Dominion Power 2005 Annual Report Download - page 87

Lease Commitments
We lease various facilities, onshore and offshore drilling rigs,
vehicles and equipment primarily under operating leases. Payments
under certain leases are escalated based on an index such as the
consumer price index. Future minimum lease payments under non-
cancelable operating and capital leases that have initial or remain-
ing lease terms in excess of one year as of December 31, 2005 are
as follows:
2006 2007 2008 2009 2010 Thereafter Total
(millions)
$131 $142 $142 $132 $106 $345 $998
Rental expense totaled $160 million, $123 million and $105
million for 2005, 2004 and 2003, respectively, the majority of
which is reflected in other operations and maintenance expense.
We have an agreement with a voting interest entity (lessor) to
lease the Fairless Energy power station in Pennsylvania (Fairless),
which began commercial operations in June 2004. During con-
struction, we acted as the construction agent for the lessor, con-
trolled the design and construction of the facility and have since
been reimbursed for all project costs ($898 million) advanced to
the lessor. We make annual lease payments of $53 million, that
are reflected in the lease commitments table. The lease expires in
2013 and at that time, we may renew the lease at negotiated
amounts based on original project costs and current market condi-
tions, subject to lessor approval; purchase Fairless at its original
construction cost; or sell Fairless, on behalf of the lessor, to an
independent third party. If Fairless is sold and the proceeds from
the sale are less than its original construction cost, we would be
required to make a payment to the lessor in an amount up to
70.75% of the original project costs adjusted for certain other costs
as specified in the lease. The lease agreement does not contain
any provisions that involve credit rating or stock price trigger events.
Environmental Matters
We are subject to costs resulting from a steadily increasing
number of federal, state and local laws and regulations designed
to protect human health and the environment. These laws and
regulations can result in increased capital, operating and other
costs as a result of compliance, remediation, containment and
monitoring obligations.
Historically, we recovered such costs arising from regulated elec-
tric operations through utility rates. However, to the extent environ-
mental costs are incurred in connection with operations regulated by
the Virginia Commission during the period ending December 31,
2010, in excess of the level currently included in Virginia jurisdic-
tional rates, our results of operations will decrease. After that date,
we may seek recovery through rates of only those environmental
costs related to our transmission and distribution operations.
Superfund Sites
— From time to time, we may be identified as
a potentially responsible party (PRP) to a Superfund site. The EPA
(or a state) can either (a) allow such a party to conduct and pay for
a remedial investigation, feasibility study and remedial action or
(b) conduct the remedial investigation and action and then seek
reimbursement from the parties. Each party can be held jointly,
severally and strictly liable for all costs. These parties can also bring
contribution actions against each other and seek reimbursement
from their insurance companies. As a result, we may be responsible
for the costs of remedial investigation and actions under the Super-
fund Act or other laws or regulations regarding the remediation of
waste. We do not believe that any currently identified sites will
result in significant liabilities.
In 1987, we and a number of other entities were identified by
the EPA as PRPs at two Superfund sites located in Kentucky and
Pennsylvania. In 2003, the EPA issued its Certificate of Completion
of remediation for the Kentucky site. Future costs for the Kentucky
site will be limited to minor operations and maintenance expendi-
tures. Remediation design is complete for the Pennsylvania site,
and total remediation costs are expected to be in the range of
$13 million to $25 million. Based on allocation formulas and the
volume of waste shipped to the site, we have accrued a reserve of
$2 million to meet our obligations at these two sites. Based on a
financial assessment of the PRPs involved at these sites, we have
determined that it is probable that the PRPs will fully pay their share
of the costs. We generally seek to recover our costs associated with
environmental remediation from third-party insurers. At December
31, 2005, any pending or possible insurance claims were not
recognized as an asset or offset against obligations.
Other
— Before being acquired by us in 2001, Louis Dreyfus Nat-
ural Gas Corp. (Louis Dreyfus) was one of numerous defendants in
a lawsuit consolidated and pending in the 93rd Judicial District
Court in Hidalgo County, Texas. The lawsuit alleges that gas wells
and related pipeline facilities operated by Louis Dreyfus and facili-
ties operated by other defendants caused an underground hydro-
carbon plume in McAllen, Texas. The plaintiffs claim that they have
suffered damages, including property damage and lost profits, as a
result of the alleged plume. Although the results of litigation are
inherently unpredictable, we do not expect the ultimate outcome
of the case to have a material adverse impact on our results of
operations, cash flows or financial position.
We have determined that we are associated with 21 former
manufactured gas plant sites. Studies conducted by other utilities
at their former manufactured gas plants have indicated that their
sites contain coal tar and other potentially harmful materials.
None of the 21 former sites with which we are associated is under
investigation by any state or federal environmental agency, and no
investigation or action is currently anticipated. One of the former
sites is conducting a state approved post closure groundwater
monitoring program and an environmental land use restriction has
been recorded. Regarding the other sites, it is not known to what
degree these sites may contain environmental contamination.
We are not able to estimate the cost, if any, that may be required
for the possible remediation of these other sites.
Nuclear Operations
Nuclear Decommissioning — Minimum Financial Assurance —
The Nuclear Regulatory Commission (NRC) requires nuclear power
plant owners to annually update minimum financial assurance
amounts for the future decommissioning of their nuclear facilities.
Our 2005 NRC minimum financial assurance amount, aggregated
for our nuclear units, was $2.9 billion and has been satisfied by a
combination of the funds being collected and deposited in the trusts
and the real annual rate of return growth of the funds allowed by
the NRC. In June 2005, we gave notice to the NRC that we were
canceling our previous guarantee related to the nuclear units at
Virginia Power and two nuclear units at Millstone. These guarantees
were cancelled because, based on our calculations, the trusts
now contain sufficient funds to meet NRC requirements without
further assurances.
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