Dominion Power 2001 Annual Report Download - page 78

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
76
The components of the provision for net periodic benefit
cost were as follows:
(millions) Year ended December 31, 2001 2000 1999
Pension Benefits
Service cost $71 $65 $40
Interest cost 173 161 76
Expected return on plan assets (331) (298) (93)
Recognized loss 36 —
Amortization of prior service cost 23 —
Amortization of transition obligation (4) (4) —
Curtailment gains — (20) —
ERP benefit costs — 81 —
Settlement loss 7 ——
Special termination benefits 15 ——
Curtailment loss 2 ——
Net periodic benefit cost $ (62) $(6) $23
Other Postretirement Benefits
Service cost $40 $30 $17
Interest cost 63 52 28
Expected return on plan assets (32) (31) (20)
Amortization of prior service cost (1) ——
Amortization of transition obligation 10 13 12
Curtailment gains — (6) —
ERP benefit costs — 33 —
Net amortization and deferral — (2) —
Net periodic benefit cost $80 $89 $37
Significant assumptions used in determining net periodic
pension cost, the projected benefit obligation, and postretire-
ment benefit obligations were:
Pension Benefits Other Benefits
2001 2000 2001 2000
Discount rates 7.25% 7.50% 7.25% 7.50%
Expected return on
plan assets 9.50% 9.50% 7.88% 6.50%
Rate of increase for
compensation 4.60% 5.00% 4.60% 5.00%
Medical cost trend rate 9.00% 9.00%
Decreasing to
4.75% in 2006
and years
thereafter
Assumed health care cost trend rates have a significant
effect on the amounts reported for the health care plans. A one-
percentage-point change in assumed health care cost trend rates
would have the following effects:
Other Postretirement Benefits
One percentage One percentage
(millions) point increase point decrease
Effect on total service and interest costs
components for 2001 $15 $(12)
Effect on postretirement benefit obligation
at December 31, 2001 $118 $(97)
In addition, Dominion sponsors defined contribution
thrift-type savings plans. During 2001, 2000 and 1999,
Dominion recognized $27 million, $30 million and $29 mil-
lion, respectively, as contributions to these plans.
The funds collected for other postretirement benefits in
regulated utility rates, in excess of other postretirement bene-
fits actually paid during the year, are contributed to external
benefit trusts.
Commitments and Contingencies
As the result of issues generated in the course of daily business,
Dominion and its subsidiaries are involved in legal, tax and regu-
latory proceedings before various courts, regulatory commissions
and governmental agencies, some of which involve substantial
amounts of money. Management believes that the final disposi-
tion of these proceedings will not have an adverse material effect
on its operations or the financial position, liquidity or results
of operations.
Utility Rate Regulation
Dominion’s retail gas distribution companies are subject to price
regulation in the states of Ohio, Pennsylvania and West Virginia.
Dominion’s gas transmission business is subject to federal
rate regulation.
Dominion currently faces competition as a result of utility
industry deregulation. Under Virginia’s electric utility industry
deregulation legislation, Dominion’s base rates will remain
capped until July 2007 unless Dominion petitions for, and the
Virginia Commission approves, an earlier termination any time
after January 1, 2004. The capped rates will provide recovery of
certain generation-related costs. Dominion remains exposed to
numerous risks, including, among others, exposure to poten-
tially stranded costs, future environmental compliance require-
ments, changes in tax laws, inflation and increased capital costs.
At December 31, 2001, Dominion’s exposure to potentially
stranded costs was comprised of the following: long-term pur-
chased power contracts that could ultimately be determined
to be above market (see Power Purchase Contracts below);
generating plants that could possibly become uneconomic in a
deregulated environment; and unfunded obligations for nuclear
plant decommissioning and postretirement benefits not yet
recognized in the financial statements (see Notes 16 and 26).
Capital Expenditures
Dominion has made substantial commitments in connection
with its capital expenditures program. Those expenditures are
estimated to total approximately $2.4 billion, $3.1 billion and
$3.2 for 2002, 2003 and 2004 respectively. Purchases of
nuclear fuel are included in Fuel Purchase Commitments below.
Dominion expects that these expenditures will be met through
Note 27