Dominion Power 2002 Annual Report Download - page 84

Notes to Consolidated Financial Statements, Continued
25Dividend Restrictions
The 1935 Act and related regulations issued by the SEC impose
restrictions on the transfer and receipt of funds by a registered
holding company from its subsidiaries, including a general
prohibition against loans or advances being made by the sub-
sidiaries to benefit the registered holding company. Under the
1935 Act, registered holding companies and their subsidiaries
may pay dividends only from retained earnings, unless the SEC
specifically authorizes payments from other capital accounts.
Dominion received dividends from its subsidiaries of $945 mil-
lion, $806 million and $1.3 billion in 2002, 2001 and 2000,
respectively. At December 31, 2002, Dominion’s consolidated
subsidiaries had approximately $8.4 billion in capital accounts
other than retained earnings, representing capital stock, addi-
tional paid in capital and accumulated other comprehensive
income. Dominion Resources, Inc. had approximately $8.7
billion in capital accounts other than retained earnings at
December 31, 2002. Generally, such amounts are not available
for the payment of dividends by affected subsidiaries, or by
Dominion itself, without specific authorization by the SEC. In
response to a Dominion request, the SEC granted relief in
2000, authorizing payment of dividends by CNG from other
capital accounts to Dominion in amounts up to $1.6 billion,
representing CNG’s retained earnings prior to Dominion’s
acquisition of CNG. Furthermore, Dominion has submitted a
similar request to the SEC in 2002, seeking relief from this
restriction in regard to its subsidiary, into which Louis Dreyfus
was merged. The application requests relief up to approximately
$303 million, representing Louis Dreyfus’ retained earnings
prior to Dominion’s acquisition of Louis Dreyfus. Dominion’s
ability to pay dividends on its common stock at declared rates
was not impacted by the restrictions discussed above during
2002, 2001 and 2000.
The Virginia Commission may prohibit any public service
company, including Virginia Power, from declaring or paying a
dividend to an affiliate, if found not to be in the public interest.
At December 31, 2002, the Virginia Commission had not
restricted the payment of dividends by Virginia Power.
Certain agreements associated with Dominion’s credit
facilities contain restrictions on the ratio of debt to total capital-
ization. These limitations did not restrict Dominion’s ability
to pay dividends or receive dividends from its subsidiaries at
December 31, 2002.
See Note 22 for a description of potential restrictions on
dividend payments by Dominion and certain subsidiaries in
connection with the deferral of distribution payments on trust
preferred securities.
26Employee Benefit Plans
Dominion and its subsidiaries provide certain benefits to eligible
active employees, retirees and qualifying dependents. Under the
terms of its benefit plans, Dominion and its subsidiaries reserve
the right to change, modify or terminate the plans. From time
to time in the past, benefits have changed, and some of these
changes have reduced benefits.
Dominion maintains qualified noncontributory defined
benefit retirement plans covering virtually all employees. Retire-
ment benefits are based primarily on years of service, age and
compensation. Dominion’s funding policy is to generally con-
tribute annually an amount that is in accordance with the provi-
sions of the Employment Retirement Income Security Act of
1974. The pension program also provides benefits to certain
retired executives under company-sponsored nonqualified
employee benefit plans. Certain of these nonqualified plans
are funded through contributions to a grantor trust.
Dominion provides retiree health care and life insurance
benefits with annual premiums based on several factors such as
age, retirement date and years of service.
In 2001, Dominion eliminated certain senior management
positions. Dominion paid these individuals special termination
benefits and accelerated the payment of benefits under
Dominion’s nonqualified pension plans. Dominion recognized
special termination benefits expense of $15 million, a loss of
$7 million related to the settlement of the related non-qualified
pension obligation and a curtailment loss of $2 million.
In 2000, Dominion offered an early retirement program
(ERP). The ERP provided up to three additional years of age
and three additional years of employee service for benefit for-
mula purposes, subject to age and service maximums under
Dominion and its subsidiaries’ postretirement medical and pen-
sion plans. Certain employees who satisfied certain minimum
age and years of service requirements were eligible under the
ERP. The effect of the ERP on Dominion’s pension and postre-
tirement benefit expenses was $81 million and $33 million,
respectively. These expenses were offset, in part, by curtailment
gains of approximately $20 million and $6 million from
pension plans and other postretirement benefit plans, respec-
tively, attributable to reductions in expected future years of
service as a result of ERP participation and involuntary
employee terminations.
82 Dominion ’02 Annual Report