Dominion Power 2003 Annual Report Download - page 34

32.Dominion 2003
Management’s Discussion and Analysis of Financial Condition and Results of Operations, Continued
An analysis of Dominion’s results of operations for 2003 com-
pared to 2002 and 2002 compared to 2001 follows.
2003 vs. 2002
Operating Revenue
Regulated electric sales revenue increased less than 1% to $4.9
billion, primarily reflecting the combined effects of:
• A $54 million increase from customer growth associated with
new customer connections;
• A $42 million increase from higher fuel rate recoveries. Fuel
rate recoveries were generally offset by a comparable increase in
fuel expense and did not materially affect net income and
• A $103 million decrease associated with milder weather.
Regulated gas sales revenue increased 44% to $1.3 billion,
primarily due to:
• Recovery of higher gas prices in rates ($289 million) and
• Comparably colder weather in the first and fourth quarters
of 2003 ($79 million), reflecting more heating degree-days
in 2003.
The increase in regulated gas sales revenue was largely offset
by a comparable increase in purchased gas expense.
Nonregulated electric sales revenue increased 11% to
$1.1 billion, primarily reflecting the combined effects of:
• A $77 million increase in merchant generation revenue,
reflecting higher volumes ($59 million) and higher prices ($18
million). The increase in volumes can be attributed to fewer out-
age days at the Millstone Power Station in 2003 and a full year’s
sales from generating units placed into service during 2002;
• A $76 million increase in retail energy sales, primarily as a
result of customer growth, including the acquisition of new cus-
tomers previously served by other energy companies during
2003 and
• A $43 million decrease in Clearinghouse electric revenue, net
of applicable purchases, due to unfavorable changes in the fair
value of derivative contracts held for trading purposes and the
impact of adopting EITF 02-3, partially offset by increased mar-
gins.
Nonregulated gas sales revenue increased 121% to $1.7 bil-
lion, primarily reflecting:
• An $82 million increase in revenue from retail energy market-
ing operations, reflecting higher prices ($78 million) and higher
volumes ($4 million);
• A $659 million increase in revenue from field services opera-
tions, reflecting higher prices ($467 million) and higher volumes
($192 million) and
• A $208 million increase in Clearinghouse gas revenue, net of
applicable purchases, due to higher margins, favorable changes
in the fair value of derivative contracts held for trading purposes
and the impact of adopting EITF 02-3. The increase included a
$54 million increase associated with the economic hedges,
described further in the discussion of Dominion Energy’s results.
Gas and oil production revenue increased 13% to $1.5 bil-
lion primarily due to higher average realized prices for gas and
oil. It also includes $43 million of revenue recognized related to
deliveries under a volumetric production payment transaction.
Other revenue increased 31% to $853 million, primarily
reflecting the combined effects of:
• A $49 million increase in coal sales revenue;
• A $115 million increase, resulting from a change in the classifi-
cation of coal purchases from other revenue to expense under
EITF 02-3 beginning in 2003;
• $94 million of sales of emissions credits that began in 2003;
• A $26 million increase in sales of extracted products and
• An $81 million decrease in revenue associated with Dominion
financial services operations, reflecting the winding down under
Dominion’s divestiture strategy.
Operating Expenses and Other Items
Electric fuel and energy purchases expense increased 15% to
$1.7 billion, primarily reflecting:
• A $154 million increase associated with nonregulated energy
marketing operations, primarily resulting from higher volumes
purchased and the reclassification of certain purchase contracts
after the implementation of EITF 02-3 and
• A $68 million increase related to regulated utility operations,
including $42 million associated with rate recovery in 2003 rev-
enue and the recognition of $14 million of previously deferred
fuel costs that will not be recovered under the settlement of the
Virginia jurisdictional fuel rate case.
Purchased electric capacity expense decreased 12% to
$607 million, reflecting scheduled rate reductions on certain
non-utility generation supply contracts ($54 million) and lower
purchases of capacity for utility operations ($30 million).
Purchased gas expense increased 88% to $2.2 billion,
primarily reflecting:
• A $647 million increase associated with field services opera-
tions, reflecting higher prices ($459 million) and higher volumes
($188 million) and
• A $363 million increase associated with regulated gas opera-
tions discussed above in Regulated gas sales revenue.
Liquids, pipeline capacity and other purchases expense
increased 194% to $468 million, reflecting primarily the reclassifi-
cation of certain purchase contracts for transportation, storage,
coal and emissions allowances after the adoption of EITF 02-3.
Other operations and maintenance expense rose 32% to
$2.9 billion, primarily reflecting the following specific increases:
• Incremental restoration expenses associated with Hurricane
Isabel ($197 million);
• Cost of terminating power purchase contracts used in electric
utility operations ($105 million);
• Asset and goodwill impairments associated with DCI’s finan-
cial services operations ($108 million);