Dominion Power 2004 Annual Report Download - page 64

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), Consolidated Natural Gas Company
(CNG) and Dominion Energy, Inc. (DEI). Dominion and CNG are registered
public utility holding 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 an area of approximately 30,000-square-miles
in Virginia and northeastern North Carolina. Virginia Power serves approxi-
mately 2.3 million retail customer accounts, including governmental agen-
cies and wholesale customers such as rural electric cooperatives,
municipalities, power marketers and other utilities. Virginia Power has trad-
ing relationships beyond the geographic limits of its retail service territory
and buys and sells natural gas, electricity and other energy-related com-
modities.
CNG operates in all phases of the natural gas business, explores for
and produces gas and oil and provides a variety of energy marketing ser-
vices. Its regulated gas distribution subsidiaries serve approximately
1.7 million residential, commercial and industrial gas sales and transporta-
tion customer accounts in Ohio, Pennsylvania and West Virginia and its
nonregulated retail energy marketing businesses serve approximately
1.2 million residential and commercial customer accounts in the Northeast,
Mid-Atlantic and Midwest. CNG operates an interstate gas transmission
pipeline system in the Midwest, Mid-Atlantic states and the Northeast and
a liquefied natural gas (LNG) import and storage facility in Maryland. Its
producer services operations involve the aggregation of natural gas supply
and related wholesale activities. CNG’s exploration and production opera-
tions are located in several major gas and oil producing basins in the
United States, both onshore and offshore.
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 businesses of
Dominion Capital, Inc. (DCI), as required by the Securities and Exchange
Commission (SEC) under the 1935 Act. Currently, Dominion is required to
divest all remaining DCI holdings by January 2006. DCI’s primary business
was financial services, including loan administration, commercial lending
and residential mortgage lending.
Dominion manages its daily operations through four primary operating
segments: Dominion Generation, Dominion Energy, Dominion Delivery and
Dominion Exploration & Production. In addition, Dominion reports a Corpo-
rate and Other segment that includes the operations of Dominion’s corpo-
rate, service company and other operations (including unallocated debt),
DCI and the net impact of Dominion’s discontinued telecommunications
operations that were sold in May 2004. 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 following: the legal entity,
Dominion Resources, Inc., one of Dominion Resources, Inc.’s consolidated
subsidiaries or the entirety of Dominion Resources, Inc. and its consoli-
dated subsidiaries.
2. Significant Accounting Policies
General
Dominion makes certain estimates and assumptions in preparing its Con-
solidated Financial Statements in accordance with accounting principles
generally accepted in the United States of America (generally accepted
accounting principles). These estimates 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 revenues and expenses for the periods presented.
Actual results may differ from those estimates.
The Consolidated Financial Statements include, after eliminating inter-
company transactions and balances, the accounts of Dominion and all
majority-owned subsidiaries, and those variable interest entities (VIEs)
where Dominion has been determined to be the primary beneficiary.
Certain amounts in the 2003 and 2002 Consolidated Financial
Statements and footnotes have been reclassified to conform to the
2004 presentation.
Operating Revenue
Operating revenue is recorded on the basis of services rendered, commodi-
ties delivered or contracts settled and includes amounts yet to be billed to
customers. Dominion’s customer accounts receivable at December 31, 2004
and 2003 included $384 million and $342 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 historical usage, applicable customer
rates, weather factors and, for electric customers, total daily electric gen-
eration supplied after adjusting for estimated losses of energy during
transmission.
The primary types of sales and service activities reported as operating
revenue include:
•Regulated electric sales consist primarily of state-regulated retail elec-
tric 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, sales
of electricity to residential and commercial customers at contracted
fixed prices and market-based rates and electric trading revenue;
•Nonregulated gas sales consist primarily of sales of natural gas at mar-
ket-based rates, sales of gas purchased from third parties and gas trad-
ing revenue;
•Gas transportation and storage consists primarily of regulated sales of
gathering, transmission, distribution and storage services. Also
included are regulated gas distribution charges to retail distribution
service customers opting for alternate suppliers;
•Gas and oil production consists primarily of sales of natural gas, oil and
condensate produced by Dominion including the recognition of revenue
previously deferred in connection with the volumetric production pay-
ment (VPP) transactions described in Note 12. Gas and oil production
revenue is reported net of royalties; and
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