Dominion Power 2005 Annual Report Download - page 54

52 Dominion 2005
Management’s Annual Report on Internal Control over Financial Reporting
Management of Dominion Resources, Inc. (Dominion) understands
and accepts responsibility for our financial statements and related
disclosures and the effectiveness of internal control over financial
reporting (internal control). We continuously strive to identify opportu-
nities to enhance the effectiveness and efficiency of internal control,
just as we do throughout all aspects of our business.
We maintain a system of internal control designed to provide rea-
sonable assurance, at a reasonable cost, that our assets are safe-
guarded against loss from unauthorized use or disposition and that
transactions are executed and recorded in accordance with estab-
lished procedures. This system includes written policies, an organi-
zational structure designed to ensure appropriate segregation of
responsibilities, careful selection and training of qualified personnel
and internal audits.
The Audit Committee of the Board of Directors of Dominion,
composed entirely of independent directors, meets periodically with
the independent registered public accounting firm, the internal
auditors and management to discuss auditing, internal control, and
financial reporting matters of Dominion and to ensure that each is
properly discharging its responsibilities. Both the independent regis-
tered public accounting firm and the internal auditors periodically
meet alone with the Audit Committee and have free access to the
Committee at any time.
SEC rules implementing Section 404 of the Sarbanes-Oxley Act
of 2002 require our 2005 Annual Report to contain a manage-
ment’s report and a report of the independent registered public
accounting firm regarding the effectiveness of internal control. As a
basis for our report, we tested and evaluated the design and oper-
ating effectiveness of internal controls. Based on our assessment
as of December 31, 2005, we make the following assertion:
Management is responsible for establishing and maintaining
effective internal control over financial reporting of Dominion.
There are inherent limitations in the effectiveness of any internal
control, including the possibility of human error and the circumven-
tion or overriding of controls. Accordingly, even effective internal
controls can provide only reasonable assurance with respect to
financial statement preparation. Further, because of changes in
conditions, the effectiveness of internal control may vary over time.
On December 31, 2003, we adopted Financial Accounting Stan-
dards Board Interpretation No. 46 (revised December 2003), Con-
solidation of Variable Interest Entities, for our interests in special
purpose entities, referred to as SPEs. As a result, we have included
in our consolidated financial statements certain SPEs. Our Consoli-
dated Balance Sheet, as of December 31, 2005, reflects $598
million of net property, plant and equipment and deferred charges
and $688 million of related debt attributable to these SPEs. As
these SPEs are owned by unrelated parties, we do not have the
authority to dictate or modify, and therefore could not assess the
internal controls in place at these entities. Our conclusion regarding
the effectiveness of Dominion’s internal control does not extend to
the internal controls of these SPEs.
We evaluated Dominion’s internal control over financial report-
ing as of December 31, 2005. This assessment was based on crite-
ria for effective internal control over financial reporting described in
Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on
this assessment, we believe that Dominion maintained effective
internal control over financial reporting as of December 31, 2005.
The independent registered public accounting firm that audited
the financial statements has issued an attestation report on our
assessment of the internal control over financial reporting.
March 2, 2006