Dominion Power 2001 Annual Report Download - page 55

Cash and Cash Equivalents
Current banking arrangements generally do not require checks
to be funded until actually presented for payment. At December
31, 2001 and 2000, accounts payable included the net effect of
checks outstanding but not yet presented for payment of $214
million and $171 million, respectively. For purposes of the con-
solidated statements of cash flows, Dominion considers cash and
cash equivalents to include cash on hand, cash in banks and
temporary investments purchased with a maturity of three
months or less.
Property, Plant and Equipment
Property, plant and equipment, including additions and replace-
ments, is recorded at original cost including labor, materials,
other direct costs and capitalized interest. The costs of repairs
and maintenance, including minor additions and replacements,
are charged to expense as incurred. In 2001, 2000, and 1999,
Dominion capitalized interest costs of $41 million, $30 million,
and $30 million, respectively.
The cost of depreciable gas utility and transmission and
electric transmission and distribution property retired and
related cost of removal, less salvage, are charged to accumulated
depreciation. For generation-related property, cost of removal is
charged to expense as incurred. Dominion records gains and
losses upon retirement of generation-related property based
upon the difference between proceeds received, if any, and the
property’s undepreciated basis at the retirement date.
Depreciation of property, plant, and equipment is com-
puted on the straight-line method based on projected useful
service lives or, in the case of gas and oil producing properties,
the unit-of-production method. Estimated useful lives of
Dominion’s property, plant and equipment are as follows: gener-
ation 20–60 years, transmission 20–78 years, distribution
10–50 years, storage 20–78 years, and other 5–31 years. Amor-
tization of nuclear fuel used in electric generation is provided on
a unit-of-production basis sufficient to fully amortize, over the
estimated service life, the cost of the fuel plus permanent storage
and disposal costs. In 2001, Dominion increased its estimate of
the useful lives of its nuclear facilities by 20 years. This change
in estimate was made in connection with the current and future
filing of applications for relicensing with the Nuclear Regulatory
Commission (NRC).
Dominion follows the full cost method of accounting for
gas and oil exploration and production activities prescribed
by the SEC. Under the full cost method, all direct costs of prop-
erty acquisition, exploration, and development activities are
capitalized. The principal limitation is that these capitalized
amounts may not exceed the present value of estimated future
net revenues to be derived from the production of proved gas
and oil reserves (the ceiling test). If net capitalized costs exceed
the ceiling test at the end of any quarterly period, then a perma-
nent write-down of the assets must be recognized in that period.
The ceiling test is performed separately for each cost center, with
cost centers established on a country-by-country basis.
Depreciation of gas and oil producing properties is com-
puted using the unit-of-production method. Under the full cost
method of accounting, amortization is also accrued on esti-
mated future costs to be incurred in developing proved gas and
oil reserves, and on estimated dismantlement and abandonment
costs net of projected salvage values. However, the costs of
investments in unproved properties are excluded from amortiza-
tion until it is determined whether proved reserves exist.
Impairment of Long-Lived Assets
Dominion performs an evaluation for impairment whenever
events or changes in circumstances indicate that the carrying
amount of long-lived assets or intangible assets, including good-
will, may not be recoverable. Long-lived assets are written down
to fair value if the sum of the expected future undiscounted cash
flows is less than the carrying amounts.
Investment Securities
Dominion accounts for and classifies investments in marketable
equity and debt securities in two categories. Debt and equity
securities purchased and held with the intent of selling them in
the current period are classified as trading securities and are
reported at fair value with unrealized gains and losses included
in earnings. All other debt and equity securities are classified as
available-for-sale securities. These are reported at fair value with
unrealized gains and losses reported as a component of accumu-
lated other comprehensive income, net of tax.
Loans Receivable, Net
Loans receivable are stated at their outstanding principal bal-
ance, net of the allowance for credit losses and any deferred fees
or costs. Origination fees, net of certain direct origination costs,
are deferred and recognized as an adjustment of the yield of the
loan receivable. The allowance for credit losses is established
through provisions for credit losses charged against income.
Loans receivable deemed to be uncollectible are charged against
the allowance for credit losses, and subsequent recoveries, if any,
are credited to the allowance. At December 31, 2001 and 2000,
the allowance for credit losses for loans receivable was $79 and
$61 million, respectively.
Sale of Loans by Financial Services Businesses
Securitizations involve selling loans to an unconsolidated
special purpose trust in exchange for cash and certain retained
interests. Retained interests may include subordinated bonds
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