Dominion Power 2003 Annual Report Download - page 67

65.Dominion 2003
Amortization of Debt Issuance Costs
Dominion defers and amortizes debt issuance costs and debt pre-
miums or discounts over the expected lives of the respective debt
issues, considering maturity dates and, if applicable, redemption
rights held by others. As permitted by regulatory authorities,
gains or losses resulting from the refinancing of debt allocable to
utility operations subject to cost-based rate regulation have also
been deferred and amortized over the lives of the new issues.
3. Newly Adopted Accounting
Standards
2003
SFAS No. 143
Effective January 1, 2003, Dominion adopted SFAS No. 143,
Accounting for Asset Retirement Obligations, which provides
accounting requirements for the recognition and measurement of
liabilities associated with the retirement of tangible long-lived
assets. The effect of adopting SFAS No. 143 for 2003, as com-
pared to an estimate of net income reflecting the continuation
of former accounting policies, was to increase net income by
$201 million. The increase is comprised of a $180 million after-
tax gain, representing the cumulative effect of a change in
accounting principle and an increase in income before the cumu-
lative effect of a change in accounting principle of $21 million.
EITF 02-3
On January 1, 2003, Dominion adopted Emerging Issues Task
Force (EITF) Issue No. 02-3, Issues Involved in Accounting for
Derivative Contracts Held for Trading Purposes and Contracts
Involved in Energy Trading and Risk Management Activities,
that rescinded EITF Issue No. 98-10, Accounting for Contracts
Involved in Energy Trading and Risk Management Activities.
Adopting EITF 02-3 resulted in the discontinuance of fair value
accounting for non-derivative contracts held for trading purposes.
Those contracts are recognized as revenue or expense at the time
of contract performance, settlement or termination. The EITF 98-10
rescission was effective for non-derivative energy trading con-
tracts initiated after October 25, 2002. For all non-derivative
energy trading contracts initiated prior to October 25, 2002,
Dominion recognized a loss of $67 million (after taxes of
$43 million) as the cumulative effect of this change in accounting
principle on January 1, 2003.
EITF 03-11
Dominion adopted EITF Issue No. 03-11, Reporting Realized
Gains and Losses on Derivative Instruments That Are Subject to
FASB Statement No. 133 and Not “Held for Trading Purposes”
as Defined in Issue No. 02-3, on October 1, 2003. EITF 03-11
addresses classification of income statement related amounts for
derivative contracts. Income statement amounts related to periods
prior to October 1, 2003 are presented as originally reported.
See Note 2.
Statement 133 Implementation Issue No. C20
In connection with a request to reconsider an interpretation of
SFAS No. 133, FASB issued Statement 133 Implementation Issue
No. C20, Interpretation of the Meaning of “Not Clearly and
Closely Related” in Paragraph 10 (b) regarding Contracts with a
Price Adjustment Feature. Issue C20 establishes criteria for deter-
mining whether a contract’s pricing terms that contain broad mar-
ket indices (e.g., the consumer price index) could qualify as a
normal purchase or sale and, therefore, not be subject to fair
value accounting. Dominion has several contracts that qualify as
normal purchase and sale contracts under the Issue C20 guid-
ance. However, the adoption of Issue C20 required the contracts
to be initially recorded at fair value as of October 1, 2003, and
the recognition of an after-tax charge of $75 million, representing
the cumulative effect of the change in accounting principle. As
normal purchase and sales contracts, no further changes in fair
value will be recognized.
SFAS No. 149
Dominion adopted SFAS No. 149, Amendment of Statement 133
on Derivative Instruments and Hedging Activities. SFAS No. 149
reflects decisions made by FASB and its Derivatives Implementa-
tion Group in connection with issues raised about the application
of SFAS No. 133. Generally, changes resulting from SFAS No.
149 apply to contracts entered into or modified after June 30,
2003 and for hedging relationships designated after June 30,
2003. The initial adoption of SFAS 149 did not have a material
impact on Dominion’s results of operations and financial position.
FIN 46R
On December 31, 2003, Dominion adopted FASB Interpretation
No. 46 (revised December 2003), Consolidation of Variable
Interest Entities, (FIN 46R) for its interests in special purpose enti-
ties. FIN 46R addresses the consolidation of variable interest
entities (VIEs), which are entities that are not controllable through
voting interests or in which the VIEs’ equity investors do not bear
the residual economic risks and rewards.
Under FIN 46R, Dominion consolidated several special pur-
pose lessor entities through which Dominion had constructed,
financed and leased several new power generation projects, as
well as its corporate headquarters and aircraft. As a result, the
Consolidated Balance Sheet as of December 31, 2003 reflects
an additional $644 million in net property, plant and equipment
and deferred charges and $688 million of related debt. The
cumulative effect of adopting FIN 46R for its interests in special
purpose entities was an after-tax charge of $27 million, represent-
ing depreciation expense and amortization associated with the
consolidated assets. Annual depreciation expense for these assets
is expected to be approximately $31 million.