Dominion Power 2002 Annual Report Download - page 74

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Notes to Consolidated Financial Statements, Continued
Energy Trading Activities
Dominion’s non-derivative energy contracts initiated before
October 25, 2002 and derivative instruments held for energy
trading purposes are reported at fair value, with corresponding
changes in value recognized immediately in earnings. See
Note 4 for discussion of recent changes impacting the fair value
accounting for energy trading contracts. Net gains and losses
associated with Dominion’s commodity trading purchases and
sales are presented net as nonregulated electric sales and nonreg-
ulated gas sales revenue. Cash flows resulting from the settle-
ment of energy trading contracts are included in net cash flows
from operating activities. The composition of operating revenue
from commodity trading activities for the years 2002, 2001
and 2000 follows:
Gains Losses Total
(millions)
2002
Contract settlements $10,340 $(10,310) $ 30
Unrealized gains and losses 1,447 (1,402) 45
Operating revenue $11,787 $(11,712) $ 75
2001
Contract settlements $ 5,208 $ (5,209) $(1)
Unrealized gains and losses 1,378 (1,238) 140
Operating revenue $ 6,586 $ (6,447) $139
2000
Contract settlements $ 2,773 $ (2,692) $81
Unrealized gains and losses 1,236 (1,211) 25
Operating revenue $ 4,009 $ (3,903) $106
Enron Bankruptcy
Based on management’s evaluation of the estimated collectibil-
ity of amounts due from Enron Corp. and certain of its sub-
sidiaries (Enron) and the valuation of Enron-related commodity
contracts, Dominion recorded a pre-tax charge to earnings of
approximately $151 million in the fourth quarter of 2001. This
charge was comprised of approximately $9 million for net
credit exposure on past energy sales to Enron for which payment
has not been received and approximately $142 million related
to the impaired fair value of natural gas forward and swap
contracts with Enron. Management continues to believe that
this charge substantially eliminates any further Enron-related
earnings exposure.
During 2002, Dominion terminated all outstanding and
open positions with Enron. Dominion has submitted a claim
in the Enron bankruptcy case for the value of such contracts,
measured at the effective dates of contract termination. Various
contingencies, including developments in the Enron bank-
ruptcy proceedings, may affect Dominion’s ultimate exposure
to Enron.
Concurrent with the December 2, 2001 Enron bankruptcy
filing, Dominion’s Enron derivatives designated as cash flow
hedges of anticipated purchases and sales of natural gas no
longer qualified for hedge accounting and, accordingly,
were de-designated from their hedging relationships for
accounting purposes.
16Nuclear Operations
Dominion has a total of six licensed, operating nuclear reactors
at its Surry and North Anna plants in Virginia and its Millstone
plant in Connecticut. Surry and North Anna serve customers of
Dominion’s regulated electric utility operations.
Millstone is a non-regulated merchant plant with two oper-
ating units. A third Millstone unit ceased operations before
Dominion acquired the plant. See Notes 5 and 17 regarding the
acquisition of Millstone and other information regarding jointly
owned utility plants.
Decommissioning represents the decontamination and
removal of radioactive contaminants from a nuclear power
plant, once operations have ceased, in accordance with stan-
dards established by the NRC. Through June 2007, amounts are
being collected from Virginia jurisdictional ratepayers and
placed in external trusts and invested to fund the expected costs
of decommissioning the Surry and North Anna units. As part of
its acquisition of Millstone, Dominion acquired the decommis-
sioning trusts for the three units that were fully funded to the
regulatory minimum as of the acquisition date. Currently,
Dominion believes that the amounts available in the trusts and
their expected earnings will be sufficient to cover expected
decommissioning costs for the Millstone units, without any
additional contributions to the trusts.
Accounting for Decommissioning
Utility Nuclear Plants—In accordance with the accounting
policy recognized by regulatory authorities having jurisdiction
over its electric utility operations, Dominion recognizes an
expense for the future cost of decommissioning in amounts
equal to amounts collected from ratepayers and earnings on
trust investments dedicated to funding the decommissioning
of Dominion’s utility nuclear plants. On the Consolidated
Balance Sheets, the external trusts are reported at fair value with
the accumulated provision for decommissioning included in
accumulated depreciation. Net realized and unrealized earnings
on the trust investments, as well as an offsetting expense to
increase the accumulated provision for decommissioning, are
recorded as a component of other income (loss) as permitted by
regulatory authorities.
72 Dominion ’02 Annual Report