Dominion Power 2001 Annual Report Download - page 33

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
Management’s Discussion and Analysis of Financial Condition
and Results of Operations (MD&A) explains the results of
operations and general financial condition of Dominion. MD&A
should be read in conjunction with the Consolidated Financial
Statements. “Dominion” is used throughout MD&A and, depending
on the context of its use, may represent any of the following: the
legal entity, Dominion Resources, Inc., one of Dominion
Resources, Inc.’s consolidated subsidiaries, or the entirety of
Dominion Resources, Inc. and its consolidated subsidiaries.
Risk Factors and Cautionary Statements That May Affect
Future Results
This report contains statements concerning Dominion’s expecta-
tions, plans, objectives, future financial performance and other
statements that are not historical facts. These statements are
“forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. In most cases, the
reader can identify these forward-looking statements by words
such as “anticipate,” “estimate,” “forecast,” “expect,” “believe,”
“should,” “could,” “plan,” “may” or other similar words.
Dominion makes forward-looking statements with full
knowledge that risks and uncertainties exist that may cause
actual results to be materially different from the results pre-
dicted. Factors that could cause actual results to differ are often
presented with the forward-looking statements themselves. In
addition, other factors could cause actual results to differ materi-
ally from those indicated in any forward-looking statement.
These factors include changes to financial or regulatory account-
ing principles or policies imposed by governing bodies, industry
conditions in the regulated, unregulated and transition energy
markets, political and economic conditions (including inflation
rates) and financial market conditions, including availability and
cost of capital and credit ratings. Some more specific risks are
discussed below.
Dominion bases its forward-looking statements on manage-
ment’s beliefs and assumptions using information available at the
time the statements are made. Dominion cautions the reader
not to place undue reliance on its forward-looking statements
because the assumptions, beliefs, expectations and projections
about future events may and often do materially differ from
actual results. Dominion undertakes no obligation to update any
forward-looking statement to reflect developments occurring
after the statement is made.
Dominion’s Operations Are Weather Sensitive
Dominion’s results of operations can be affected by changes in
the weather. Weather conditions directly influence the demand
for electricity and natural gas and affect the price of energy
commodities. In addition, severe weather can be destructive,
causing outages, property damage and requiring Dominion to
incur additional expenses.
Dominion Is Subject to Complex Government Regulation Which
Could Adversely Affect Its Operations
Dominion’s operations are subject to extensive regulation and
require numerous permits, approvals and certificates from vari-
ous federal, state and local governmental agencies. Dominion
must also comply with environmental protection legislation and
other regulations. Management believes the necessary approvals
have been obtained for Dominion’s existing operations and that
its business is conducted in accordance with applicable laws.
However, Dominion remains subject to a varied and complex
body of laws and regulations. New laws or regulations or the
revision or reinterpretation of existing laws or regulations may
require Dominion to incur additional expenses.
Costs of Environmental Compliance, Liabilities and Litigation Could
Exceed Dominion’s Estimates
Dominion is subject to rising costs that result from a steady
increase in the number of federal, state and local laws and regu-
lations designed to protect the environment. These laws and
regulations can result in increased capital, operating, and other
costs as a result of compliance, remediation, containment and
monitoring obligations, particularly with laws relating to power
plant emissions. In addition, Dominion may be a responsible
party for environmental clean up at a site identified by a regula-
tory body. Dominion’s management cannot predict with cer-
tainty the amount and timing of all future expenditures related
to environmental matters because of the difficulty of estimating
clean up costs and compliance and the possibility that changes
will be made to the current environmental laws and regulations.
There is also uncertainty in quantifying liabilities under envi-
ronmental laws that impose joint and several liability on all
potentially responsible parties.
Capped Electric Rates in Virginia May Be Insufficient to Allow Full
Recovery of Stranded Costs
Under the Virginia Utility Restructuring Act, Dominion’s elec-
tric base rates (excluding fuel costs and certain other allowable
adjustments) remain unchanged until July 2007 unless modified
consistent with that Act. The capped rates and wires charges
that, where applicable, will be assessed to customers opting for
alternative suppliers, allow Dominion to recover certain genera-
tion-related costs and fuel costs; however, Dominion remains
exposed to numerous risks of cost-recovery shortfalls. These
include exposure to potentially stranded costs, future environ-
mental compliance requirements, changes in tax laws, inflation
and increased capital costs. See Future Issues and Outlook-
Regulated Electric Operations of MD&A and Note 27 to the
Consolidated Financial Statements.
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