Dominion Power 2002 Annual Report Download - page 33

Introduction
Management’s Discussion and Analysis of Financial Condition
and Results of Operations (MD&A) discusses the results of
operations and general financial condition of Dominion.
MD&A should be read in conjunction with the Consolidated
Financial Statements. The term “Dominion” is used throughout
MD&A and, depending on the context of its use, may represent
any of the following: the legal entity, Dominion Resources, Inc.,
one of Dominion Resources, Inc.’s consolidated subsidiaries, or
the entirety of Dominion Resources, Inc. and its consolidated
subsidiaries.
Risk Factors and Cautionary Statements
That May Affect Future Results
This report contains statements concerning Dominion’s expec-
tations, plans, objectives, future financial performance and
other statements that are not historical facts. These statements
are “forward-looking statements” within the meaning of the Pri-
vate Securities Litigation Reform Act of 1995. In most cases, the
reader can identify these forward-looking statements by words
such as “anticipate,” “estimate,” “forecast,” “expect,” “believe,”
“should,” “could,” “plan,” “may” or other similar words.
Dominion makes forward-looking statements with full
knowledge that risks and uncertainties exist that may cause
actual results to be materially different from predicted results.
Factors that could cause actual results to differ are often pre-
sented with the forward-looking statements themselves. In addi-
tion, other factors could cause actual results to differ materially
from those indicated in any forward-looking statement. These
factors include weather conditions; fluctuations in energy-
related commodities prices and the effect these could have on
Dominion’s earnings, liquidity position and the underlying
value of its assets; trading counterparty credit risk; capital mar-
ket conditions, including price risk due to marketable securities
held as investments in trusts and benefit plans; fluctuations in
interest rates; changes in rating agency requirements or ratings;
changes in accounting standards; the risks of operating busi-
nesses in regulated industries that are becoming deregulated;
the transfer of control over electric transmission facilities to a
regional transmission organization; completing the divestiture
of Dominion Capital, Inc. (DCI) and CNG International
Corporation; collective bargaining agreements and labor
negotiations; and political and economic conditions (including
inflation rates). Some more specific risks are discussed below.
Dominion bases its forward-looking statements on man-
agement’s beliefs and assumptions using information available
at the time the statements are made. Dominion cautions the
reader not to place undue reliance on its forward-looking
statements because the assumptions, beliefs, expectations
and projections about future events may, and often do,
materially differ from actual results. Dominion undertakes
no obligation to update any forward-looking statement to
reflect developments occurring after the statement is made.
Dominion’s Operations Are Weather Sensitive
Dominion’s results of operations can be affected by changes in
the weather. Weather conditions directly influence the demand
for electricity and natural gas and affect the price of energy
commodities. In addition, severe weather, including hurricanes,
winter storms and droughts, can be destructive, causing outages,
production delays and property damage that requires Dominion
to incur additional expenses.
Dominion Is Subject to Complex Government Regulation That
Could Adversely Affect Its Operations
Dominion’s operations are subject to extensive regulation and
require numerous permits, approvals and certificates from fed-
eral, state and local governmental agencies. Dominion must also
comply with environmental legislation and other regulations.
Management believes the necessary approvals have been
obtained for Dominion’s existing operations and that its busi-
ness is conducted in accordance with applicable laws. However,
new laws or regulations, or the revision or reinterpretation of
existing laws or regulations, may require Dominion to incur
additional expenses.
Costs of Environmental Compliance, Liabilities and Litigation
Could Exceed Dominion’s Estimates
Compliance with federal, state and local environmental laws
and regulations may result in increased capital, operating and
other costs, including remediation and containment and moni-
toring obligations. In addition, Dominion may be a responsible
party for environmental clean up at a site identified by a regula-
tory body. Management cannot predict with certainty the
amount and timing of all future expenditures related to environ-
mental matters because of the difficulty of estimating clean-up
costs and compliance, and the possibility that changes will be
made to the current environmental laws and regulations. There
is also uncertainty in quantifying liabilities under environmen-
tal laws that impose joint and several liability on all potentially
responsible parties.
Capped Electric Rates in Virginia May Be Insufficient to
Allow Full Recovery of Stranded and Other Costs
Under the Virginia Electric Utility Restructuring Act, Domin-
ion’s electric base rates (excluding fuel costs and certain other
allowable adjustments) remain unchanged until July 2007
unless modified or terminated consistent with that Act. The
capped rates and wires charges that, where applicable, are
being assessed to customers opting for alternative suppliers
allow Dominion to recover certain generation-related costs;
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
31
Dominion ’02 Annual Report