Dominion Power 2002 Annual Report Download - page 87

Power Purchase Contracts
Dominion has entered into contracts for long-term purchases
of capacity and energy from other utilities, qualifying facilities
and independent power producers. As of December 31, 2002,
Dominion had 42 non-utility purchase contracts with a com-
bined dependable summer capacity of 3,758 megawatts. The
table below reflects Dominion’s minimum commitments as of
December 31, 2002 under these contracts.
Commitment
Capacity Other
(millions)
2003 $ 643 $ 44
2004 635 29
2005 629 22
2006 614 18
2007 589 11
Later years 5,259 113
Total 8,369 237
Present value of the total $4,836 $140
Capacity and other purchases under these contracts totaled
$691 million, $680 million and $740 million for 2002, 2001
and 2000, respectively.
In 2001, Dominion completed the purchase of three gener-
ating facilities and the termination of seven long-term power
purchase contracts with non-utility generators. Dominion
recorded an after-tax charge of $136 million in connection with
the purchase and termination of long-term power purchase
contracts. Cash payments related to the purchase of three gener-
ating facilities totaled $207 million. The allocation of the pur-
chase price was assigned to the assets and liabilities acquired
based upon estimated fair values as of the date of acquisition.
Substantially all of the value was attributed to the power pur-
chase contracts which were terminated and resulted in a charge
included in operation and maintenance expense.
Fuel Purchase Commitments
Dominion enters into long-term purchase commitments for fuel
used in electric generation and natural gas for purposes other
than trading. Estimated payments under these commitments
for the next five years are as follows: 2003—$599 million;
2004—$311 million; 2005—$253 million; 2006—$205 mil-
lion; 2007—$89 million; and years beyond 2007—$215 mil-
lion. These purchase commitments include those required for
regulated operations. Dominion recovers the costs of those pur-
chases through regulated rates. The natural gas purchase com-
mitments of Dominion’s field services operations are also
included, net of related sales commitments. In addition,
Dominion has committed to purchase certain volumes of nat-
ural gas at market index prices determined in the period the
natural gas is delivered. These transactions have been designated
as normal purchases and sales under SFAS No. 133.
Natural Gas Pipeline and Storage Capacity Commitments
Dominion enters into long-term commitments for the purchase
of natural gas pipeline and storage capacity for purposes other
than trading. Estimated payments under these commitments
for the next five years are as follows: 2003—$34 million;
2004—$23 million; 2005—$13 million. There were no signifi-
cant commitments beyond 2005.
Production Handling and Firm Transportation Commitments
In connection with its gas and oil production operations,
Dominion has entered into certain transportation and produc-
tion handling agreements with minimum commitments
expected to be paid in the following years: 2003—$23 million;
2004—$57 million; 2005—$56 million; 2006—$53 million;
2007—$44 million; and years after 2007—$68 million.
Lease Commitments
Dominion leases various facilities, vehicles, aircraft and equip-
ment under both operating and capital leases. Future minimum
lease payments under operating and capital leases that have
initial or remaining lease terms in excess of one year as of
December 31, 2002 are as follows: 2003—$94 million; 2004—
$94 million; 2005—$82 million; 2006—$67 million; 2007—
$62 million; and years beyond 2007—$79 million. Rental
expense included in other operations and maintenance expense
was $84 million, $75 million and $107 million for 2002, 2001,
and 2000, respectively.
As of December 31, 2002, Dominion, through certain sub-
sidiaries, has entered into agreements with special purpose enti-
ties (lessors) in order to finance and lease several new power
generation projects, as well as its corporate headquarters and air-
craft. The lessors have an aggregate financing commitment from
equity and debt investors of $2.2 billion, of which $1.6 billion
has been used for total project costs to date. Dominion, in its
role as construction agent for the lessors, is responsible for com-
pleting construction by a specified date. In the event a project
is terminated before completion, Dominion has the option to
either purchase the project for 100 percent of project costs or
terminate the project and make a payment to the lessor of
approximately but no more than 89.9 percent of project costs.
Upon completion of each individual project, Dominion has use
of the project assets subject to an operating lease. Dominion’s
lease payments to the lessors are sufficient to provide a return to
the investors. At the end of each individual project’s lease term,
Dominion may renew the lease at negotiated amounts based on
project costs and current market conditions, subject to investors’
approval; purchase the project at its original construction cost;
or sell the project, on behalf of the lessor, to an independent
third party. If the project is sold and the proceeds from the
sale are insufficient to repay the investors, Dominion may be
required to make a payment to the lessor up to an amount rang-
ing from 81 percent to 85 percent of the project cost depending
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Dominion ’02 Annual Report