Dominion Power 2001 Annual Report Download - page 48

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
West Virginia
— At this time, West Virginia has not enacted legis-
lation to require customer choice in its retail natural gas markets.
The West Virginia Public Service Commission (West Virginia
Commission) recently issued regulations to govern pooling ser-
vices; these services are one of the tools that natural gas suppliers
may utilize to provide retail customer choice in the future.
Rate Matters — Gas Distribution
Ohio — In October 2001, the Ohio Commission approved a
program developed by Dominion to address the inability of cer-
tain customers to pay delinquent account balances. In many
cases, these customers were impacted by last winter’s unusually
high gas prices and cold weather. Under this one-time matching
program, Dominion matched dollar-for-dollar, up to $500 per
customer, the first payment received by December 31, 2001 for
qualifying customers who had received a disconnection notice or
who had been disconnected as of October 31, 2001. Matching
amounts totaling $10 million were credited to customers’
accounts at December 31, 2001.
The Ohio Commission and Dominion also agreed that
adjustments of approximately $100 million to depreciation were
appropriate in order to reflect the effect of certain fixed assets
exceeding their original estimated useful lives. The Ohio Com-
mission initially held that payments made under the matching
program and subsequent write-offs of bad debts in excess of the
amount already recovered in rates could be offset by reductions
in the excess depreciation reserve through a bad debt rider. The
Ohio Commission revised its decision on the bad debt rider but
allowed the payment-matching program to continue. Under the
revised final order, the Ohio Commission authorized the deferral
of certain amounts incurred by Dominion in excess of the
amount of bad debt expense already recovered in rates, pending
recovery in the next rate case. Dominion recognized a regulatory
asset of $80 million, representing the excess customer bad debt
costs as of December 31, 2001. Dominion believes that it will
recover those amounts deferred. See Note 18 to the Consoli-
dated Financial Statements.
Pennsylvania — The Audit Bureau of the Pennsylvania Public
Utility Commission (Pennsylvania Commission) has conducted
a compliance audit of Dominion’s purchased gas cost rates for
the years 1997 through 1999. In the fourth quarter of 2001,
Dominion received an audit report in which the Audit Bureau
noted certain exceptions and proposed adjustments that, if
determined to be appropriate, would result in refunds to cus-
tomers. Dominion is discussing the matter with the Pennsylva-
nia Commission and believes that the ultimate resolution of this
issue will not have a material impact on its financial position,
results of operations or cash flows.
West Virginia — In 2001, the West Virginia Commission
approved a settlement between Dominion and certain third
parties, regarding the costs of gas supplies and increased oper-
ating costs, that stipulated that Dominion would receive a $9.5
million increase in gas and non-gas revenues. The settlement
also provides for a two-year rate moratorium. The new rates
took effect on January 1, 2002 and will be in place through
December 31, 2003.
Interstate Gas Transmission Operations
FERC Policy Developments
FERC’s most significant near-term policy initiative regarding
interstate gas pipelines may also impact Dominion’s interstate
electric transmission operations. FERC proposes to eliminate its
existing, separate code of conduct regulations for natural gas
pipelines and electric transmission utilities, and to replace these
requirements with uniform standards applicable to interstate
“Transmission Providers” both of natural gas and of electricity.
The proposed standards would redefine the scope of affiliates
covered by standards of conduct for most FERC-regulated com-
panies. If the proposed policy is adopted, it will supersede the
existing broad standards, imposed as a result of the CNG acqui-
sition, that are now applicable to Dominion, and will improve its
competitive standing among other integrated energy companies.
Dominion supports FERC’s policy goal to ensure a compet-
itive interstate energy market. However, Dominion advocates
certain adjustments to recognize the significant operational
differences between gas pipelines and electric transmission
companies. Dominion anticipates further action by FERC by
mid-2002. While Dominion expects the outcome of a final rule
to improve its ability to compete with similarly-situated trans-
mission providers, Dominion does not expect the final rule to
have a short-term material impact on its results of operations,
financial position or cash flows.
Rate Matters — Gas Transmission
Dominion implemented various rate filings, tariff changes, and
negotiated rate service agreements during 2001. In all material
respects, the filings were approved by FERC in the form
requested by Dominion and were subject to only minor modifi-
cations. Dominion has no significant rate matters pending
before FERC at this time.
Environmental Matters
Dominion is subject to rising costs resulting from a steadily
increasing number of federal, state and local laws and regula-
tions designed to protect human health and the environment.
These laws and regulations affect future planning and existing
operations. They can result in increased capital, operating and
other costs as a result of compliance, remediation, containment
and monitoring obligations.
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