Dominion Power 2006 Annual Report Download - page 74

age marketprice. In 2005, we exchanged an additional $1 million
of outstanding contingent convertible senior notes fornew notes
with a conversion feature that requires that the principal amount
of each note be repaid in cash.
NOTE 4. RECENTLY ISSUED ACCOUNTING
STANDARDS
FIN 48
In July 2006, the FASBissued Interpretation No. 48, Accounting
for Uncertainty in Income Taxes(FIN 48). Taking into consid-
eration the uncertainty and judgment involved in the determi-
nation and filing of income taxes, FIN 48 establishes standards for
recognition and measurement, inthefinancialstatements,ofposi-
tionstaken, orexpected to betaken, by an entity initsincome tax
returns. Positions taken by an entity in its income tax returns that
are recognized initsfinancial statements must satisfy amore-
likely-than-not recognition threshold, assumingthat the position
will be examined by taxingauthorities with full knowledge of all
relevantinformation.
Beginning in 2007, FIN 48 requires disclosures about posi-
tionstaken by an entity in its taxreturns that are not recognized
in its financial statements, descriptions of open taxyears by major
jurisdiction andreasonably possible significant changes in the
amount of unrecognized taxbenefits that could occur in the next
twelve months.
With theadoption of FIN 48, we estimate that the cumulative
effect of the change in accounting principle will reduce the
beginning balance of our retained earnings as of January 1, 2007
by between $35 million and $75 million.
SFAS NO. 155
In February 2006, the FASB issued SFAS No. 155, Accounting for
Certain Hybrid Financial Instruments. SFAS No. 155 permits fair
value remeasurement for any hybrid financial instrument that
contains an embedded derivative that would otherwise require
bifurcation. Our adoption of SFAS No. 155 on January 1, 2007
will have no impact on our results of operations or financial con-
dition.
SFAS NO. 157
In September 2006, theFASB issued SFAS No. 157, Fair Value
Measurements,which defines fair value, establishes aframeworkfor
measuring fair value and expands disclosures related to fair value
measurements. SFAS No. 157 clarifies that fair value should be
based on assumptions that market participants woulduse when
pricing an asset or liability and establishes afair value hierarchy of
three levels that prioritizes the information used to develop those
assumptions. The fair value hierarchy gives thehighest priorityto
quoted prices in active markets and thelowest priorityto
unobservable data. SFAS No. 157 requires fair value measurements
to be separately disclosed by level within thefair value hierarchy.
The provisions of SFAS No. 157 will become effective for us
beginning January 1, 2008. Generally, theprovisions of this state-
ment areto be applied prospectively. Certain situations, however,
require retrospective application as of the beginning of theyear of
adoption through therecognition of a cumulative effect of
accounting change. Such retrospective application is required for
financial instruments, including derivatives and certain hybrid
instruments with limitations on initial gains or losses under EITF
Issue No. 02-3, Issues Involved in Accounting forDerivative Con-
tracts Held for Trading Purposes and Contracts Involved in Energy
Trading and RiskManagement Activities,andSFAS No. 155. We
arecurrently evaluating theimpact that SFAS No. 157 will have on
our results of operations and financial condition.
SFAS NO. 159
In February 2007, the FASB issued SFAS No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities. SFAS
No. 159 provides an entity with the option, at specified election
dates, to measure certain financial assets and liabilities and other
items at fair value, with changes in fair value recognized in earn-
ings as those changesoccur. SFAS No. 159 also establishes pre-
sentation and disclosure requirements that include displaying the
fair value of thoseassetsand liabilities forwhich the entity elected
the fair value option on the face of the balance sheet and provid-
ing management’s reasonsfor electing the fair value option for
each eligible item. The provisions of SFASNo. 159 will become
effective forusbeginning January 1, 2008. Early adoption is
permitted provided that an election is alsomade to apply the
provisions of SFASNo. 157. We are currently evaluating the
impact that SFAS No. 159 mayhave on our results of operations
and financial condition.
NOTE 5. ACQUISITIONS
Pablo Energy LLC
In February 2006, we completed the acquisition of Pablo Energy
LLC (Pablo) forapproximately $92 million in cash. Pablo holds
producing and other properties located in the Texas Panhandle
area. The operations of Pablo are included in our Dominion E&P
operatingsegment.
Kewaunee Power Station
In July 2005, we completed the acquisition of the 556-megawatt
(Mw) Kewaunee nuclear power station (Kewaunee), locatedin
northeastern Wisconsin, from Wisconsin Public ServiceCorpo-
ration, a subsidiary of WPS Resources Corporation (WPS), and
Wisconsin Power and Light Company (WP&L), a subsidiary of
Alliant Energy Corporation for approximately $192 million in
cash. We sell 100% of the facility’s output to WPS (59%) and
WP&L (41%) under two power purchase agreements that will
expire in 2013. The operations of Kewauneeare includedin our
Dominion Generation operatingsegment.
USGen Power Plants
In January 2005, we completed the acquisition of threefossil-
fired generation facilities from USGen New England, Inc. for
$642 million in cash. The plants, collectively referred to as
Dominion New England, include the 1,560 Mw Brayton Point
Station in Somerset, Massachusetts; the 754 Mw Salem Harbor
Station in Salem, Massachusetts; and the 432 Mw Manchester
Street Station in Providence, Rhode Island. The operations of
Dominion New England are includedin our Dominion Gen-
eration operatingsegment.
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