Dominion Power 2006 Annual Report Download - page 57

MANAGEMENT’S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
interruption coverage was terminated. All onshore property cover-
age (with the exception of OEE) and liability coverage
commensurate with past coverage remained in place for our E&P
operations. Our OEE coverage forboth onshore and offshore
E&P operations was reinstated under a new policy. However,
efforts to replace the terminatedinsurance forour E&P oper-
ations for offshore property damage and offshore business inter-
ruption with similar insurance on commercially reasonable terms
were unsuccessful. This lack of insurance could adversely affect
our results of operations.
Our decision to pursue asale of most of our E&P assets is
expected to be dilutive to earnings, could have an adverse impact on
our results of operations and may not yield the benefits that we
expect.On November 1, 2006, we announced our decision to
pursue asale of all of our E&P assets, excluding those assets
located in the Appalachian Basin.Weexpect that a sale of our
E&P assets would reduce future earnings in the near term.
Although we expect that shareholder value would increase over
time, we can give no assurance that this will occur. While our
management believes it would be able to execute any sale or sales
by mid-2007, we maynot be able to sell our E&P assets within
the expected time frame. If we sell our E&P assets, we cannot be
certain of the price we would receive or the impact that such a
sale and the use of proceeds from any sale would have on our
results of operations. We mayalso incur significant costsor be
required to record certain charges in connection with any sale and
in connection with transactions related to the deployment of the
proceeds from any sale.
Additionally, uncertainty about the effect of the proposed
disposition mayhave an adverse effect on the Company, partic-
ularly our E&P business. Although we have taken steps to reduce
any adverse effects, including providing retention agreements for
employees, these uncertainties mayimpair our ability to attract,
retain andmotivate keypersonnel andcould cause partners, cus-
tomers,suppliers and others that deal with our E&P business to
seek to change future business relationships. Our E&P business
could be harmed if, despite our retention efforts, key employees
depart as aresult of the proposeddisposition.
An inability to access financial markets could affect the
execution of our business plan. Dominion and our VirginiaPower
and CNG subsidiaries rely on access to short-term money mar-
kets, longer-term capital markets and banks as significant sources
of liquidity forcapital requirements and collateral requirements
related to hedges of future gasand oil productionnot satisfied by
the cash flows from our operations. Management believes that
Dominion and our subsidiaries will maintain sufficient access to
these financial marketsbased upon current credit ratings. How-
ever, certain disruptionsoutsideof our control may increase our
cost of borrowing or restrict our ability to access oneormore
financial markets. Such disruptions could includean economic
downturn, the bankruptcy of an unrelated energy company or
changes to our credit ratings. Restrictions on our ability to access
financial markets mayaffect our ability to execute our business
plan as scheduled.
Changing rating agency requirements could negatively affect our
growth and business strategy. As of February 1, 2007, Dominion’s
senior unsecured debt is rated BBB, positive outlook, by Stan-
dard &Poor’s;Baa2, stable outlook, by Moody’s; and BBB+,
stable outlook, by Fitch. In order to maintain our current credit
ratings in light of existing or future requirements, we mayfindit
necessary to take steps or change our business plans in ways that
mayadversely affect our growth and earnings per share. Areduc-
tion in Dominion’s credit ratings or the credit ratings of our Vir-
ginia Power and CNG subsidiaries by Standard &Poor’s,
Moody’sor Fitch could increase our borrowing costs and
adversely affect operatingresults and could require us to post
additional collateralin connection with some of our price risk
management activities.
Potential changes in accounting practices may adversely affect
our financial results. We cannot predict the impact that future
changes in accounting standards or practices mayhave on public
companies in general, the energy industry or our operations
specifically. New accounting standards could be issued that could
change the way we record revenues, expenses, assetsand liabilities.
These changes in accounting standards could adversely affect our
reported earnings or could increase reported liabilities.
Failure to retain andattract key executive officers and other skil-
led professional and technical employees could have an adverse
effect on our operations. Our business is dependent on our ability
to recruit, retain andmotivate employees. Competition forskilled
employees in some areas is high and the inability to retain and
attract these employees could adversely affect our business and
future operating results.
56 DOMINION2006 Annual Report