Dominion Power 2002 Annual Report Download - page 89

In 2002, EPA issued a Section 114 request for informa-
tion about whether projects undertaken at Virginia Power’s
Chesterfield, Chesapeake, Yorktown, Possum Point and
Bremo Bluff power stations were properly permitted under
the Clean Air Act’s New Source Review requirements, to
which Virginia Power responded in a timely manner.
In 2002, the EPA issued a Section 114 request for informa-
tion about whether Morgantown Energy Associates’ (MEA)
facility in Morgantown, West Virginia is in compliance with
environmental requirements. EPA made a site visit and at that
time received the requested information. In September 2002,
MEA received a copy of EPA’s inspection report summarizing
the facts surrounding the visit. MEA is prepared to resolve fol-
low-up questions from EPA. MEA is a 50 percent-owned invest-
ment accounted for by Dominion under the equity method.
Other—Before being acquired by Dominion, Louis Dreyfus
was one of numerous defendants in several lawsuits pending in
the Texas 93rd Judicial District Court in Hildago County,
Texas. The lawsuit alleges that gas wells and related pipeline
facilities operated by Louis Dreyfus and facilities operated by
other defendants caused an underground hydrocarbon plume in
McAllen, Texas. The plaintiffs claim that they have suffered
damages, including property damage and lost profits, as a result
of the plume. Although the results of litigation are inherently
unpredictable, Dominion does not expect the ultimate outcome
of the case to have a material adverse impact on its results of
operations, cash flows or financial position.
Spent Nuclear Fuel
Under provisions of the Nuclear Waste Policy Act of 1982,
Dominion has entered into contracts with the DOE for the dis-
posal of spent nuclear fuel. The DOE failed to begin accepting
the spent nuclear fuel on January 31, 1998, the date provided by
the Nuclear Waste Policy Act and by Dominion’s contract with
the DOE. Dominion will continue to safely manage its spent
fuel until accepted by the DOE.
Retrospective Premium Assessments
Under several of Dominion’s nuclear insurance policies,
Dominion is subject to retrospective premium assessments in
any policy year in which losses exceed the funds available to
these insurance companies. For additional information, see
Note 16.
Guarantees,Letters of Credit and Surety Bonds
As discussed in Note 4, FIN No. 45 requires disclosures related
to the issuance of certain types of guarantees, beginning with
financial statements for the year ended December 31, 2002. For
purposes of consolidated financial statements, guarantees issued
by a parent on behalf of its consolidated subsidiary, guarantees
issued by a consolidated subsidiary on behalf of its parent or
guarantees issued by a consolidated subsidiary on behalf of a
sister consolidated subsidiary are not subject to the FIN No. 45’s
disclosure requirements.
Nevertheless, Dominion is providing the following infor-
mation about the guarantees that it and certain of its sub-
sidiaries may issue in the ordinary course of business to provide
financial or performance assurance to third parties on behalf of
certain subsidiaries. These agreements include guarantees,
stand-by letters of credit and surety bonds. The amounts subject
to certain of these agreements vary depending on the covered
contracts actually outstanding at any particular point in time.
Guarantees and stand-by letters of credit are used, when neces-
sary, to support or enhance a subsidiary’s stand-alone creditwor-
thiness. Accordingly, Dominion and certain subsidiaries have
entered into guarantees and stand-by letters of credit so that
third parties would be willing to enter into contracts with the
subsidiaries and to extend sufficient credit to facilitate the sub-
sidiaries’ accomplishment of intended commercial purposes. In
such instances, guarantees may be used to limit exposures
resulting from subsidiary business activities to pre-defined
amounts. While the majority of these guarantees do not have a
termination date, Dominion may choose at any time to limit
the applicability of such guarantees to future transactions.
To the extent a liability subject to a guarantee has been
incurred by a consolidated subsidiary, that liability is included
in Dominion’s Consolidated Financial Statements. Dominion
believes it unlikely that it would be required to perform or
otherwise incur any losses associated with guarantees of its
subsidiaries’ obligations. On behalf of consolidated subsidiaries,
as of December 31, 2002, Dominion and its subsidiaries had
issued $5.2 billion of guarantees; purchased $117 million of
surety bonds; and authorized the issuance of standby letters of
credit by financial institutions of $606 million.
Only in those limited instances where Dominion or
certain subsidiaries enter into a guarantee on behalf of a party
that is not consolidated in the preparation of Dominion’s
Consolidated Financial Statements would performance under
the agreement result in the recognition of additional liabilities
in Dominion’s Consolidated Financial Statements. As of
December 31, 2002, Dominion has guaranteed $70 million
related to officers’ borrowings under executive stock loan pro-
grams, for which individual officers are personally liable for
repayment. Substantially all of this guarantee is scheduled to
expire in 2005.
Dominion has also guaranteed $32 million for obligations
of certain equity method investments—Dominion Telecom,
Inc., MEA and Elwood Energy.
Indemnifications
In addition, as part of commercial contract negotiations in the
normal course of business, Dominion may sometimes agree to
make payments to compensate or indemnify other parties for
possible future unfavorable financial consequences resulting
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Dominion ’02 Annual Report