Dominion Power 2004 Annual Report Download - page 51

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Other EPA Matters
In relation to a Notice of Violation received by Virginia Power in 2000 from
the EPA, Dominion entered into a Consent Decree settlement in 2003 and
committed to improve air quality. Dominion has already incurred certain
capital expenditures for environmental improvements at its coal-fired sta-
tions in Virginia and West Virginia. Dominion continues to commit to addi-
tional measures in its current financial plans and capital budget to satisfy
the requirements of the Consent Decree.
Other
As part of its review of Dominion’s request related to the reissuance of a
pollution discharge elimination permit for the Millstone Power Station, the
Connecticut Department of Environmental Protection is evaluating the eco-
logical impacts of the cooling water intake system. Until the permit is reis-
sued, it is not possible to predict the financial impact that may result.
In October 2003, the EPA and the Massachusetts Department of Envi-
ronmental Protection jointly issued a new National Pollutant Discharge
Elimination System permit for the USGen, Brayton Point Power Station. The
new permit contained conditions that in effect require the installation of
cooling towers to address concerns over the withdrawal and discharge of
cooling water. In November 2003, an appeal was filed with the EPA Envi-
ronmental Appeals Board and the Division of Administrative Law Appeals
in Massachusetts. Until the appeals process is completed, the outcome
cannot be predicted.
Future Environmental Regulations
In January 2004, the EPA proposed additional regulations addressing pollu-
tion transport from electric generating plants as well as the regulation of
mercury and nickel emissions. These regulatory actions, in addition to
revised regulations to address regional haze, are expected to be finalized
in 2005 and could require additional reductions in emissions from
Dominion’s fossil fuel-fired generating facilities. If these new emission
reduction requirements are imposed, significant additional expenditures
may be required.
The U.S. Congress is considering various legislative proposals that
would require generating facilities to comply with more stringent air emis-
sions standards. Emission reduction requirements under consideration
would be phased in under a variety of periods of up to 15 years. If these
new proposals are adopted, additional significant expenditures may
be required.
In 1997, the United States signed an international Protocol to limit
man-made greenhouse emissions under the United Nations Framework
Convention on Climate Change. However, the Protocol will not become
binding unless approved by the U.S. Senate. Currently, the Bush Adminis-
tration has indicated that it will not pursue ratification of the Protocol
and has set a voluntary goal of reducing the nation’s greenhouse gas emis-
sion intensity by 18% over the next 10 years. Several legislative proposals
that include provisions seeking to impose mandatory reductions of green-
house gas emissions are under consideration in the United States Con-
gress. Several Northeast states have already or are considering the
imposition of mandatory carbon dioxide (CO2) reductions through the devel-
opment of a regional cap-and-trade program. The cost of compliance with
the Protocol or other mandatory greenhouse gas reduction obligations
could be significant. Given the highly uncertain outcome and timing of
future action, if any, by the U.S. federal government on this issue, Dominion
cannot predict the financial impact of future climate change actions on its
operations at this time.
Other Matters
USGen Power Stations
In January 2005, Dominion closed on its purchase of three electric power
generation facilities from USGen for $642 million. The acquisition was part
of a bankruptcy court-approved divestiture of generation assets by USGen.
The plants include the 1,521-megawatt Brayton Point Station in Somerset,
Massachusetts; the 743-megawatt Salem Harbor Station in Salem, Massa-
chusetts; and the 426
- megawatt Manchester Street Station in Providence,
Rhode Island. These assets will be included in the Dominion Generation
operating segment. Dominion did not acquire any of the facilities’ debt in
the transaction and plans to finance the acquisition with a combination of
debt and equity.
Kewaunee Nuclear Power Plant
During the fourth quarter of 2003, Dominion announced an agreement
with Wisconsin Public Service Corporation, a subsidiary of WPS Resources
Corporation (WPS), and Wisconsin Power & Light Company (WP&L), a
subsidiary of Alliant Energy Corporation, to purchase the Kewaunee
nuclear power plant, located in northeastern Wisconsin. Under terms of
the agreement, the aggregate purchase price is $220 million in cash,
including $35 million for nuclear fuel. Dominion will sell 100% of the
facility’s output to WPS (59%) and WP&L (41%) under a power purchase
agreement that expires in 2013. In November 2004, the Public Service
Commission of Wisconsin voted to deny the sale. The transaction had
received all other applicable regulatory approvals. During January 2005,
the commission granted Dominion’s request for a rehearing of the case.
If approved by the commission, the transaction is expected to close in the
first half of 2005. If approved, Kewaunee would be included in the
Dominion Generation operating segment.
Restructuring of Contract with Non-Utility Generator
In February 2005, Dominion paid $42 million in cash and assumed $62 mil-
lion of debt in connection with the termination of a long-term power pur-
chase agreement and acquisition of the related generating facility used by
Panda-Rosemary LP, a non-utility generator, to provide electricity to
Dominion. The transaction is part of an ongoing program that seeks to
achieve competitive cost structures at Dominion’s utility generation busi-
ness and is expected to reduce annual capacity payments by $18 million.
The purchase price for the acquisition was allocated to the assets and lia-
bilities acquired based on their estimated fair values as of the date of
acquisition. In connection with the termination of the agreement, Dominion
expects to record an after-tax charge of approximately $46 million.
Long-Term Power Tolling Contract
In the fourth quarter of 2004, Dominion recorded a $112 million after-tax
charge related to its interest in a long-term power tolling contract with a
551 megawatt combined cycle facility located in Batesville, Mississippi.
Dominion decided to divest its interest in the long-term power tolling
contract in connection with its reconsideration of the scope of certain
activities of the Clearinghouse, including those conducted on behalf of
Dominion’s business segments, and its ongoing strategy to focus on busi-
ness activities within the MAIN to Maine region. The charge is based on
Dominion’s evaluation of preliminary bids received from third parties,