sales - electric consist primarily of sales to retail customers in Dominion's electric service territory at rates authorized by the Virginia and North...

  • Page 34
    ... weather experienced in the Company's retail gas service areas in the fourth quarter of 2000. Average sales rates for all customer groups increased sharply during the year, reflecting the pass through of higher purchased gas costs. Dominion Energy Dominion Energy includes Dominion's 19,000-megawatt...

  • Page 35
    ...Nuclear Power Station (Millstone), support financial services operations and for other general corporate purposes including the repayment of approximately $7.0 billion of long-term debt and preferred securities. See Notes 15 and 16 to the Consolidated Financial Statements for information on Dominion...

  • Page 36
    ... stock. In 2000, Dominion repaid approximately $867 million of scheduled maturities of its long-term debt and preferred stock, excluding debt repaid in connection with financial services operations, and retired $45 million of debt securities through sinking fund provisions and open market purchases...

  • Page 37
    ...from operations and a combination of sales of securities and short-term borrowings. Electric and Gas Industry Issues Deregulation Legislation - Electric Industry Virginia Historically, Dominion has had the exclusive right to provide electricity at retail within its assigned service areas in Virginia...

  • Page 38
    ... non-utility power purchase contracts to Dominion Generation Corporation; • retention of Dominion's electric transmission and distribution assets and operations, to be known as Dominion Virginia Power; • collection of nuclear decommissioning funding costs and wires charges from retail customers...

  • Page 39
    .... Until authorization is granted by FERC, any sales of wholesale power to loads located within Dominion's Virginia service territory, other than sales to loads participating in the retail access pilot program, are to be at cost-based rates accepted by FERC. Dominion's sales of oil and natural gas in...

  • Page 40
    ... of Operations (continued) During 2000, Dominion received a Notice of Violation from the EPA alleging that it failed to obtain New Source Review permits under the Clean Air Act prior to undertaking specified construction projects at the Mt. Storm Power Station in West Virginia. Management believes...

  • Page 41
    ... as it plans to develop natural gas-fired power generation facilities along its natural gas pipeline system. Dominion has identified a number of potential development sites in Ohio, Pennsylvania, New York, West Virginia and Virginia. Telecommunications Operations The Company plans to expand...

  • Page 42
    ... 10% increase in market interest rates, as determined at December 31, 1999, would have resulted in a decrease in annual earnings of $31 million. Commodity Price Risk - Non-Trading Activities Dominion manages the price risk associated with purchases and sales of natural gas and oil by selecting...

  • Page 43
    ... such as rural electric cooperatives, municipalities, power marketers and other utilities. Virginia Power engages in offsystem wholesale purchases and sales of electricity and purchases and sales of natural gas beyond the geographic limits of its retail service territory. CNG operates in all phases...

  • Page 44
    ... fuel and nuclear fuel used in electric generation and purchased energy used to serve electric sales. It also includes the cost of purchased energy associated with power marketing sales subject to cost of service rate regulation. Practically all of Dominion's electric service regulated fuel costs...

  • Page 45
    ...by nonregulated companies for financial reporting under generally accepted accounting principles. However, regulatory authorities may order an accounting treatment different from that used by nonregulated companies to determine the rates charged to customers. When this occurs, certain utility income...

  • Page 46
    .... Derivatives - Other Than Trading Dominion utilizes futures and forward contracts and derivative financial instruments, including swaps, caps and collars, to manage exposure to fluctuations in interest rates, lease payments, and natural gas and electricity prices. These futures, forwards and...

  • Page 47
    ... Involved in Energy Trading and Risk Management Activities. The Company determined that certain additional contracts will be subject to fair value accounting under SFAS No. 133. A substantial portion of these contracts is used by Dominion in its production and delivery of energy to its customers and...

  • Page 48
    ... ultimately impact the application of the standard. Note 5 Acquisitions and Divestitures Consolidated Natural Gas Company On January 28, 2000, Dominion acquired all of the outstanding shares of CNG common stock for a purchase price of $6.4 billion, consisting of approximately 87 million shares of...

  • Page 49
    ... Nuclear Power Station located in Waterford, Connecticut. Dominion is acquiring the three-unit station from subsidiaries of Northeast Utilities and other owners for a total purchase price of approximately $1.3 billion, including approximately $1.19 billion for plant assets and $105 million for fuel...

  • Page 50
    ... retirement program. This program was a voluntary program for all salaried employees of Dominion, excluding officers and employees of DCI, VNG and CNG International. The early retirement option provides up to three additional years of age and three additional years of employee service for benefit...

  • Page 51
    ...long-term power purchase contracts. Such projections are highly dependent on future customer load projections, generating unit availability, the timing and type of future capacity additions in Dominion's market area and future market prices for fuel and electricity. Virginia Rate Settlement Dominion...

  • Page 52
    ... and Servicing of Financial Assets U.S. statutory rate Utility plant differences Preferred dividends Amortization of investment tax credits Nonconventional fuel credit Other - benefits and taxes related to foreign operations State taxes, net of federal benefit Goodwill amortization Employee pension...

  • Page 53
    ... Servicing Rights Prepayment speed Weighted-average life (in years) Expected credit losses Residual cash flows discounted at * 6.05/2.44 2.26% 15.07% * 3.63 2.26% 14.09% Carrying amount/fair value of retained interests Weighted-average life (in years) Prepayment speed assumption (annual rate...

  • Page 54
    ... electric and gas operations or may represent the recognition of liabilities that ultimately will be settled at some time in the future. See Note 7 for information about the write-off of regulatory assets that resulted from 1999 deregulation legislation and the settlement of Dominion's 1998 Virginia...

  • Page 55
    ... of a nuclear power plant's life cycle is termed decommissioning. While the units are operating, amounts are currently being collected from ratepayers that, when combined with investment earnings, will be used to fund this future obligation. These dollars are deposited into external trusts through...

  • Page 56
    ... jointly-owned utility plants at December 31, 2000 follows: Bath County Pumped Storage Station North Anna Power Station Note 15 Short-Term Debt and Credit Agreements Dominion and its subsidiaries have credit agreements with various expiration dates and pay fees in lieu of compensating balances in...

  • Page 57
    ... agreements, due 2001 Bank loans, due 2000-2024 Senior secured bonds, fixed rate, due 2020 Other Senior notes(5): Fixed rate, due 2003 Term notes, fixed rate, due 2000-2012 Line of credit, variable rate, due 2000 Line of credit, fixed rate, due 2000-2001 Notes payable, due 2006 Commercial paper...

  • Page 58
    ... days via an auction. The weighted average rates for these series in 2000, 1999, and 1998, including fees for broker/dealer agreements, were 5.71%, 4.82%, and 4.49%, respectively. Note 19 Common Stock On July 20, 1998, Dominion's Board of Directors authorized the repurchase of up to $650 million...

  • Page 59
    ... salaried employees of Dominion. The aggregate number of common shares that may be issued under the Leadership Stock Option Plan is 10 million. The changes in restricted share incentives and option awards under the combined plans were as follows: Weighted Average Price Stock Options Weighted Average...

  • Page 60
    .... The pension program also includes the payment of benefits to certain retired executives under company-sponsored nonqualified employee benefit plans. Certain of these nonqualified plans are funded through contributions to a grantor trust. Dominion and its subsidiaries provide retiree health care...

  • Page 61
    ..., and postretirement benefit obligations were: Pension Benefits 2000 1999 2000 Other Benefits 1999 Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentagepoint change in assumed health care cost trend rates would have the...

  • Page 62
    ... of operations. Utility Rate Regulation The acquisition of CNG has expanded the Company's exposure to utility rate regulation. Dominion's retail gas distribution companies are subject to price regulation in the states of Ohio, Pennsylvania and West Virginia. In addition, Dominion's gas transmission...

  • Page 63
    ... or results of operations. During 2000, the Company received a Notice of Violation (NOV) from the EPA alleging that Dominion is operating its Mt. Storm Power Station in West Virginia in violation of the Clean Air Act. The NOV alleges that Dominion failed to obtain New Source Review permits prior...

  • Page 64
    ... has the financial responsibility for these losses. Dominion purchases insurance from NEIL to cover the cost of replacement power during the prolonged outage of a nuclear unit due to direct physical damage of the unit. Under this program, Dominion is subject to a retrospective premium assessment for...

  • Page 65
    ... uses derivative financial instruments for the purposes of managing commodity price and interest rate risks. Commodity-Based Instruments - Non-Trading Dominion manages the price risk associated with purchases and sales of natural gas and oil by selecting derivative commodity instruments whose...

  • Page 66
    ... a total return equity swap facility agreement (Agreement). The Agreement gave Dominion the right to direct the counterparty to purchase shares of Dominion common stock during the term of the Agreement. In addition, Dominion paid the counterparty a carrying cost equal to a LIBOR-based rate on the...

  • Page 67
    ... the two schedules which follow. 1999 United States Canada Total 1998 United States Canada Proved developed and undeveloped reserves-Gas At January 1 Changes in reserves: Extensions, discoveries and other additions Revisions of previous estimates Production Purchases of gas in place Sales of gas in...

  • Page 68
    ... $ (117) 120 235 59 $ 297 Standardized measure of discounted future net cash flows at January 1 $ 549 Changes in the year resulting from: Sales and transfers of gas and oil produced during the year, less production costs (796) Prices and production and development costs related to future production...

  • Page 69
    ... March 25, 1999. This legislation establishes a detailed plan to restructure the electric utility industry in Virginia. The after-tax charge was recorded as an extraordinary item on Dominion's Consolidated Statements of Income. Certain amounts recorded in 2000 and 1999 were not ordinary, recurring...

  • Page 70
    ... Segments Business segment financial information follows for each of the three years in the period ended December 31, 2000. Corporate includes intersegment eliminations. (millions, except total assets) Dominion Delivery Dominion Capital Dominion Energy Dominion UK Dominion E&P Corporate Operations...

  • Page 71
    ... and power purchase agreements. It also manages the Company's generation growth strategy; energy trading, marketing, hedging and arbitrage activities; and gas pipeline and storage operations. • Dominion Delivery manages Dominion's electric and gas distribution systems, as well as customer service...

  • Page 72
    ... generally accepted accounting principles. Other financial information in the annual report is consistent with that in the Consolidated Financial Statements. Management maintains a system of internal accounting controls designed to provide reasonable assurance, at a reasonable cost, that Dominion...

  • Page 73
    ... 59 Senior Vice President-Law Steven A. Minter, 62 President and Executive Director, The Cleveland Foundation, Cleveland, Ohio William C. Hall, Jr., 47 Vice President-External Affairs & Corporate Communications Kenneth A. Randall, 73 Corporate director of various companies, Williamsburg, Virginia...

  • Page 74
    ...800-552-4034 (toll free) 1-804-775-2500 E-mail Address [email protected] Buy Stock Directly You may buy Dominion common stock directly from the company through Dominion DirectSM with no brokerage fees. Please contact Shareholder Services for a prospectus and enrollment form or visit...

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    Dominion Resources, Inc. P.O. Box 26532 Richmond, Virginia 23261-6532