Dominion Power 2001 Annual Report Download - page 80

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
an independent third party. If the project is sold and the pro-
ceeds from the sale are insufficient to repay the Investors,
Dominion may be required to make a payment to the Lessor,
ranging from 81 percent to 85 percent of the project cost
depending on the individual project and applicable agreement.
Dominion has guaranteed a portion of the obligations of its
subsidiaries to the Lessors during the construction and post-
construction periods. These transactions do not contain any
type of credit rating or stock price trigger events.
As noted above, as of December 31, 2001, amounts subject
to these agreements totaled $817 million, and the total amount,
upon completion of all projects, is projected to be approximately
$2.2 billion. The projects are accounted for as operating leases
for financial accounting purposes. Accordingly, neither the proj-
ect assets nor related obligations are reported on Dominion’s
balance sheets. The future minimum lease payments described
above include annual payments of approximately $6 million
associated with these projects representing minimum payments
under leases for which the leased assets are currently in use.
Projects currently under development are scheduled for comple-
tion during the period 2002 through 2004. Annual lease pay-
ments for the projects are estimated to be $33 million in 2002,
increasing to $133 million by 2004.
Energy Trading
Subsidiaries of Dominion enter into purchases and sales of
commodity-based contracts in the energy-related markets,
including natural gas, electricity, coal and oil. These agreements
may cover current and future periods. The volume of these trans-
actions varies from day to day, based on market conditions. See
Note 15 for a discussion of Dominion’s energy trading activities
and risk management policies.
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 can result in increased capital,
operating and other costs as a result of compliance, remedia-
tion, containment and monitoring obligations.
Historically, Dominion recovered such costs arising from
regulated electric operations through utility rates. However, to
the extent environmental costs are incurred in connection with
operations regulated by the Virginia State Corporation Commis-
sion, during the period ending June 30, 2007, in excess of the
level currently included in Virginia jurisdictional rates,
Dominion’s results of operations will decrease. After that date,
Dominion may seek recovery from customers through utility
rates of only those environmental costs related to transmission
and distribution operations.
Superfund Sites — In 1987, the Environmental Protection
Agency (EPA) identified Dominion and a number of other enti-
ties as Potentially Responsible Parties (PRPs) at two Superfund
sites located in Kentucky and Pennsylvania. Current cost studies
estimate total remediation costs for the sites to range from
$98 million to $153 million. Dominion’s proportionate share
of the total cost is expected to be in the range of $2 million to
$3 million, based upon allocation formulas and the volume of
waste shipped to the sites. The majority of remediation activities
at the Kentucky site are complete and remediation design is
ongoing for the Pennsylvania site. Dominion has accrued a
reserve of $2 million to meet its obligations at these two sites.
Based on a financial assessment of the PRPs involved at these
sites, Dominion has determined that it is probable that the PRPs
will fully pay their share of the costs. Dominion generally seeks
to recover its costs associated with environmental remediation
from third party insurers. At December 31, 2001, any pending
or possible claims were not recognized as an asset or offset
against such obligations.
Other EPA Matters — In 1999, the Department of Justice
(DOJ) notified Dominion of an alleged noncompliance with the
EPA’s oil spill prevention, control and countermeasures (SPCC)
plans and facility response plan (FRP) requirements at one of
Dominion’s power stations. In December 2001, Dominion
reached a settlement agreement with the DOJ and EPA covering
all alleged noncompliance issues. The settlement will not have
a material impact on Dominion’s financial condition or results
of operations. Dominion also identified matters at other power
stations that the EPA might view as not in compliance with
the SPCC and FRP requirements and reported these matters to
the EPA. Dominion also reported its plans for correcting the
issues. Dominion does not believe that the settlement of these
self-reported matters, if any, will be material to its results of
operations or financial conditions.
During 2000, Virginia Power received a Notice of Violation
from the EPA alleging that the company failed to obtain New
Source Review permits under the Clean Air Act prior to under-
taking specified construction projects at the Mt. Storm Power
Station in West Virginia. The Attorney General of New York
filed a suit against Virginia Power alleging similar violations of
the Clean Air Act at the Mt. Storm Power Station. Virginia
Power also received notices from the Attorneys General of
Connecticut and New Jersey of their intentions to file suit for
similar violations. Management believes that Virginia Power has
obtained the necessary permits for its generating facilities.
Virginia Power has reached an agreement in principle with the
federal government and the state of New York to resolve this sit-
uation. The agreement in principle includes payment of a $5
million civil penalty, a commitment of $14 million for environ-
mental projects in Virginia, West Virginia, Connecticut, New
78