Dominion Power 2004 Annual Report Download - page 77

Volumetric Production Payment Transactions
In 2004, Dominion received $413 million in cash for the sale of a fixed-term
overriding royalty interest in certain of its natural gas reserves for the
period May 2004 through April 2008. The sale reduced Dominion’s proved
natural gas reserves by approximately 83 billion cubic feet (bcf). While
Dominion is obligated under the agreement to deliver to the purchaser its
portion of future natural gas production from the properties, it retains con-
trol of the properties and rights to future development drilling. If production
from the properties is inadequate to deliver approximately 83 bcf of natural
gas scheduled for delivery to the purchaser, Dominion has no obligation to
make up the shortfall. Cash proceeds received from this VPP transaction
were recorded as deferred revenue. Dominion will recognize revenue from
the transaction as natural gas is produced and delivered to the purchaser.
Dominion also entered into a VPP transaction in 2003 receiving proceeds of
$266 million for approximately 66 bcf for the period August 2003 through
August 2007.
Sale of British Columbia Assets
In December 2004, Dominion sold the majority of its natural gas and oil
assets in British Columbia, Canada, for $476 million, which was credited to
Dominion’s full cost pool. Dominion received cash proceeds of $320 million
in December 2004 and $156 million in January 2005. The properties sold
produced about 30 bcf equivalent net of natural gas annually. Dominion
recorded expenses of $10 million in other operations and maintenance
expense related to the sale.
Jointly-Owned Utility Plants
Dominion’s proportionate share of jointly-owned utility plants at December
31, 2004 follows:
Bath
County North
Pumped Anna Clover
Storage Power Power
Station Station Station
(millions, except percentages)
Ownership interest 60.0% 88.4% 50.0%
Plant in service $1,014 $2,067 $548
Accumulated depreciation 378 897 112
Nuclear fuel — 380 —
Accumulated amortization of nuclear fuel — 285 —
Construction work in progress 27 47 3
The co-owners are obligated to pay their share of all future construc-
tion expenditures and operating costs of the jointly owned facilities in the
same proportion as their respective ownership interest. Dominion reports
its share of operating costs in the appropriate operating expense (fuel,
other operations and maintenance, depreciation, depletion and amortiza-
tion and other taxes, etc.) in the Consolidated Statements of Income.
13. Goodwill and Intangible Assets
Goodwill
There was no impairment of or material change to the carrying amount and
segment allocation of goodwill in 2004.
In 2003, Dominion recorded goodwill impairment charges of $18 million
related to the DCI reporting unit. During 2003, a DCI subsidiary received an
unfavorable arbitration ruling that resulted in lower margins for services
provided. Another DCI subsidiary experienced delays in expanding market-
ing and stabilizing production efforts. As a result of these unfavorable
developments, Dominion performed goodwill impairment tests, using dis-
counted cash flow analyses, which indicated that the goodwill associated
with those entities was impaired.
Also in 2003, as described in Note 9, Dominion purchased the remain-
ing equity interest in DFV for $62 million, including $2 million for accrued
dividends. This transaction was accounted for as a purchase of a minority
interest and $60 million was recognized as goodwill and immediately
impaired. The purchase enabled Dominion to proceed with its strategy
to sell DTI.
In 2002, Dominion recorded a goodwill impairment charge of $13 mil-
lion related to a DCI subsidiary that received an unfavorable arbitration rul-
ing that affected its ability to recover disputed amounts for past and future
performance under a contract with a major customer. Dominion performed
a goodwill impairment test, using discounted cash flow analysis, which
indicated that the goodwill was impaired.
Other Intangible Assets
All of Dominion’s intangible assets, other than goodwill, are subject to
amortization. Amortization expense for intangible assets was $62 million,
$54 million and $53 million for 2004, 2003 and 2002, respectively. There
were no material acquisitions of intangible assets in 2004 or 2003. Intangi-
ble assets are included in other assets on the Consolidated Balance
Sheets. The components of intangible assets at December 31, 2004 and
2003 were as follows:
2004 2003
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
(millions)
Software and software licenses $579 $269 $543 $237
Other 118 30 73 23
Total $697 $299 $616 $260
Annual amortization expense for intangible assets is estimated to be
$63 million for 2005, $57 million for 2006, $48 million for 2007, $33 million
for 2008 and $26 million for 2009.
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