Dominion Power 2001 Annual Report Download - page 37

Operating Expenses
Operating expenses increased $1 billion to $8.8 billion for 2001
as compared to 2000. Higher prices for commodities consumed
contributed to increased electric fuel and energy purchases and
purchased gas. In addition, purchased gas increased as 2000
amounts only included 11 months of CNG operations. Pur-
chased capacity decreased as Dominion terminated certain con-
tracts in early 2001. Depreciation increased due to the inclusion
of Millstone. However, this increase was partially offset by an
extension of the useful lives of Dominion’s nuclear plants in
connection with the expected relicensing of those plants.
Dominion incurred restructuring charges in 2001 and 2000 pri-
marily associated with its acquisition and integration of CNG.
In both 2001 and 2000, Dominion recognized impairment and
other loan losses on certain DCI loans and other investments.
Impairment losses associated with exit activities were reported as
restructuring costs and impairment losses associated with the
normal operations of DCI were reported as other operations and
maintenance. Other operations and maintenance also increased
due to the inclusion of Millstone operations, costs associated
with terminating certain capacity contracts, and provisions for
credit-related exposures associated with Enron’s bankruptcy.
Other taxes decreased reflecting the change from gross receipts
taxes to state income taxes in Virginia effective January 2001.
Other Factors Affecting Net Income
Interest expense and related charges decreased, reflecting lower
overall interest rates on outstanding debt. Dominion’s effective
income tax rate increased in 2001 due to its utility operations in
Virginia becoming subject to state income taxes in lieu of gross
receipts taxes, higher effective rates associated with foreign earn-
ings and higher pretax income in relation to nonconventional
fuel tax credits realized.
Overview of 2000 Results
Dominion earned $1.85 per diluted share in 2000, reflecting net
income of $436 million and an increase of $139 million and
$0.37 per diluted share over 1999. The inclusion of CNG opera-
tions for 11 months of 2000 contributed largely to the increases
in both operating revenue and expenses and Dominion’s overall
results for 2000. In addition to the impact of CNG, the increase
in net income in 2000 over 1999 also included: an extraordinary
item in 1999 for the write-off of certain net regulatory assets; the
contributions by Dominion’s existing regulated electric utility
and gas exploration operations; the costs of restructuring and
other CNG acquisition-related activities; costs associated with
the DCI exit strategy; acquisition-related interest costs; and a
change in the method of accounting for pensions.
Operating Revenue
Total operating revenue increased $3.7 billion to $9.2 billion for
2000 as compared to 1999. The introduction of regulated gas
sales and gas transportation and storage in 2000 as well as
increases in nonregulated gas sales, gas and oil production and
other revenue resulted from the inclusion of CNG operations
beginning in late January 2000. Regulated electric sales also
increased as a result of customer growth, higher fuel rates, and a
charge for rate refunds taken in 1999. Nonregulated electric sales
decreased for 2000, reflecting a decrease in available capacity
after the expiration of two major long-term power purchase con-
tracts late in 1999.
Operating Expenses
Operating expenses increased $3.5 billion to $7.7 billion for
2000 as compared to 1999. The introduction of purchased gas
and liquids, pipeline capacity and other purchases in 2000, as
well as increases in other operations and maintenance and
depreciation resulted from the inclusion of CNG operations
beginning in late January 2000. Electric fuel and energy pur-
chases increased in 2000 due to increased generation activity
and higher costs for fossil fuels consumed and energy purchases.
In addition, Dominion recognized restructuring and acquisi-
tion-related charges for the integration and transition of CNG,
and operations and losses associated with DCI investments,
some of which were attributable to the DCI exit strategy.
Other Factors Affecting Net Income
Interest expense and related charges increased, reflecting addi-
tional borrowings in 2000. The proceeds were used primarily to
finance the acquisition of CNG. Also in 2000, the cumulative
effect of changing its accounting for certain components of its
pension expense increased Dominion’s net income by $21 mil-
lion. In 1999, Dominion recorded an extraordinary item of $255
million, reflecting primarily the write-off of regulatory assets.
Dominion Energy
(millions, except per share amounts) 2001 2000 1999
Operating revenue $6,144 $4,894 $3,645
Operating expense 4,749 3,939 2,970
Net income contribution 723 489 271
EPS contribution $2.86 $ 2.07 $ 1.42
Electricity supplied (mmwhr) 72 74 71
Gas transmission throughput (bcf) 553 567 —
Gas and oil production (bcfe) 11 12 —
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