Dominion Power 2005 Annual Report Download - page 86

Notes to Consolidated Financial Statements, Continued
Assisted by an independent actuary, management develops
assumptions, which are then compared to the forecasts of other
independent investment advisors to ensure reasonableness.
An internal committee selects the final assumptions.
Discount rates are determined from analyses performed by a
third-party actuarial firm of AA/Aa rated bonds with cash flows
matching the expected payments to be made under our plans.
Assumed health care cost trend rates have a significant
effect on the amounts reported for our retiree health care plans.
A one-percentage-point change in assumed health care cost
trend rates would have had the following effects:
Other
Postretirement
Benefits
One One
Percentage Percentage
Point Point
Increase Decrease
(millions)
Effect on total service and interest cost components
for 2005 $ 26 $ (20)
Effect on postretirement benefit obligation at
December 31, 2005 $220 $(179)
In addition, we sponsor defined contribution thrift-type savings
plans. During 2005, 2004 and 2003, we recognized $33 million,
$29 million and $27 million, respectively, as contributions to
these plans.
Certain regulatory authorities have held that amounts recovered
in utility customers’ rates for other postretirement benefits, in
excess of benefits actually paid during the year, must be deposited
in trust funds dedicated for the sole purpose of paying such bene-
fits. Accordingly, certain of our subsidiaries fund postretirement
benefit costs through Voluntary Employees’ Beneficiary Associa-
tions. Our remaining subsidiaries do not prefund postretirement
benefit costs but instead pay claims as presented.
Note 23. Commitments and Contingencies
As the result of issues generated in the ordinary course of business,
we are involved in legal, tax and regulatory proceedings before vari-
ous courts, regulatory commissions and governmental agencies,
some of which involve substantial amounts of money. We believe
that the final disposition of these proceedings will not have a mate-
rial effect on our financial position, liquidity or results of operations.
Long-Term Purchase Agreements
At December 31, 2005, we had the following long-term commit-
ments that are noncancelable or are cancelable only under certain
conditions, and that third parties have used to secure financing
for the facilities that will provide the contracted goods or services:
2006 2007 2008 2009 2010 Thereafter Total
(millions)
Purchased electric
capacity(1) $441 $418 $387 $366 $352 $2,536 $4,500
Production handling
for gas and oil
production
operations(2) 54 51 36 22 14 13 190
(1) Commitments represent estimated amounts payable for capacity under power purchase
contracts with qualifying facilities and independent power producers, the last of which ends
in 2023. Capacity payments under the contracts are generally based on fixed dollar amounts
per month, subject to escalation using broad-based economic indices. At December 31, 2005,
the present value of our total commitment for capacity payments is $2.8 billion. Capacity
payments totaled $472 million, $570 million and $611 million, and energy payments totaled
$378 million, $293 million and $289 million for 2005, 2004, and 2003, respectively.
(2) Payments under this contract, which ends in 2012, totaled $52 million, $22 million and $10
million in 2005, 2004 and 2003, respectively.
In the first quarter of 2005, we paid $42 million in cash and
assumed $62 million of debt in connection with the termination of
a long-term power purchase agreement and the acquisition of the
related generating facility used by Panda-Rosemary LP, a nonutility
generator, to provide electricity to us. The purchase price was allo-
cated to the assets acquired and liabilities assumed based on their
estimated fair values as of the date of acquisition. In connection
with the termination of the agreement, we recorded an after-tax
charge of $47 million.
In the second quarter of 2005, we paid $215 million to divest our
interest in a long-term power tolling contract with a 551-megawatt
combined cycle facility located in Batesville, Mississippi. We
recorded after-tax charges of $8 million and $112 million in 2005
and 2004, respectively, related to the divestiture of the contract.
In October 2005, we reached an agreement in principle to
restructure three long-term power purchase contracts. The restruc-
tured contracts expire between 2015 and 2017 and are expected
to reduce capacity and energy payments by approximately $44 mil-
lion and $6 million, respectively, over the remaining term of the
contracts. The transaction became effective in February 2006 and
did not result in a cash outlay or charge to earnings.
84 Dominion 2005