Dominion Power 2002 Annual Report Download - page 88

Notes to Consolidated Financial Statements, Continued
on the individual project and applicable agreement. Dominion
has guaranteed a portion of the obligations of its subsidiaries to
the lessors during the construction and post-construction peri-
ods. Neither the guarantees nor the underlying transaction doc-
uments contain any type of credit rating or stock price trigger
events. Total project costs at December 31, 2002 included
approximately $288 million of costs advanced by Dominion
that will be reimbursed by the lessor during the second quarter
of 2003.
The projects are accounted for as operating leases for finan-
cial accounting purposes. Accordingly, neither the project assets
nor related obligations are reported on Dominion’s Consolidated
Balance Sheets.
In February 2003, pursuant to the terms of its lease agree-
ment, Dominion purchased the electric generation facility
under construction in Dresden, Ohio for $266 million. This
amount was included in total project costs of $1.6 billion as of
December 31, 2002. Dominion expects to complete construc-
tion in 2005 at an estimated cost of $350 million.
The future minimum lease payments described above
include annual minimum lease payments under these leases for
assets currently in use total approximately $38 million. Projects
being developed under leasing arrangements are scheduled for
completion in 2003 and 2004. Annual lease payments for these
projects are estimated to be $7 million for 2003 and $79 million
by 2005. See Note 4.
Energy Trading
Subsidiaries of Dominion enter into purchases and sales of com-
modity-based contracts in the energy-related markets, including
natural gas, electricity and oil. These agreements may cover cur-
rent and future periods. The volume of these transactions varies
from day to day, based on market conditions. See Note 15 for a
discussion of Dominion’s energy trading activities and risk
management policies.
Environmental Matters
Dominion is subject to costs resulting from a steadily increasing
number of federal, state and local laws and regulations designed
to protect human health and the environment. These laws and
regulations can result in increased capital, operating and other
costs as a result of compliance, remediation, containment and
monitoring obligations.
Historically, Dominion recovered such costs arising from
regulated electric operations through utility rates. However,
to the extent environmental costs are incurred in connection
with operations regulated by the Virginia State Corporation
Commission during the period ending June 30, 2007, in
excess of the level currently included in Virginia jurisdictional
rates, Dominion’s results of operations will decrease. After
that date, Dominion may seek recovery through rates of only
those environmental costs related to transmission and
distribution operations.
Superfund Sites—In 1987, the Environmental Protection
Agency (EPA) identified Dominion and a number of other enti-
ties as Potentially Responsible Parties (PRPs) at two Superfund
sites located in Kentucky and Pennsylvania. Current cost stud-
ies estimate total remediation costs for the sites to range from
$98 million to $152 million. Dominion’s proportionate share
of the total cost is expected to be in the range of $2 million to
$3 million, based on allocation formulas and the volume of
waste shipped to the sites. The majority of remediation activities
at the Kentucky site are complete and remediation design is
ongoing for the Pennsylvania site. Dominion has accrued a
reserve of $2 million to meet its obligations at these two sites.
Although each PRP can be held jointly, severally and strictly
liable for all costs, Dominion has determined that it is probable
that the PRPs will fully pay their share of the costs based on
a financial assessment of the PRPs involved at these sites.
Dominion generally seeks to recover its costs associated with
environmental remediation from third party insurers. At
December 31, 2002, any pending or possible claims were not
recognized as an asset or offset against such obligations.
Other EPA Matters—During 2000, Virginia Power received
a Notice of Violation from the EPA, alleging that Virginia
Power failed to obtain New Source Review permits under the
Clean Air Act prior to undertaking specified construction pro-
jects at the Mt. Storm Power Station in West Virginia. The
Attorney General of New York filed a suit against Virginia Power
alleging similar violations of the Clean Air Act at the Mt. Storm
Power Station. Virginia Power also received notices from the
Attorneys General of Connecticut and New Jersey of their
intentions to file suit for similar violations. In December 2002,
the Attorney General of Connecticut filed a motion to intervene
as a plaintiff in the action filed by the New York State Attorney
General. This action has been stayed. Management believes that
Virginia Power has obtained the necessary permits for its gener-
ating facilities. Virginia Power has reached an agreement in
principle with the federal government and the state of New York
to resolve this situation. The agreement in principle includes
payment of a $5 million civil penalty, a commitment of $14 mil-
lion for environmental projects in Virginia, West Virginia, Con-
necticut, New Jersey and New York and a 12-year, $1.2 billion
capital investment program for environmental improvements at
the Company’s coal-fired generating stations in Virginia and
West Virginia. Virginia Power had already committed to a sub-
stantial portion of the $1.2 billion expenditures for sulfur diox-
ide and nitrogen oxide emissions controls. The negotiations over
the terms of a binding settlement have expanded beyond the
basic agreement in principle and are ongoing. As of December
31, 2002, Virginia Power has recorded, on a discounted basis,
$18 million for the civil penalty and environmental projects.
86 Dominion ’02 Annual Report