Dominion Power 2006 Annual Report Download - page 59

MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING
Management of Dominion Resources,Inc. (Dominion) under-
stands and accepts responsibility for our financial statements and
related disclosures and the effectiveness of internal control over
financial reporting (internal control). We continuously strive to
identify opportunities to enhance the effectivenessand efficiency
of internal control, just as we do throughout all aspects of our
business.
We maintain asystem of internal control designed to provide
reasonable assurance, at areasonable cost, that our assets are safe-
guarded against loss from unauthorized use or disposition and
that transactions are executed and recorded in accordance with
established procedures. This system includes written policies,an
organizational structure designed to ensure appropriate segrega-
tion of responsibilities, careful selection andtraining of qualified
personnel and internal audits.
The Audit Committee of the Board of Directors of Dominion,
composed entirely of independent directors, meets periodically
with theindependent registered public accounting firm, the
internal auditors and management to discuss auditing, internal
control, and financial reporting matters of Dominion and to
ensure that each is properly discharging its responsibilities. Both
the independent registered public accounting firm and the
internal auditors periodically meet alone with the Audit Commit-
tee and have free access to the Committee at any time.
SECrules implementing Section 404 of the Sarbanes-Oxley
Act of 2002 require our 2006 Annual Report to contain a
management’s report and areport of the independent registered
public accounting firm regarding the effectivenessof internal
control. As abasis forour report, we tested and evaluated the
designandoperating effectiveness of internal controls. Based on
our assessment as of December 31, 2006, we make the following
assertion:
Management is responsibleforestablishing and maintaining
effective internal control over financial reporting of Dominion.
There are inherent limitations in the effectivenessof any
internal control,including the possibility of human error and the
circumvention or overriding of controls. Accordingly, even effec-
tive internal controlscanprovide only reasonable assurance with
respect tofinancial statement preparation. Further, because of
changes in conditions, the effectiveness of internal control may
vary over time.
On December 31, 2003, we adopted Financial Accounting
Standards Board Interpretation No. 46 (revised December 2003),
Consolidation of Variable Interest Entities,forourinterests in spe-
cial purpose entities, referred to as SPEs. As aresult, we have
included in our consolidated financial statements certain SPEs.
Our Consolidated Balance Sheet, as of December 31, 2006,
reflects $337 million of net property, plant and equipment and
$370 million of related debt attributable to these SPEs. As these
SPEs areowned by unrelated parties, we do nothave the author-
ity to dictate or modify, and therefore could not assess the
internal controlsinplace at these entities. Our conclusion regard-
ing the effectiveness of Dominion’s internal control does not
extend to the internal controlsof these SPEs.
We evaluated Dominion’s internal control over financial
reporting as of December 31, 2006. This assessment was based on
criteria for effective internal control over financial reporting
described in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Com-
mission. Based on this assessment, we believe that Dominion
maintained effective internal control over financial reporting as of
December 31, 2006.
The independent registered public accounting firm that aud-
ited the financial statements has issued an attestation report on
our assessment of the internal control over financial reporting.
February 28, 2007
58 DOMINION2006 Annual Report