Dominion Power 2006 Annual Report Download - page 72

of Cash Flows. Sales of these allowances are reported in operating
revenue and purchases of allowances are reported in other energy-
related commodity purchases expense in ourConsolidated State-
ments of Income.
Goodwill and Intangible Assets
We evaluate goodwill forimpairment annually, as of April 1, and
whenever an event occurs or circumstances change in the interim
that would more likely than not reduce the fair value of areport-
ing unit below its carrying amount. Intangible assets with finite
lives are amortized over their estimated useful lives or as con-
sumed.
Impairment of Long-Lived and Intangible Assets
We perform an evaluation for impairment whenever events or
changes in circumstances indicate that the carrying amount of
long-lived assets or intangible assetswith finitelives maynot be
recoverable. A long-lived or intangible assetis written down to
fair value if the sum of its expected future undiscountedcash
flows is less than its carrying amount.
Regulatory Assets and Liabilities
For utility operations subject tofederal or state cost-of-service rate
regulation, regulatory practices that assigncosts to accounting
periods may differ from accounting methods generally applied by
nonregulated companies. When it is probablethat regulatorswill
permit the recovery of current coststhrough future rates charged
to customers, we defer these costs as regulatory assets that other-
wise would be expensed by nonregulated companies. Likewise, we
recognize regulatoryliabilities when it is probablethat regulators
will require customer refunds through future ratesandwhen
revenue is collected from customers for expenditures that are not
yet incurred. Regulatory assets are amortizedinto expense and
regulatoryliabilities are amortizedinto income overtherecovery
period authorized by the regulator.
Asset Retirement Obligations
We recognize AROs at fair value as incurred or when sufficient
information becomes available to determine areasonable estimate
of the fair value of future retirement activities. These amounts are
capitalized as costs of the related tangible long-lived assets. Since
relevant market information is not available, we estimate fair
value using discounted cash flow analyses. We report the accre-
tion of the AROs due to the passage of time in other operations
and maintenance expense in our Consolidated Statements of
Income.
Amortization of Debt Issuance Costs
We defer and amortize debt issuance costs and debt premiums or
discounts over the expected lives of the respective debt issues,
considering maturity dates and, if applicable, redemption rights
held by others. As permitted by regulatoryauthorities, gainsor
losses resulting from the refinancing of debt allocable to utility
operations subject tocost-based rateregulation have also been
deferred and are amortized over the livesofthe newissues.
NOTE 3. NEWLY ADOPTED ACCOUNTING
STANDARDS
2006
SFAS 123R
Effective January 1, 2006, we adopted SFAS No. 123R which
requires that compensation expense relating to share-based pay-
ment transactions be recognized in the financial statements based
on the fair value of the equity or liability instruments issued.
SFAS No. 123R covers awide range of share plans, performance-
based awards, share appreciation rights and employee share pur-
chase plans. We adoptedSFAS No. 123R using the modified
prospective application transition method. Under this transition
method, compensation cost is recognized (a) based on the
requirements of SFAS No. 123R forall share-based awards
granted subsequent to January 1, 2006 and (b) based on the
original provisions of SFASNo. 123 forall awards granted prior
to January 1, 2006, but not vested as of that date. Accordingly,
results forprior periods were not restated.
SFAS NO. 158
Effective December 31, 2006, we adopted SFAS No. 158,
Employers’ Accounting for Defined Benefit Pension and Other Post-
retirement Plans.SFAS No. 158 requires an employer to recognize
the overfunded or underfunded status of its defined benefit pen-
sion andother postretirement benefit plans as an asset or liability,
respectively, in its balance sheet and to recognizechangesin the
funded status as a component of other comprehensive income in
the year in which the changesoccur. Thefunded status is meas-
ured as the difference between the fair value of aplan’s assets and
the benefit obligation. In addition, SFAS No. 158 requires an
employer to measure benefit plan assetsand obligations that
determine the fundedstatus of aplan as of the end of the
employer’s fiscal year, which we already do.
Our adoption of SFASNo. 158 had no impact on our results
of operations or cash flows and it will not affect our operating
resultsor cash flows in futureperiods. The following table illus-
trates the incremental effect of adopting the provisions of SFAS
No. 158 on our Consolidated Balance Sheet at December 31,
2006:
Prior to
adopting
SFAS
No. 158
Effect of
Adopting
SFAS
No. 158
As Reported
at December
31, 2006
(millions)
Assets:
Pension andother postretirement
benefit assets$1,858 $(612) $1,246
Regulatory assets 404 135 539
Liabilities:
Other current liabilities 743 2 745
Deferred income taxes and investment
tax credits 6,097 (239)5,858
Regulatory liabilities 601 13614
Other deferred credits andother
liabilities 891 82 973
Shareholders’ Equity:
Accumulated other comprehensive
loss (90) (335) (425)
Upon adoption,werecorded regulatoryassets (liabilities),
rather than an adjustment to AOCI, forpreviously unrecognized
pensionand other postretirement benefit costs(credits) expected
to be recovered (refunded) throughfuture ratesby certain of our
rate-regulated subsidiaries. The adjustments to AOCI, regulatory
assetsand regulatory liabilities at adoption of SFAS No. 158
represent the netunrecognized actuarial gains(losses), unrecog-
nized prior service cost (credit)andunrecognized transition
obligation remaining from our initial adoption of SFAS No. 106,
DOMINION2006 Annual Report 71