Dominion Power 2002 Annual Report Download - page 21

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19
Dominion ’02 Annual Report
Top: Karen Legrant, senior
LNG technician, closes a
valve in the process area of
the Cove Point LNG facility.
Bottom: Charles Horn, Jr.,
chemist III, performs an
environmental test in the
gas chromatography lab at
our System Lab.
By carrying out hedging agreements that limit our exposure to
volatile swings in commodity prices, the Dominion Energy Clearinghouse pro-
tects cash flows and earnings at our generation and natural gas units. We call this
“risk management.” Overall, a majority of our operating segment earnings come
from regulated utilities or unregulated gas and electric businesses that we’ve
hedged through contracts. I think of our professionals at Clearinghouse more as
contract negotiators or wholesale energy production sales managers, than traders.
A good example is a deal inked by Clearinghouse in 2001 to supply power over
27 years to North Carolina Electric Membership Corporation, one of the
nation’s largest electric cooperatives.
Our Clearinghouse professionals also sell our excess electric produc-
tion in spot markets.
Unlike Clearinghouse, several key industry players at other compa-
nies that focused exclusively on trading went bust last year or exited the business.
Some are in trouble because they inflated the publicized volumes of their transac-
tions by selling and buying the same amount of power. That sleight-of-hand got
dubbed “round tripping” in the press. As I wrote you earlier, we haven’t made
“round trips,” don’t plan on making any and are genuinely puzzled why others
cooked up such a process. At Clearinghouse, our metrics for success are risk
management and profitability, not volume.
On balance, I think the recent shakeout in energy trading and mar-
keting is healthy. Any young industry undergoes the process. In energy trading
and marketing, a smaller, stronger field of reliable players will emerge. We intend
to be among that field, with trading operations backed by our own generation
stations, oil and natural gas wells, and pipe and power line networks.
As I have emphasized in past letters, there’s really nothing like good
old-fashioned iron in the ground.