Dominion Power 2002 Annual Report Download - page 62

Notes to Consolidated Financial Statements, Continued
annual basis or when an event occurs or circumstances change
that would more likely than not reduce the fair value of a
reporting unit below its carrying amount. See Note 18 for
further discussion of the adoption of SFAS No. 142 and the
goodwill impairment charge recorded in 2002. See Note 5 for
discussion of Dominion’s recent significant acquisitions.
Regulatory Assets and Liabilities
Methods of allocating costs to accounting periods for opera-
tions subject to federal or state cost-of-service rate regulation
may differ from accounting methods generally applied by non-
regulated companies. The economic effects of allocations pre-
scribed by regulatory authorities for rate-making purposes must
be considered in the application of generally accepted account-
ing principles. See Notes 19 and 27 for additional information
on regulatory assets and liabilities and the impact of legislation
on continued application of SFAS No. 71, Accounting for the
Effects of Certain Types of Regulation.
Amortization of Debt Issuance Costs
Dominion defers and amortizes debt issuance costs and debt
premiums or discounts over the lives of the respective debt
issues. As permitted by regulatory authorities, gains or losses
resulting from the refinancing of debt allocable to utility
operations subject to cost-based rate regulation have also been
deferred and amortized over the lives of the new issues.
3Accounting Change for Pension Costs
Effective January 1, 2000 and in connection with Dominion’s
acquisition of CNG, Dominion adopted a new company-wide
method of calculating the market-related value of pension plan
assets used to determine the expected return on pension plan
assets, a component of net periodic pension cost. Dominion
believes the new method enhances the predictability of the
expected return on pension plan assets; provides consistent
treatment of all investment gains and losses; and results in
calculated market-related pension plan asset values that are
closer to market value than the values calculated under the
pre-acquisition methods used by Dominion or CNG.
The $21 million cumulative effect of the change on prior
years (net of income taxes of $11 million) was included in
income for the year ended December 31, 2000. The change
increased income before cumulative effect of a change in
accounting principle for 2000 by $11 million ($0.05 per
share-basic and diluted) and net income by $32 million
($0.14 per share-basic and diluted).
4Recently Issued Accounting Standards
Asset Retirement Obligations
In 2001, the Financial Accounting Standards Board (FASB)
issued SFAS No. 143, Accounting for Asset Retirement
Obligations, which provides accounting requirements for the
recognition and measurement of liabilities associated with the
retirement of tangible long-lived assets. Dominion adopted the
standard effective January 1, 2003.
Dominion has identified certain asset retirement obliga-
tions that are subject to the standard. These obligations are
primarily associated with the decommissioning of its nuclear
generation facilities, abandoning certain natural gas pipelines
and dismantling and removing gas and oil wells and platforms.
Under SFAS No. 143, asset retirement obligations will be
recognized at fair value as incurred and capitalized as part of the
cost of the related tangible long-lived assets. Under the present
value approach used to estimate the fair value of asset retire-
ment obligations, accretion of the liabilities due to the passage
of time will be recognized as an operating expense. As a result,
the adoption of SFAS No. 143 requires changes in Dominion’s
accounting and reporting for certain asset retirement obliga-
tions already being recognized under its accounting policies
prior to the adoption of SFAS No. 143. For example, Dominion
recognizes amounts related to future decommissioning activities
at its utility nuclear plants. As discussed in Note 16, the accu-
mulated provision for decommissioning is presented on the
balance sheet at December 31, 2002 as a component of accumu-
lated depreciation. Under SFAS No. 143, the asset retirement
obligation will be reported as a liability.
In addition, the reporting of realized and unrealized
earnings of external trusts available for funding decommission-
ing activities at Dominion’s utility nuclear plants will be
recorded in other income and other comprehensive income,
as appropriate. Through 2002, Dominion recorded these
trusts’ earnings in other income with an offsetting charge to
expense, also recorded in other income, for the accretion of
the decommissioning liability.
On January 1, 2003, Dominion implemented SFAS
No. 143 and recognized an after-tax gain of $180 million,
representing the cumulative effect of a change in accounting
principle. Under Dominion’s accounting policy prior to the
adoption of SFAS No. 143, $1.6 billion had previously been
accrued for future asset removal costs, primarily related to
future nuclear decommissioning. Such amounts are included
in the accumulated provision for depreciation, depletion and
amortization as of December 31, 2002. With the adoption of
SFAS No. 143, Dominion calculated its asset retirement obliga-
tions to be $1.5 billion. In recording the cumulative effect of
60 Dominion ’02 Annual Report