Dominion Power 2002 Annual Report Download - page 43

■a $105 million charge for restructuring activities, including
employee severance and termination benefits and costs
associated with the termination of leases;
■a $281 million charge, reported in other operations and
maintenance expense, for the impairment of various DCI
investments;
■a $151 million charge for credit exposure associated with
the bankruptcy of Enron;
■a $220 million charge, reported in operations and mainte-
nance expense, related to the termination of certain long-term
power purchase contracts; and
■a $40 million loss on the sale of Saxon Capital, reported in
other operations and maintenance expense.
Charges in 2000 included restructuring and acquisition-
related charges of $460 million and DCI impairments of
$119 million. These charges were partially offset by the
cumulative effect of an accounting change of $21 million.
These items are discussed in Notes 3, 8 and 9 to the
Consolidated Financial Statements.
Liquidity and Capital Resources
Dominion and its subsidiaries depend on both internal and
external sources of liquidity to provide working capital and to
fund capital requirements. Short-term cash requirements not
met by cash provided by operating activities are generally satis-
fied with proceeds from short-term borrowings. Long-term cash
needs are met through sales of securities and additional long-
term debt financing.
Internal Sources of Liquidity
As presented on Dominion’s Consolidated Statements of Cash
Flows, net cash flows from operating activities were $2.4 billion,
$2.4 billion and $1.3 billion for the years ended December 31,
2002, 2001 and 2000, respectively. Dominion’s management
believes that its operations provide a stable source of cash
flow sufficient to contribute to planned levels of capital
expenditures and maintain current shareholder dividend levels.
As noted above, Dominion uses a combination of debt and
equity securities to fund capital requirements not covered by
the timing or amounts of operating cash flows. As discussed
under Credit Ratings and Cash Requirements for Planned Capital
Expenditures below, Dominion is taking steps to improve its
financial position in response to current credit rating require-
ments. As a result of these measures, Dominion may choose to
postpone or cancel certain planned capital expenditures, to
the extent they are not fully covered by operating cash flows.
Dominion would do this in order to mitigate the need for
future debt financings, beyond those needed to cover normal
maturities and redemptions.
Dominion’s operations are subject to risks and uncertain-
ties that may negatively impact cash flows from operations.
Such risks and uncertainties include, but are not limited to,
the following:
■unusual weather and its effect on energy sales to customers
and energy commodity prices;
■extreme weather events that could disrupt offshore gas and
oil production or cause catastrophic damage to Dominion’s elec-
tric distribution and transmission systems;
■exposure to unanticipated changes in prices for energy
commodities purchased or sold, including the effect on deriva-
tive instruments that may require the use of funds to post mar-
gin deposits with counterparties;
■effectiveness of Dominion’s risk management activities and
underlying assessment of market conditions and related factors,
including energy commodity prices, basis, liquidity, volatility,
counterparty credit risk, availability of generation and transmis-
sion capacity, currency exchange rates and interest rates;
■the cost of replacement electric energy in the event of
longer-than-expected or unscheduled generation outages;
■contractual or regulatory restrictions on transfers of funds
among Dominion and its subsidiaries; and
■timeliness of recovery for costs subject to cost-of-service
utility rate regulation.
External Sources of Liquidity
Dominion Resources, Inc., Virginia Electric and Power Com-
pany (Virginia Power) and CNG (collectively the Dominion
Companies) rely on bank and capital markets as a significant
source of funding for capital requirements not satisfied by cash
provided by the companies’ operations. As discussed further in
the Credit Ratings section below, the Dominion Companies’
ability to borrow funds or issue securities and the return
demanded by investors are affected by the issuing company’s
credit ratings. In addition, the raising of external capital is
subject to certain regulatory approvals, including the SEC and,
in the case of Virginia Power, the Virginia State Corporation
Commission (Virginia Commission).
During 2002, the Dominion Companies issued long-term
debt (net of exchanged debt), trust preferred securities, pre-
ferred stock and common stock totaling approximately $4.85
billion. The proceeds were used primarily to repay other debt
and to finance capital expenditures.
Credit Facilities and Short-Term Debt
The Dominion Companies use short-term debt, primarily com-
mercial paper, to fund working capital requirements and as
bridge financing for acquisitions. The levels of borrowing may
vary significantly during the course of the year, depending upon
the timing and amount of cash requirements not satisfied by
cash from operations. The commercial paper programs are
supported by the credit facilities discussed below.
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Dominion ’02 Annual Report