Dominion Power 2005 Annual Report Download - page 38

Management’s Discussion and Analysis of Financial Condition and Results of Operations, Continued
36 Dominion 2005
telecommunications operations during May 2004 and the impact of
the following charges recognized in 2003:
•Impairment of network assets and related inventories of $566
million. We did not recognize any deferred tax benefits related to
the impairment charges, since realization of tax benefits was not
anticipated at the time based on our expected future tax profile.
In addition, we increased the valuation allowance on deferred
tax assets recognized by our telecommunications investment,
resulting in a $48 million increase in deferred income tax
expense; and
•Telecommunications operating losses of $28 million.
Outlook
In order to deliver results to shareholders, we are focused on main-
taining operational excellence, managing generation-related fuel
expenses, increasing gas and oil production and managing com-
modity price risk. In 2006, we believe our operating businesses will
provide moderate growth in net income on a per share basis, includ-
ing the impact of higher expected average shares outstanding.
Positive drivers include:
•Continued growth in utility customers;
•Receipt of business interruption insurance proceeds for delays
in gas and oil production caused by Hurricanes Katrina and Rita;
•An increase in gas and oil production and higher realized prices
for gas and oil; and
•A full year’s contribution from Kewaunee.
The positive drivers will be partially offset by:
•A potential decrease in regulated electric sales, as compared to
2005, assuming our utility service territory experiences a return
to normal weather in 2006;
•A decrease in gains from the sale of excess emissions
allowances;
•A full year’s reduction in rates charged by gas transmission oper-
ations due to a rate settlement that was effective in July 2005;
•Higher expected operating expenses for gas and oil production;
and
•Increased pension and other benefits expense.
Based on these projections, we estimate that cash flow from
operations will increase in 2006, as compared to 2005. We believe
this increase will provide sufficient cash flow to maintain or grow our
current dividend to common shareholders.
Segment Results of Operations
Segment results include the impact of intersegment revenues
and expenses, which may result in intersegment profit or loss.
Presented below is a summary of contributions by our operating
segments to net income:
Selected statistics for our operating segments are presented
below:
Year Ended December 31, 2005 % Change 2004 % Change 2003
Dominion Delivery
Electricity delivered
(million megawatt hours) 81 3.8% 78 4.0% 75
Degree days
(electric service area):
Cooling(1) 1,707 7.7 1,585 13.8 1,393
Heating(2) 3,784 2.8 3,682 (4.7) 3,865
Electric delivery
customer accounts(3) 2,309 1.9 2,267 1.8 2,227
Gas throughput (bcf):
Gas sales 131 3.1 127 (5.2) 134
Gas transportation 241 (1.2) 244 2.1 239
Heating degree days
(gas service area)(2) 5,899 3.2 5,716 (5.3) 6,035
Gas delivery customer
accounts(3):
Gas sales 1,006 (6.2) 1,072 12.5 953
Gas transportation 692 9.8 630 (15.5) 746
Unregulated retail energy
marketing customer
accounts(3) 1,166 0.9 1,156 (15.2) 1,363
Dominion Energy
Gas transportation
throughput (bcf) 794 12.8 704 14.7 614
Dominion Generation
Electricity supplied
(million megawatt hours):
Utility 81 3.8 78 4.0 75
Merchant 41 41.4 29 11.5 26
Dominion E&P
Gas production (bcf) 280 (16.9) 337 (7.4) 364
Oil production (million bbls) 15.3 12.5 13.6 12.4 12.1
Average realized prices with
hedging results(4):
Gas (per mcf)(5) $4.73 15.9 $4.08 2.8 $3.97
Oil (per bbl) 30.21 20.3 25.11 7.7 23.32
Average prices without
hedging results:
Gas (per mcf)(5) 7.98 39.0 5.74 13.0 5.08
Oil (per bbl) 49.54 39.6 35.49 30.0 27.30
DD&A (per mcfe) 1.47 13.1 1.30 8.3 1.20
Average production
(lifting) cost (per mcfe)(6) 1.17 27.2 0.92 15.0 0.80
bcf = billion cubic feet
bbl = barrel
mcf = thousand cubic feet
mcfe = thousand cubic feet equivalent
(1) Cooling degree days are the differences between the average temperature for each day and
65 degrees, assuming the average temperature is greater than 65 degrees.
(2) Heating degree days are the differences between the average temperature for each day and
65 degrees, assuming the average temperature is less than 65 degrees.
(3) In thousands, at period end.
(4) Excludes the effects of the economic hedges discussed under Dominion Energy .
(5) Excludes $323 million, $223 million and $43 million of revenue recognized in 2005, 2004 and
2003, respectively, under the volumetric production payment (VPP) agreements described in
Note 12 to our Consolidated Financial Statements.
(6) The exclusion of volumes produced and delivered under the VPP agreements accounted for
approximately 17% of the increase from 2004 to 2005 and 75% of the increase from 2003
to 2004.
Year Ended December 31, 2005 2004 2003
(millions, except EPS)
Net Diluted Net Diluted Net Diluted
Income EPS Income EPS Income EPS
Dominion Delivery $ 448 $ 1.30 $ 466 $ 1.41 $ 453 $ 1.42
Dominion Energy 319 0.93 190 0.57 346 1.09
Dominion Generation 402 1.17 525 1.59 512 1.60
Dominion Exploration &
Production 565 1.64 595 1.80 415 1.30
Primary operating
segments 1,734 5.04 1,776 5.37 1,726 5.41
Corporate (701) (2.04) (527) (1.59) (1,408) (4.41)
Consolidated $1,033 $ 3.00 $1,249 $ 3.78 $ 318 $ 1.00