Dominion Power 2001 Annual Report Download - page 81

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Jersey and New York, and a 12-year, $1.2 billion capital invest-
ment program for environmental improvements at Virginia
Power’s coal-fired generating stations in Virginia and West
Virginia. Dominion had already committed to a substantial por-
tion of the $1.2 billion expenditures for sulfur dioxide and nitro-
gen oxide emissions controls. The negotiations over the terms of
a binding settlement have expanded beyond the basic agreement
in principle and are ongoing. As of December 31, 2001,
Dominion has recorded, on a discounted basis, $18 million for
the civil penalty and environmental projects.
Other — Before being acquired by Dominion, Louis Drey-
fus was one of numerous defendants in several lawsuits pending
in the Texas 93rd Judicial District Court in Hildago County,
Texas. The lawsuit alleges that gas wells and related pipeline
facilities operated by Louis Dreyfus and facilities operated by
other defendants caused an underground hydrocarbon plume
in McAllen, Texas. The plaintiffs claim that they have suffered
damages, including property damage and lost profits as a result
of the plume. Although the results of litigation are inherently
unpredictable, Dominion does not expect the ultimate outcome
of the case to have a material adverse impact on its financial
position or results of operations.
Spent Nuclear Fuel
Under provisions of the Nuclear Waste Policy Act of 1982,
Dominion has entered into contracts with the DOE for the dis-
posal of spent nuclear fuel. The DOE failed to begin accepting
the spent nuclear fuel on January 31, 1998, the date provided by
the Nuclear Waste Policy Act and by Dominion’s contract with
the DOE. Dominion will continue to safely manage its spent
fuel until accepted by the DOE.
Retrospective Premium Assessments
Under several of Dominion’s nuclear insurance policies,
Dominion is subject to retrospective premium assessments in
any policy year in which losses exceed the funds available to
these insurance companies. For additional information, see
Note 16.
Related Party Transactions
For a discussion of Dominion’s commitments to related parties,
see Note 29.
Fair Value of Financial Instruments
Substantially all of Dominion’s financial instruments are
recorded at fair value, with the exception of the instruments
described below. Fair value amounts have been determined using
available market information and valuation methodologies con-
sidered appropriate by management. Dominion reports the fol-
lowing financial instruments based on historical cost rather than
Note 28
fair value. The financial instruments’ carrying amounts and fair
values as of December 31 were as follows:
2001 2000
Carrying Estimated Carrying Estimated
(millions) Amount Fair Value Amount Fair Value
Long-term debt(1) $13,455 $13,725 $10,491 $10,555
Preferred securities of
subsidiary trusts(2)(3) $1,132 $1,154 385 $ 383
Loan commitments(4) ——— $ 230
Unrecognized financial
instruments (5):
Interest rate swaps(6) ——— $17
Swaps, collars and
options–hedging(7) ——— $ (277)
(1) Fair value is estimated using market prices, where available, and interest rates currently
available for issuance of debt with similar terms and remaining maturities are used
to estimate fair value. The carrying amount of debt issues with short-term maturities
and variable rates refinanced at current market rates is a reasonable estimate of their
fair value.
(2) Fair value is based on market quotations.
(3) The 2001 carrying value of $1,132 million represents principal outstanding of $1,135
million less an unamortized discount of $3 million.
(4) The fair value of commitments was estimated using the fees currently charged to enter
into similar agreements, taking into account the remaining terms of the agreements and
the present creditworthiness of the counterparties.
(5) Upon adoption of SFAS No. 133 on January 1, 2001, all derivatives are reported at fair
value. The fair value of unrecognized financial instruments at December 31, 2000 was
recognized as a component of the January 1, 2001 SFAS No. 133 transition adjustment.
See Note 15 for discussion of Dominion’s derivatives and hedge accounting activities.
(6) Fair value was based upon the present value of all estimated net future cash flows, taking
into account current interest rates and the creditworthiness of the swap counterparties.
(7) Fair value reflected Dominion’s best estimates considering over-the-counter quotations,
time value and volatility factors of the underlying commitments.
Related Party Transactions
Dominion Fibers Ventures, LLC
In December 2000, Dominion formed Dominion Fiber Ven-
tures, LLC (DFV). In 2001, Dominion contributed all of the
outstanding shares of its telecommunications subsidiary,
Dominion Telecom, Inc. (DTI), with an equity value of $110
million, in exchange for 100 percent of Class B managing mem-
bership interests in DFV. A third-party investor trust con-
tributed $60 million for 100 percent of the Class A membership
interests in DFV. DFV is the sole owner of DTI. As a result of
the Class A membership interests having substantive minority
veto rights, DTI is no longer consolidated, and Dominion’s
investment in DFV is accounted for using the equity method
and is reported in investment in affiliates on the 2001 consoli-
dated balance sheet.
In 2001, DFV issued $665 million of 7.05 percent Senior
Secured Notes due March 2005 (DFV Senior Notes). The DFV
Senior Notes are redeemable at any time at the option of DFV
or upon occurrence of certain events. DFV contributed $712
million net cash proceeds from the issuance of DFV Senior
Notes and the sale of the Class A membership interests to DTI
and Monument Overfund Trust (Overfund Trust), approximat-
ing $518 million and $194 million, respectively. Overfund Trust
Note 29