Dominion Power 2002 Annual Report Download - page 38

Management’s Discussion and Analysis of Financial Condition
and Results of Operations, Continued
applicable regulatory authorities. If recovery of regulatory assets
is determined to be less than probable, they would be expensed
in the period such assessment is made. See Notes 2 and 19 to
the Consolidated Financial Statements.
Results of Operations
Dominion’s discussion of its results of operations includes a
tabular summary of contributions by its operating segments to
net income and diluted earnings per share, an overview of 2002
and 2001 results of operations for consolidated Dominion, as
well as a more detailed discussion of operating segment results
of operations.
2002 2001 2000
(millions, except per Net Net Net
share amounts) Income EPS Income EPS Income EPS
Dominion Energy $ 770 $2.72 $ 723 $ 2.86 $ 489 $ 2.07
Dominion Delivery 455 1.61 366 1.45 339 1.43
Dominion E&P 380 1.34 320 1.27 255 1.08
Net income
contribution—
operating segments 1,605 5.67 1,409 5.58 1,083 4.58
Corporate and Other (243) (0.85) (865) (3.43) (647) (2.73)
Total—Consolidated
Dominion 1,362 4.82 544 2.15 436 1.85
Consolidated
operating revenue 10,218 10,558 9,246
Consolidated
operating expense $ 7,333 $ 8,773 $7,731
Overview of Consolidated Operating Results—2002
Dominion earned $4.82 per diluted share on net income of
$1.36 billion in 2002, an increase of $818 million and $2.67
per diluted share over 2001. The increase includes higher net
income contributions by all operating segments, partially offset
by approximately $0.57 of share dilution, reflecting a substan-
tial increase in the number of average common shares outstand-
ing during 2002. In addition, Dominion recognized fewer
specific charges in 2002, as described in Corporate and Other
segment results below.
Regulated electric sales and non-regulated retail energy sales
increased as a result of favorable weather conditions and growth
in customer base. Nonregulated electric sales by Dominion’s
merchant generation fleet declined primarily due to lower elec-
tricity prices, partially offset by sales from recently acquired and
constructed assets. Sales of gas and oil production increased as a
result of higher production levels, reflecting Dominion’s ongoing
drilling programs, the operations of Louis Dreyfus Natural Gas
Corp. (Louis Dreyfus), partially offset by natural production
declines and by lower average realized prices for gas and oil,
including the effects of hedging. Overall, net revenue from
Dominion’s energy trading operations decreased for 2002. Gas
trading activities contributed less for 2002, reflecting the effects
of net unfavorable price changes on unsettled contracts and
lower trading margins, partially offset by higher overall trading
volumes. Electric trading activities increased for 2002, reflecting
favorable price changes on unsettled contracts and higher trading
margins. Energy trading operations are discussed in more detail
as part of the Dominion Energy segment results of operations.
In addition to the contributions by its operating segments,
the discontinuance of goodwill amortization resulted in a $95
million increase in net income. During 2002, Dominion did
not recognize any significant specific charges, as compared to
2001 when those charges totaled $797 million, as described in
the Corporate and Other segment results. Interest and related
charges decreased $52 million, reflecting lower overall interest
rates on outstanding debt, partially offset by interest on new
issues of debt and distributions on trust preferred securities
issued in late 2001 and during 2002. Dominion’s effective
income tax rate decreased, reflecting the net $33 million effect
of including certain subsidiaries in Dominion’s consolidated
state income tax returns. In addition, the effective tax rate
decreased for foreign earnings, the discontinuance of goodwill
amortization for book purposes and other factors.
Overview of Consolidated Operating Results—2001
Dominion earned $2.15 per diluted share on net income of
$544 million in 2001, an increase of $108 million and $0.30
per diluted share over 2000. The increase includes higher net
income contributions by all operating segments, partially
offset by a higher number of specific charges in 2001 as com-
pared to 2000, as discussed in Corporate and Other segment
results below.
The increase in results for Dominion’s operating segments
for 2001 reflect the operations of businesses acquired during the
year. Dominion acquired Millstone Power Station (Millstone)
on March 31, 2001. Its operations contributed significantly to
the increase in nonregulated electric sales. Regulated gas sales,
nonregulated gas sales and gas and oil production revenue
increased as Consolidated Natural Gas Company’s (CNG)
operations were included for all of 2001. In addition, 2001 gas
and oil production results reflected the inclusion of Louis
Dreyfus for two months as well as higher realized prices for gas.
Dominion’s energy trading operations, recorded as nonregulated
gas and electric sales, net of cost of sales, also contributed to the
overall operating revenue increase.
The increase in net income contribution by the segments’
operations was partially offset by a higher-level of specific
charges in 2001, as compared to 2000, as described in the dis-
cussion of the Corporate and Other segment results. Such
charges for 2001 and 2000 totaled $797 million and $579 mil-
lion, respectively. Interest expense and related charges decreased
$27 million, reflecting lower overall interest rates on outstand-
ing debt. Dominion’s effective income tax rate increased and its
36 Dominion ’02 Annual Report