Dominion Power 2005 Annual Report Download - page 74

Notes to Consolidated Financial Statements, Continued
There were no significant properties under development, as
defined by the SEC, excluded from amortization at December 31,
2005. As gas and oil reserves are proved through drilling or as
properties are deemed to be impaired, excluded costs and any
related reserves are transferred on an ongoing, well-by-well basis
into the amortization calculation.
Amortization rates for capitalized costs under the full cost
method of accounting for our United States and Canadian cost
centers were as follows:
Year Ended December 31, 2005 2004 2003
(Per Mcf Equivalent)
United States cost center $1.41 $1.28 $1.20
Canadian cost center 1.82 1.18 1.00
Volumetric Production Payment Transactions
In 2005, we received $424 million in cash for the sale of a fixed-
term overriding royalty interest in certain of our natural gas reserves
for the period March 2005 through February 2009. The sale
reduced our proved natural gas reserves by approximately 76 billion
cubic feet (bcf). While we are obligated under the agreement to
deliver to the purchaser its portion of future natural gas production
from the properties, we retain control of the properties and rights to
future development drilling. If production from the properties sub-
ject to the sale is inadequate to deliver the approximately 76 bcf of
natural gas scheduled for delivery to the purchaser, we have no
obligation to make up the shortfall. Cash proceeds received from
this VPP transaction were recorded as deferred revenue. We will
recognize revenue from the transaction as natural gas is produced
and delivered to the purchaser. We previously entered into VPP
transactions in 2004 and 2003 for approximately 83 bcf for the
period May 2004 through April 2008 and 66 bcf for the period
August 2003 through July 2007, respectively.
Sale of British Columbia Assets
In December 2004, we sold the majority of our natural gas and oil
assets in British Columbia, Canada, for $476 million, which was
credited to our Canadian full cost pool. We 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. We recorded expenses of $10 million in other
operations and maintenance expense related to the sale.
Jointly-Owned Utility Plants
Our proportionate share of jointly-owned utility plants at December
31, 2005 is as 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 $1,007 $2,075 $553
Accumulated depreciation (395) (930) (122)
Nuclear fuel — 393 —
Accumulated amortization of nuclear fuel — (312) —
Plant under construction 34 59 1
The co-owners are obligated to pay their share of all future con-
struction expenditures and operating costs of the jointly
— owned
facilities in the same proportion as their respective ownership inter-
est. We report our share of operating costs in the appropriate oper-
ating expense (electric fuel and energy purchases, other operations
and maintenance, depreciation, depletion and amortization and
other taxes, etc.) in our Consolidated Statements of Income.
Note 13. Goodwill and Intangible Assets
Goodwill
There was no impairment of or material change to the carrying
amount or segment allocation of goodwill in 2005 or 2004.
In 2003, we recorded goodwill impairment charges of $18 mil-
lion related to our 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 marketing and stabilizing production efforts. As
a result of these unfavorable developments, we performed goodwill
impairment tests, using discounted cash flow analyses, which indi-
cated that the goodwill associated with those entities was impaired.
Also in 2003, as described in Note 9, we purchased the remain-
ing equity interest in DFV for $62 million, including $2 million for
accrued dividends. This transaction was accounted for as a pur-
chase of a minority interest and $60 million was recognized as
goodwill and immediately impaired. The purchase enabled us to
proceed with our strategy to sell Dominion Telecom.
Other Intangible Assets
All of our intangible assets, other than goodwill, are subject to
amortization. Amortization expense for intangible assets was $130
million, $62 million and $54 million for 2005, 2004 and 2003,
respectively. The acquisition of Dominion New England included
certain emissions allowances that are classified as intangible
assets. Approximately $245 million of the purchase price was allo-
cated to these allowances. There were no other material acquisi-
tions of intangible assets in 2005. In 2005, we sold certain
Dominion New England emissions allowances with a carrying
amount of $92 million. The components of our intangible assets
are as follows:
At December 31, 2005 2004
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
(millions)
Software and software licenses $ 613 $308 $579 $269
Emissions allowances 169 50 12 4
Other 225 30 106 26
Total $1,007 $388 $697 $299
Annual amortization expense for intangible assets is estimated
to be $104 million for 2006, $92 million for 2007, $73 million
for 2008, $64 million for 2009 and $38 million for 2010.
72 Dominion 2005