Dominion Power 2006 Annual Report Download - page 44

Corporate
Presented below are the Corporate segment’s after-tax results:
2006 2005 2004
(millions, except EPS amounts)
Specific items attributable to operating
segments $(149) $(505) $ (224)
DCI operations(95)(22) (82)
Peaker discontinued operations (183) (13) (9)
Telecommunications operations(1) —5(13)
Other corporate operations (208)(180) (207)
Total net expense (635) (715) (535)
Earnings per share impact $(1.80) $(2.07) $(1.61)
(1) $5 million and$(15) million are classifiedas discontinued operations in 2005
and 2004, respectively.
Specific Items Attributable to Operating Segments
Corporate includesspecific items attributable to our operating
segments that have been excluded from the profit measures eval-
uated by management, either in assessingsegmentperformance or
in allocatingresources among the segments. See Note 28 to our
Consolidated Financial Statements fordiscussion of these items.
DCI Operations
DCI’s net loss for2006 increased $73 million, primarily due to
an $85 million impairmentofaDCIinvestment duringthe third
quarter of 2006.
DCI recognized anetloss of $22 million in 2005; a decrease
of $60 million as compared to 2004. The decrease primarily
resulted from areductionin after-tax charges associated with the
impairment and divestiture of other DCI investments.
Peaker Discontinued Operations
In 2006, we recognized a $283 million ($183 million after-tax)
loss from the discontinued operations of the Peaker facilities. The
loss from discontinued operations includes:
$253 million ($164 million after-tax) associated with the
impairment of the merchantgeneration facilities; and
$30 million ($19 million after-tax) of operatinglosses.
As aresult of the pending sale, we reclassified 2005 and 2004
after-tax operatinglosses of $13 million and$9million,
respectively, to discontinued operations.
Telecommunications Operations
We sold our telecommunications business in May 2004 to Elantic
Telecom, Inc., which subsequently filed forbankruptcy. Due to
the resolution of certain contingencies, we recognized an after-tax
benefit of $5 million in 2005 related to the discontinuedtele-
communications business.
Other Corporate Operations
The netexpenses associated with other corporateoperations for
2006 increased by $28 million as compared to 2005, primarily
reflecting a $37 million after-tax charge to eliminate the applica-
tion of hedge accounting for certain interest rate swaps associated
with our junior subordinated notes payable to affiliated trusts.
The netexpenses associated with other corporateoperations
for2005 decreased by $27 million as compared to 2004, primar-
ily reflecting an increase in interest income from affiliate advances
and higher income tax benefits. This was partially offset by the
absence of a $28 million after-tax benefit in 2004 associated with
the disposition of CNG International’s investment in Australian
pipeline assets.
SELECTED INFORMATION—ENERGY TRADING
ACTIVITIES
We engage in energy trading, marketing and hedging activities to
complement our integrated energy businesses and facilitate our
risk management activities. As part of these operations, we enter
into contracts for purchases and sales of energy-related commod-
ities, including natural gas, electricity, oil and coal. Settlements of
contracts mayrequire physical delivery of the underlying
commodity or cash settlement. We also enter into contracts with
the objective of benefiting from changes in prices. For example,
after entering into acontract topurchase acommodity, we typi-
cally enter into asales contract, or acombination of sales con-
tracts,with quantities and delivery or settlement terms that are
identical or very similar to those of the purchase contract. When
the purchase and sales contracts are settled either by physical
delivery of the underlying commodity or by net cash settlement,
we mayreceive anetcash margin (a realized gain), or maypaya
net cash margin (a realized loss). We continually monitor our
contract positions, considering location andtiming of delivery or
settlement foreach energy commodity in relation to market price
activity.
Asummary of the changesin the unrealized gains and losses
recognized for our energy-related derivative instruments held for
tradingpurposes during2006 follows:
Amount
(millions)
Net unrealized loss at December 31, 2005 $(7)
Contracts realized or otherwise settled during the period (14)
Net unrealized gain at inception of contracts initiated during the
period —
Change in unrealized gains andlosses 63
Changes in unrealized gains andlosses attributable to changes
in valuation techniques —
Net unrealized gain at December 31, 2006 $42
The balance of net unrealized gainsand losses recognized for
our energy-related derivative instruments held for trading pur-
poses at December 31, 2006, is summarized in the following table
based on the approach used to determine fair value:
Maturity Based on Contract Settlement
or DeliveryDate(s)
Source of Fair Value
Less
than 1
year
1-2
years
2-3
years
3-5
years
In excess
of 5 years Total
(millions)
Actively-quoted(1) $42 $(2) $1$—$— $41
Other external
sources(2) —1(4) 3 11
Models andother
valuation methods ———— ——
Total $42 $(1) $(3) $3$1 $42
(1) Exchange-traded and over-the-counter contracts.
(2) Values based on prices from over-the-counter broker activity and industry
services and, where applicable, conventional option pricingmodels.
DOMINION2006 Annual Report 43