Dominion Power 2006 Annual Report Download - page 40

The effect of this increasewasoffset by acomparable increase
in Purchased gas expense;
A$276 million increase in nonutility coal sales resulting from
highercoal prices ($171 million) and increased sales volumes
($105 million). This increasewasmore than offset by acorre-
sponding increase in Other energy-related commodity purchases
expense;
A$110 million increase due to highernatural gasprices
related to market-based services forthe optimization of trans-
portation andstorage assets by our E&P operations, partially
offset by the effect of unfavorable price changes on unsettled
contracts. This increase was largely offset by acorresponding
increase in Purchased gas expense;
A$110 million increase in sales of gaspurchased by E&P
operations to facilitate gas transportation and satisfy other
agreements.This increase was largely offset by acorresponding
increase in Purchased gas expense;
An $87 million increase in sales of purchased oil by E&P
operations. This increase was more than offset by a
corresponding increase in Other energy-related commodity
purchases expense;
A$37million increase in sales of emissions allowances held for
resale primarily due to higher prices. This increase was more
than offset by a corresponding increase in Other energy-related
commodity purchasesexpense.
Operating Expenses
Electric fuel and energy purchases expense increased 120% to
$4.7 billion, primarily reflecting the combinedeffectsof:
A$1.2 billion increase related to the designation of certain
commodity derivative contracts as held for non-trading pur-
poses effective January 1, 2005, which were previouslyheld for
tradingpurposes as discussed in Operating Revenue;
A$796 million increase related to utility operations primarily
resulting from highercommodity prices including purchased
power; and
A$556 million increase due to the addition of Dominion
New England and Kewauneeand afull year of commercial
operations at Fairless.
Purchased electric capacity expense decreased 14% to $504
million, as aresult of the termination of several long-term power
purchaseagreements in connection with thepurchase of the
related generating facilities in 2005 and 2004.
Purchased gas expense increased 35% to $3.9 billion, princi-
pally resulting from the following items which are discussedin
Operating Revenue:
A$522 million increase associated with gas aggregation activ-
ities and nonregulated retail energy marketing operations;
A$305 million increase associated with regulated gas dis-
tribution operations; and
A$124 million increase related to E&P operations.
Other energy related-commodity purchases expense increased
41% to $1.4 billion, primarily reflecting the following items
which are discussedinOperating Revenue:
A$263 million increase in the cost of coal purchased for
resale;
A$91million increase related to purchases of oil by E&P
operations; and
A$47million increase in emissionsallowances purchased for
resale.
Other operations and maintenance expense increased 11% to
$3.1 billion, resulting from:
A$423 million loss related to the discontinuance of hedge
accounting for certain gas and oil hedges resulting from an
interruption of gasand oil productionin the Gulf of Mexico
caused by the 2005 hurricanes;
A$361 million increase due to the addition of Dominion
New England and Kewauneeand afull year of commercial
operations at Fairless;
A$193 million increase in salaries and benefits, due to higher
incentive-based compensation ($106 million), wages ($43
million) and pensionand medical benefits ($44 million);
A$77million charge resulting from the termination of along-
term power purchaseagreement;
A$75million increase in hedge ineffectiveness expense asso-
ciated with E&P operations, primarily due to an increase in
the fair value differential between the delivery location and
commodity specifications of our derivative contracts and the
delivery location and commodity specifications of ourfore-
casted gas and oil sales;
A$59million lossrelated to the discontinuance of hedge
accounting in March 2005 forcertain oil hedges primarily
resulting from adelayinreaching anticipated productionlev-
els in the Gulf of Mexico, and subsequent changes in the fair
value of thosehedges;
A$51million charge related to credit exposure associated with
the bankruptcy of Calpine Corporation;
A$35million charge related to our investment in andplanned
divestiture of DCI assets;
These increases were partially offset by the following:
A$344 million decrease related to the designation of certain
commodity derivative contracts as held for non-trading pur-
poses effective January 1, 2005, which were previouslyheld for
tradingpurposes as discussed in Operating Revenue;
A$186 million benefit related to FTRs;
A$139 million gain resultingfrom the sale of emissions allow-
ances held forconsumption;
A$24million net benefit resulting from the establishment of
certain regulatory assetsand liabilities in connection with the
settlement of aNorth Carolina rate case in the first quarter of
2005; and
The netimpact of the following items recognized in 2004:
A$184 million charge related to the sale of our interest in a
long-term power tolling contract in connection with our
exit from certain energy trading activities;
A$96million lossrelated to the discontinuance of hedge
accounting for certain oil hedges resulting from an inter-
ruption of oil production in the Gulf of Mexico caused by
Hurricane Ivan, and subsequent changes in the fair value of
thosehedges during the third quarter;
A$72million charge associated with the impairment of
retained interests from mortgage securitizations and ven-
ture capital and other equity investments held by DCI; and
A$71million net charge resulting from the termination of
certain long-term power purchaseagreements; partially
offset by
DOMINION2006 Annual Report 39