Dominion Power 2004 Annual Report Download - page 94

Notes to Consolidated Financial Statements, Continued
27. Operating Segments
Dominion is organized primarily on the basis of products and services sold
in the United States. Dominion manages its operations through the follow-
ing segments:
Dominion Generation includes the generation operations of Dominion’s
electric utility and merchant fleet as well as coal and emissions trading
and marketing activities.
Dominion Energy includes Dominion’s electric transmission, natural gas
transmission pipeline and storage businesses, an LNG facility, certain nat-
ural gas production, as well as Clearinghouse (energy trading and market-
ing and aggregation of gas supply).
Dominion Delivery includes Dominion’s electric and gas distribution sys-
tems and customer service operations, as well as nonregulated retail
energy marketing operations.
Dominion Exploration & Production (E&P) includes Dominion’s gas and
oil exploration, development and production operations. Operations are
located in several major producing basins in the lower 48 states, including
the outer continental shelf and deepwater areas of the Gulf of Mexico, and
Western Canada.
Corporate and Other includes the operations of Dominion’s corporate,
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. In addition, the contribution to net income by
Dominion’s primary operating segments is determined based upon a mea-
sure of profit that executive management believes represents the seg-
ments’ core earnings. As a result, certain specific items attributable to
those segments are not included in profit measures evaluated by executive
management in assessing the segment’s performance or allocating
resources among the segments. These specific items are reported in the
Corporate and Other segment and in 2004 include:
•Losses related to the discontinuance of hedge accounting for certain oil
hedges and subsequent changes in the fair value of those hedges dur-
ing the third quarter; and
•Charges reflecting Dominion’s valuation of its interest in a long-term
power tolling contract and the termination of certain long-term power
purchase agreements.
Specific items in 2003 include:
•Cumulative effect of changes in accounting principles;
•Incremental restoration expenses associated with Hurricane Isabel;
•Charges for the termination of certain long-term power purchase
agreements and restructuring of certain electric sales contracts; and
•Severance costs for workforce reductions.
In 2002, there were no specific items attributable to Dominion’s primary
operating segments reported in the Corporate and Other segment.
During the fourth quarter of 2004, Dominion performed an evaluation of
its Dominion Energy Clearinghouse trading and marketing operations
(Clearinghouse), which resulted in a decision to exit certain energy trading
activities and instead focus on the optimization of company assets. Begin-
ning in 2005, all revenues and expenses from the Clearinghouse’s optimiza-
tion of company assets will be reported as part of the results of the
business segments operating the related assets, in order to better reflect
the performance of the underlying assets. As a result of these changes,
2004 and 2003 results now reflect revenues and expenses associated with
Clearinghouse coal and emissions trading and marketing activities in the
Dominion Generation segment.
Intersegment sales and transfers are based on underlying contractual
arrangements and agreements and may result in intersegment profit or loss.
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