Dominion Power 2003 Annual Report Download - page 62

60.Dominion 2003
Notes to Consolidated Financial Statements
1. Nature of Operations
Dominion Resources, Inc. (Dominion) is a holding company
headquartered in Richmond, Virginia. Its principal subsidiaries
are Virginia Electric and Power Company (Virginia Power), Con-
solidated Natural Gas Company (CNG), and Dominion Energy,
Inc. (DEI). Dominion and CNG are registered public utility hold-
ing companies under the Public Utility Holding Company Act of
1935 (1935 Act).
Virginia Power is a regulated public utility that generates,
transmits and distributes electricity within a 30,000-square-mile
area in Virginia and northeastern North Carolina. Virginia Power
sells electricity to approximately 2.2 million retail customers,
including governmental agencies, and to wholesale customers
such as rural electric cooperatives, municipalities, power mar-
keters and other utilities. Virginia Power has trading relationships
beyond its retail service territory and buys and sells wholesale
electricity and natural gas off-system.
CNG operates in all phases of the natural gas business. Its
regulated retail gas distribution subsidiaries serve approximately
1.7 million residential, commercial and industrial gas sales and
transportation customers in Ohio, Pennsylvania and West Vir-
ginia. Its interstate gas transmission pipeline system serves each
of its distribution subsidiaries, non-affiliated utilities and end use
customers in the Midwest, Mid-Atlantic and Northeast. CNG’s
exploration and production operations are located in several
major natural gas and oil producing basins in the United States,
both onshore and offshore. CNG also provides a variety of
energy marketing services.
DEI is involved in merchant generation, energy trading and
marketing and natural gas and oil exploration and production.
Dominion has substantially exited the core operating busi-
nesses of Dominion Capital, Inc. (DCI), as required by the Securi-
ties and Exchange Commission (SEC) under the 1935 Act.
Currently, Dominion is required to divest all remaining DCI hold-
ings by January 2006. DCI’s primary business was financial ser-
vices, including loan administration, commercial lending and
residential mortgage lending.
Dominion manages its daily operations along four primary
operating segments: Dominion Generation, Dominion Energy,
Dominion Delivery and Dominion Exploration & Production. In
addition, Dominion also reports the operations of DCI, its telecom-
munications business and its corporate and other operations as a
segment. Assets remain wholly owned by its legal subsidiaries.
The term “Dominion” is used throughout this report and,
depending on the context of its use, may represent any of the fol-
lowing: the legal entity, Dominion Resources, Inc., one of Domin-
ion Resources, Inc.’s consolidated subsidiaries or the entirety of
Dominion Resources, Inc. and its consolidated subsidiaries.
2. Significant Accounting Policies
General
Dominion makes certain estimates and assumptions in preparing
its Consolidated Financial Statements in accordance with
accounting principles generally accepted in the United States of
America (generally accepted accounting principles). These esti-
mates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of rev-
enues and expenses for the periods presented. Actual results may
differ from those estimates.
The Consolidated Financial Statements represent Dominion’s
accounts after the elimination of intercompany transactions.
Dominion follows the equity method of accounting for investments
with a 50% or less interest in partnerships and corporate joint
ventures when Dominion is able to significantly influence the
financial and operating policies of the investee. Dominion reports
its equity earnings from these investments in other income. For all
other investments, the cost method is applied.
Certain amounts in the 2002 and 2001 Consolidated Finan-
cial Statements and footnotes have been reclassified to conform
to the 2003 presentation.
Operating Revenue
Operating revenue is recorded on the basis of services
rendered, commodities delivered or contracts settled and includes
amounts yet to be billed to customers. Dominion’s customer
accounts receivable at December 31, 2003 and 2002 included
$342 million and $334 million, respectively, of accrued unbilled
revenue based on estimated amounts of electric energy or
natural gas delivered but not yet billed to its utility customers.
Dominion estimates unbilled utility revenue based on weather
factors and, for electric customers, total daily electric generation
supplied after adjusting for estimated losses of energy during
transmission, taking into consideration historical usage and
applicable customer rates.
The primary types of sales and service activities reported as
operating revenue include:
Regulated electric sales consist primarily of state-regulated
retail electric sales and federally regulated wholesale electric
sales and electric transmission services subject to cost-of-service
rate regulation;
Regulated gas sales consist primarily of state-regulated retail
natural gas sales and related distribution services;
Nonregulated electric sales consist primarily of sales of
electricity from utility and merchant generation facilities at
market-based rates and electric trading revenue;
Nonregulated gas sales consist primarily of sales of
natural gas at market-based rates, brokered gas sales and gas
trading revenue;
Gas transportation and storage consists primarily of regu-
lated sales of gathering, transmission, distribution and storage