Dominion Power 2001 Annual Report Download - page 53

Nature of Operations
Dominion Resources, Inc. (Dominion) is a holding company
headquartered in Richmond, Virginia. Its principal subsidiaries
are Virginia Electric and Power Company (Virginia Power),
Consolidated Natural Gas Company (CNG), and Dominion
Energy, Inc. (DEI). Dominion and CNG are registered public
utility holding companies under the Public Utility Holding
Company Act of 1935 (1935 Act).
Virginia Power is a regulated public utility that generates,
transmits, and distributes electricity within a 30,000-square-
mile area in Virginia and northeastern North Carolina. Virginia
Power sells electricity to approximately 2.1 million retail cus-
tomers, including governmental agencies, and to wholesale cus-
tomers such as rural electric cooperatives, municipalities, power
marketers and other utilities. Virginia Power has trading rela-
tionships beyond its retail service territory and buys and sells
wholesale electricity and natural gas off-system.
CNG operates in all phases of the natural gas business. Its
regulated retail gas distribution subsidiaries serve approximately
1.7 million residential, commercial and industrial gas sales and
transportation customers in Ohio, Pennsylvania, and West
Virginia. Its interstate gas transmission pipeline system serves
each of its distribution subsidiaries, non-affiliated utilities and
end use customers in the Midwest, mid-Atlantic and Northeast.
CNG’s exploration and production operations are located in
several major gas and oil producing basins in the United States,
both onshore and offshore. CNG also provides a variety of
energy marketing services and holds an equity investment in
energy activities in Australia that is classified as held for sale.
DEI is an independent power producer and a natural gas
and oil exploration and production company active in the U.S.
and Canada.
Dominion has substantially exited the core operating busi-
nesses of Dominion Capital, Inc. (DCI) as required by the Secu-
rities and Exchange Commission (SEC) under the 1935 Act.
DCI’s primary business was financial services including loan
administration, commercial lending and residential mortgage
lending. See Note 6.
In 2000, Dominion created a subsidiary service
company under the 1935 Act that serves Dominion’s various
subsidiaries. CNG also operated a service company during
2000. Effective January 1, 2001, Dominion combined the
two service companies.
Dominion manages its daily operations along three primary
operating segments: Dominion Energy, Dominion Delivery and
Dominion Exploration & Production. In addition, Dominion
also reports the operations of DCI and its corporate and other
operations as operating segments. Assets remain wholly owned
by its legal subsidiaries. See Note 30.
Note 1 The term “Dominion” is used throughout this report
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.
Significant Accounting Policies
General
Dominion includes certain estimates and assumptions in
preparing consolidated financial statements in accordance with
generally accepted accounting principles. These estimates and
assumptions affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues
and expenses for the periods presented. Actual results may differ
from those estimates.
The consolidated financial statements represent Dominion’s
accounts after the elimination of intercompany transactions.
Dominion follows the equity method of accounting for invest-
ments in partnerships and corporate joint ventures when
Dominion is able to influence the financial and operating
policies of the investee. For all other investments, the cost
method is applied.
Certain amounts in the 2000 and 1999 consolidated
financial statements have been reclassified to conform to the
2001 presentation.
Use of Fair Value Measurements
Dominion reports certain contracts and instruments at fair value
in accordance with applicable generally accepted accounting
principles. Fair value is based on actively quoted market prices,
if available. In the absence of actively quoted market prices,
Dominion seeks indicative price information from external
sources, including broker quotes and industry publications. If
pricing information from external sources is not available,
Dominion must estimate prices based on available historical and
near-term future price information and certain statistical meth-
ods, including regression analysis. For options and contracts
with option-like characteristics where pricing information is not
available from external sources, Dominion uses a modified
Black-Scholes model and considers time value, the volatility of
the underlying commodities and other relevant assumptions
when estimating fair value. For contracts with unique character-
istics, Dominion estimates fair value using a discounted cash
flow approach deemed appropriate in the circumstances and
applied consistently from period to period. If pricing informa-
tion is not available from external sources, judgment is required
Note 2
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS