Dominion Power 2005 Annual Report Download - page 44

Management’s Discussion and Analysis of Financial Condition and Results of Operations, Continued
42 Dominion 2005
the following commercial paper and letters of credit outstanding
and capacity available under credit facilities:
Outstanding Outstanding Facility
Facility Commercial Letters of Capacity
Limit Paper Credit Available
(millions)
Five-year revolving
credit facility(1) $2,500 $1,401 $ 892 $207
Five-year CNG
credit facility(2) 1,750 187 1,227 336
Totals $4,250 $1,588 $2,119 $543
(1) The $2.5 billion five-year credit facility was entered into in May 2005 and terminates in May
2010. This credit facility can also be used to support up to $1.25 billion of letters of credit. In
February 2006, this facility was replaced by a $3.0 billion five-year credit facility that
terminates in February 2011.
(2) The $1.75 billion five-year credit facility is used to support the issuance of letters of credit and
commercial paper by CNG to fund collateral requirements under its gas and oil hedging
program. The facility was entered into in August 2005 and terminates in August 2010. In
February 2006, the facility limit was reduced to $1.70 billion.
We have also entered into several bilateral credit facilities in
addition to the facilities above in order to provide collateral required
on derivative contracts used in our risk management strategies for
merchant generation and gas and oil production operations,
respectively. Collateral requirements have increased significantly in
2005 as a result of escalating commodity prices. At December 31,
2005, we had the following letter of credit facilities:
(1) In February 2006, the facility limit was reduced to $150 million.
(2) In February 2006, CNG replaced this facility with a $1.05 billion 364-day credit facility.
(3) This facility can also be used to support commercial paper borrowings.
(4) In February 2006, the facility limit was reduced to $215 million.
In connection with our commodity hedging activities, we are
required to provide collateral to counterparties under some circum-
stances. Under certain collateral arrangements, we may satisfy
these requirements by electing to either deposit cash, post letters
of credit or, in some cases, utilize other forms of security. From time
to time, we vary the form of collateral provided to counterparties
after weighing the costs and benefits of various factors associated
with the different forms of collateral. These factors include short-
term borrowing and short-term investment rates, the spread over
these short-term rates at which we can issue commercial paper,
balance sheet impacts, the costs and fees of alternative collateral
postings with these and other counterparties and overall liquidity
management objectives.
Our financial policy precludes issuing commercial paper in
excess of our supporting lines of credit. At December 31, 2005, the
total amount of commercial paper outstanding was $1.6 billion and
the total amount of letter of credit issuances was $4.1 billion, leav-
ing approximately $2.0 billion available for issuance. We are
required to pay minimal annual commitment fees to maintain the
credit facilities.
In addition, these credit agreements contain various terms and
conditions that could affect our ability to borrow under these facili-
ties. They include maximum debt to total capital ratios, material
adverse change clauses and cross-default provisions.
All of the credit facilities include a defined maximum total debt
to total capital ratio. As of December 31, 2005, the calculated ratio
for our companies, pursuant to the terms of the agreements, was
as follows:
Maximum Actual
Company Ratio Ratio(1)
Dominion Resources, Inc. 65% 59%
Virginia Power 65% 46%
CNG 65% 55%
(1) Indebtedness as defined by the bank agreements excludes certain junior subordinated notes
payable to affiliated trusts and mandatorily convertible securities that are reflected as long-
term debt on our Consolidated Balance Sheets.
These provisions apply separately to Dominion Resources, Inc.,
Virginia Power and CNG (the Dominion Companies). If any one of
the Dominion Companies or any of that specific company’s material
subsidiaries fail to make payment on various debt obligations in
excess of $25 million, the lenders could require that respective
company to accelerate its repayment of any outstanding borrowings
under the credit facility and the lenders could terminate their com-
mitment to lend funds to that company. Accordingly, any defaults
on indebtedness by CNG or any of its material subsidiaries would
not affect the lenders’ commitment to Virginia Power. Similarly, any
defaults on indebtedness by Virginia Power or any of its material
subsidiaries would not affect the lenders’ commitment to CNG.
However, any default by either CNG or Virginia Power would also
affect in like manner the lenders’ commitment to Dominion
Resources, Inc. under the joint credit agreements.
Although the joint credit agreements contain material adverse
change clauses, the participating lenders, under those specific pro-
visions, cannot refuse to advance funds to any of the Dominion
Companies for the repurchase of our outstanding commercial
paper.
Long-Term Debt
During 2005, Dominion Resources, Inc. issued the following long-
term debt:
Type Principal Rate Maturity
(millions)
Senior notes $1,000 Variable 2007
Senior notes 300 4.75% 2010
Senior notes 500 5.15% 2015
Senior notes 500 5.95% 2035
Total long-term debt issued $2,300
Outstanding Facility Facility Facility
Facility Letters Capacity Inception Maturity
Company Limit of Credit Remaining Date Date
(millions)
CNG $100 $100 $ — June June
2004 2007
CNG 100 10 0 — August August
2004 2009
CNG(1) 550 550 — October April
2004 2006
CNG(2) 1,900 625 1,275 August February
2005 2006
CNG(3) 200 — 200 December December
2005 2010
Dominion Resources, Inc. 150 150 — September March
2005 2006
Dominion Resources, Inc. 200 200 — August February
2005 2006
Dominion Resources, Inc.(4) 290 290 — October April
2005 2006
$3,490 $2,015 $1,475