Dominion Power 2000 Annual Report Download - page 51

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amortization expense attributable to shortening the useful lives of
capitalized software being impacted by systems integration.
Note 7 Extraordinary Item and 1998 Rate Settlement
Extraordinary Item — Discontinuance of SFAS No. 71
In 1999, legislation was enacted that established a detailed plan to
restructure the electric utility industry in Virginia. The legislation’s
deregulation of generation is an event that required discontinuation
of SFAS No. 71 for Dominion’s utility generation operations in 1999.
Dominion’s electric transmission and distribution operations con-
tinue to meet the criteria for recognition of regulatory assets and
liabilities as defined by SFAS No. 71. In addition, fuel continues to
be subject to deferral accounting.
In order to measure the amount of regulatory assets to be writ-
ten off upon discontinuance of SFAS No. 71, Dominion evaluated
the estimated recovery of regulatory assets through capped rates
during the transition period ending July 2007. Generation-related
assets and liabilities that will not be recovered through capped
rates were written off in 1999, resulting in an after-tax charge to
earnings of $255 million. See Note 12 for discussion of regulatory
assets at December 31, 2000. The $255 million charge also included
the write-off of approximately $38 million, after-tax, of deferred
investment tax credits and approximately $18 million, after-tax, of
other generation-related assets. A corresponding regulatory asset
of $23 million was established representing the amount expected
to be recovered during the transition period related to these assets.
The events that caused the discontinuance of SFAS No. 71 for
generation-related assets and liabilities also required a review of
generation assets for impairment. This review was based on esti-
mates of possible future market prices, load growth, competition
and many other assumptions and included the effects of nuclear
decommissioning and other currently identified environmental
expenditures. Based on those analyses, no plant write-downs
were appropriate at that time.
Dominion also reviewed its long-term power purchase contracts
for potential loss in accordance with SFAS No. 5, Accounting for
Contingencies, and Accounting Research Bulletin No. 43, Chapter 4,
Inventory Pricing. Based on projections of possible future market
prices for wholesale electricity, the results of the analyses indi-
cated no loss recognition was appropriate at that time. Other pro-
jections of possible future market prices indicated a possible loss of
$500 million. In the absence of capped rates as provided by the leg-
islation, the potential loss exposure would have been approxi-
mately $3.2 billion at March 31, 1999.
Significant estimates were required in recording the effect of
the deregulation legislation, including the resulting impact on the
fair value determination of generating facilities and estimated pur-
chases under long-term power purchase contracts. Such projec-
tions 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’s 1998 settlement of its outstanding Virginia jurisdictional
electric base rate proceedings defined a new regulatory framework
for the Company’s transition to electric competition. The impact of
the settlement provisions was largely recognized in 1998 and 1999
and included: a $150 million base rate reduction phased-in over
1998 and 1999; a $150 million one-time refund in 1998; and the
accrual of a $159 million impairment charge which, when coupled
with $65 million previously recorded in earlier years, provided for
the write-off of $220 million of regulatory assets.
Note 8 Income Taxes
Income before provision for income taxes, classified by source of
income, before minority interests, was as follows:
(millions) Year ended December 31, 2000 1999 1998
U.S. $552 $797 $420
Non-U.S. 48 32 467
Total $600 $829 $887
The provision for income taxes, classified by the timing and location
of payment, was as follows:
(millions) Year ended December 31, 2000 1999 1998
Current:
U.S. $255 $187 $153
State 20 18 25
Non-U.S 4 101
Total current 275 209 279
Deferred:
U.S. (111) 66 32
State 16 (3)
Non-U.S 22 (1) 21
Total deferred (73) 65 50
Amortization of deferred
investment tax credits — net (19) (15) (17)
Total provision $183 $259 $312