Dominion Power 2004 Annual Report Download - page 37

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•The impact of the following charges recognized in 2003, which did not
recur in 2004:
•$57 million of costs associated with the acquisition of DFV senior
notes;
•$27 million for the reallocation of equity losses between Dominion
and the minority interest owner of DFV; and
•A $62 million impairment of CNGI’s investment in Australian
pipeline assets held for sale.
Income taxes
— Dominion’s effective tax rate decreased 3.0% to 35.6%
for 2004, reflecting an increase in the valuation allowance for 2003 with no
comparable increase in 2004, partially offset by increases in 2004 in utility
plant differences and other factors.
Loss from discontinued operations decreased to $15 million from $642
million, primarily reflecting the sale of Dominion’s discontinued telecom-
munications operations during May 2004 and the impact of the following
charges recognized in 2003:
•Impairment of network assets and related inventories of $566 million.
Dominion did not recognize any deferred tax benefits related to the
impairment charges, since realization of tax benefits is not anticipated
at this time based on Dominion’s expected future tax profile. In addi-
tion, Dominion increased the valuation allowance on deferred tax
assets recognized by its telecommunications investment, resulting in a
$48 million increase in deferred income tax expense; and
•Telecommunications operating losses of $28 million.
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 cus-
tomer connections;
•A $42 million increase from higher fuel rate recoveries. Fuel rate recov-
eries 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 the combined impact of a $289 million increase due to higher rates for
regulated gas distribution operations primarily related to the recovery of
higher gas prices and a $79 million increase associated with comparably
colder weather in the first and fourth quarters of 2003. The effect of this
net increase in regulated gas sales revenue was largely offset by a compa-
rable increase in
Purchased gas, net expense .
Nonregulated electric sales revenue increased 11% to $1.1 billion, pri-
marily reflecting the combined effects of:
•A $77 million increase in revenue from merchant generation opera-
tions, reflecting higher volumes ($59 million) and higher prices ($18 mil-
lion). The increase in volumes can be attributed to fewer outage days at
the Millstone Power Station in 2003 and a full year’s sales from gener-
ating units placed into service during 2002;
•A $76 million increase in revenue from nonregulated retail energy mar-
keting operations, primarily as a result of customer growth, including
the acquisition of new customers previously served by other energy
companies during 2003; and
•A $43 million decrease in revenue from energy trading and marketing
activities due to unfavorable changes in the fair value of derivative con-
tracts held for trading purposes and the impact of adopting EITF 02-3,
partially offset by increased margins.
Nonregulated gas sales revenue increased 121% to $1.7 billion,
primarily reflecting:
•An $82 million increase in revenue from retail energy marketing
operations, reflecting higher prices ($78 million) and higher volumes
($4 million);
•A $659 million increase in revenue from producer services operations,
reflecting higher prices ($467 million) and higher volumes ($192 million);
and
•A $208 million increase in revenue from energy trading and marketing
activities 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.
Gas and oil production revenue increased 13% to $1.5 billion 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 classification of
coal purchases from other revenue to expense under EITF 02-3 begin-
ning in 2003;
•$94 million of emissions credit sales 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 bil-
lion, primarily reflecting:
•A $154 million increase associated with energy trading and marketing
activities and nonregulated retail energy marketing operations, primar-
ily resulting from higher volumes purchased and the reclassification of
certain purchase contracts due to 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 revenue and the
recognition of $14 million of previously deferred fuel costs not recov-
ered under the 2003 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 sup-
ply contracts ($54 million) and lower purchases of capacity for utility opera-
tions ($30 million), resulting from the termination of several long-term
supply contracts.
Purchased gas, net expense increased 88% to $2.2 billion, primarily
reflecting:
•A $647 million increase associated with producer services operations,
reflecting higher prices ($459 million) and higher volumes ($188 mil-
lion); and