Dominion Power 2006 Annual Report Download - page 52

shall increase base rates, if needed, to allow the utility the
opportunity to recover its costs and earn afair rate of
return if the utility is foundto have earnings more than 50
basis points below the established ROE; or
mayorder acredit tocustomers if the utility is foundto
have earnings more than50basis points above the estab-
lished ROE, and reduce ratesif the utility is foundto have
such excess earnings duringtwo consecutive biennial review
periods; and
mayauthorize performance incentives if appropriate.
Authorize stand-alone rate adjustments for recovery of certain
costs, including new generation projects, major generating
unit modifications, environmental compliance projects,
FERC-approved costs fortransmission service, energy effi-
ciency and conservationprograms, and renewable energy pro-
grams;and
Authorize an enhanced ROE as afinancial incentive forcon-
struction of majorbaseload generation projects and for renew-
able energy portfolio standard programs.
The bills would also continue statutory provisions directing us
to file annual fuel cost recovery cases with theVirginia Commis-
sion beginning in 2007 and continuing thereafter.However, our
fuel factor increase as of July 1, 2007 would be limitedtoan
amount that resultsinresidential customers not receiving an
increase of more than 4% of total rates as of that date, and the
remainder would be deferred and collected over three years, as
follows:
in calendaryear 2008, the deferral portion collected is limited
to an amount that resultsinresidential customers not receiv-
ing an increase of more than 4% of total rates as of January 1,
2008;
in calendaryear 2009, the deferral portion collected is limited
to an amount that resultsinresidential customers not receiv-
ing an increase of more than 4% of total rates as of January 1,
2009; and
the remainder of the deferral balance, if any, would be col-
lected in the fuelfactor in calendar year 2010.
The Governor has until March 26, 2007 to sign, propose
amendments to,or veto the bills. With theGovernor’s signature,
the bills would become laweffectiveJuly 1, 2007. At this time,
we cannot predict the outcome of these legislative proposals.
Transmission Expansion Plan
Each year, as part of PJM’s Regional Transmission Expansion
Plan (RTEP) process, reliability projects will be authorized. In
June 2006, PJM, through the RTEP process, authorized con-
struction of numerous electric transmission upgrades through
2011. We are involvedintwo ofthemajor construction projects.
The first project is an approximately270-mile 500-kilovolt (kV)
transmission line from southwestern Pennsylvania to Virginia, of
which we will construct approximately 70 miles in Virginiaand a
subsidiary of Allegheny Energy,Inc. will construct the remainder.
The second project is an approximately56-mile 500 kV trans-
missionlinethat we will construct in southeastern Virginia. These
transmission upgrades are designed to improve the reliability of
service to our customersandtheregion.The siting and con-
struction of these transmission lines will be subject toapplicable
state and federal permits and approvals.
Offshore Oil and Gas Leases
Abill passed by the U.S. House of Representatives on January 16,
2007, but not yet enacted intolaw, addresses certain federal off-
shore oil and gasleases issued in 1998 and 1999 that do not
include a provision requiringroyalties to be paid on specified
royalty suspension volumes when oil and gas commodity futures
closing prices exceed specified threshold levels (as is the case under
current market conditions). The bill imposes aconservation of
resources fee of $1.25 per million British thermal units (MMbtu)
of gasand $9.00 per barreloil (2005 dollars) produced from such
leases on andafter October 1, 2006 in calendaryearswhen the
average oil or gas(as applicable) commodity futures monthly clos-
ing prices on the New York Mercantile Exchange (NYMEX)
exceed $4.34 per MMbtu forgas or $34.73 foroil (2005 dollars).
In addition,commencing on and after October 1, 2006, in
calendar yearswhen the average NYMEX monthly closing prices
exceed the foregoing thresholds, a conservation of resources fee of
$3.75 per acre perlease peryear is imposed on such leases that are
non-producing. The bill permits lessees to avoid payment of the
foregoing fee by agreeing to lease amendments that provide that
royaltiesare payable with respect toroyalty suspension volumes
on andafter October 1, 2006 when the foregoing threshold con-
ditions are met. Finally, the bill imposes sanctions on lessees,
including disqualification from future offshore lease sales, for
thosewho do notenter into such lease amendments and fail to
paythe fee. The Senate is considering similar legislation.
Common Stock Dividend Increase
In January 2007, our quarterly dividend rate increased from 69
cents per share to 71 cents per share, for an annual ratein 2007 of
$2.84. While all dividends are payable only as and when declared
by the Board of Directors, our expected cash flow and earnings
should enable us to paydividends at the current rateandtomake
future increases when our Board of Directors deems it financially
prudent. The Board of Directors declares common stock divi-
dends on aquarterly basis.
Environmental Matters
We are subject tocosts resulting from anumber of federal, state
and local laws and regulations designed to protect human health
and the environment.These laws and regulations affect future
planning and existing operations. They can result in increased
capital, operatingand other costs as aresult of compliance,
remediation, containment and monitoring obligations. To the
extent that environmental costs are incurredin connection with
operations regulated by the VirginiaCommission, duringthe
period ending December 31, 2010, in excess of the level currently
included in the Virginiajurisdictionalelectric retail rates, our
results of operations will decrease. After that date, recovery
through regulated rates maybe sought for only thoseenviron-
mental costs related to regulated electric transmission and dis-
tribution operationsandrecovery, if any, through the generation
component of rates will be dependent upon the marketprice of
electricity. We also mayseek recovery through regulated rates for
environmental expenditures related to regulated gas transmission
and distribution operations. However, the foregoingrisks are
subject tochange upon the adoption, if any, of the proposed
2007 Virginia Restructuring Act Amendments.
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