Dominion Power 2006 Annual Report Download - page 75

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 6. OPERATING REVENUE
Our operating revenue consists of the following:
Year Ended December 31, 2006 2005 2004
(millions)
Electric sales:
Regulated $5,451 $5,543 $ 5,180
Nonregulated 2,528 3,044 1,199
Gas sales:
Regulated 1,397 1,763 1,422
Nonregulated 2,311 2,942 2,069
Other energy-related commodity sales 1,400 1,672 1,272
Gas transportation andstorage 946 902 803
Gas and oil production 1,892 1,704 1,636
Other 557 401 348
Total operating revenue $16,482 $17,971 $13,929
NOTE 7. INCOME TAXES
Income from continuing operations before provision for income
taxes, classified by source of income, and the details of income tax
expense were as follows:
Year Ended December 31, 2006 2005 2004
(millions)
Income before provision for
taxes:
U.S. $2,465 $1,606 $1,952
Non-U.S. 24 29 26
Total 2,489 1,635 1,978
Income tax expense:
Current
Federal 195 420 70
State 140 103 80
Non-U.S. 2—(3)
Total current 337 523 147
Deferred
Federal 537 86 576
State 73 (19) (13)
Non-U.S. (11) 15 12
Total deferred(1) 599 82 575
Amortization of deferred
investment tax credits (16) (17) (17)
Total income tax expense $920 $588$705
(1) 2006 includes a decrease of $163 million in federal and state valuation allow-
ances. Also, includes a$12 million decrease resulting from the enactment of
lower Canadian tax rates.
For continuing operations, the statutory U.S. federal income tax
rate reconciles to the effective income tax rate as follows:
Year Ended December 31, 2006 2005 2004
U.S. statutory rate 35.0% 35.0% 35.0%
Increases (reductions) resulting from:
Recognition of deferred taxes -stock of
subsidiaries held for sale 5.8 ——
State taxes, netof federal benefit 5.7 3.5 1.7
Preferred dividends 0.2 0.3 0.3
Valuation allowances(6.5) 1.0 0.2
Other benefits andtaxes -foreign
operations (0.7) (0.4) —
Amortization of investment tax credits (0.5) (0.8) (0.7)
Employee stock ownership plan
deduction (0.5) (0.8) (0.5)
Employee pension andother benefits (0.3) (1.2) (0.5)
Other, net (1.2) (0.7) 0.1
Effective tax rate 37.0% 35.9% 35.6%
In connection with thepending sale of two of our regulated
gas distribution subsidiaries, we established $145 million of
deferred taxliabilities on our Consolidated Balance Sheet in
accordance with EITF Issue No. 93-17, Recognition of Deferred
Tax Assets for aParentCompany’s Excess Tax Basis in theStock ofa
Subsidiary that is Accounted for as aDiscontinued Operation (EITF
93-17). Although these subsidiaries are not classified as dis-
continued operations, EITF 93-17 requires that the deferred tax
impact of the excess of the financial reporting basis over the tax
basis of aparent’s investment in a subsidiary be recognized when
it is apparent that this difference will reverse in the foreseeable
future. We recorded acharge since the financial reporting basis of
our investment in Peoples and Hope exceeds our taxbasis. This
difference and related deferred taxes will reverse and will partially
offset current taxexpensethat will be recognized upon closing of
the sale.
In addition,fortheyear ended December 31, 2006, the reduc-
tion in valuation allowances reflects the expected utilization of
federal and state capital loss carryforwards to offset capital gain
income that is expected to be generated from the pending sale of
the two subsidiaries, partially offset by valuation allowance
increases primarily associated with deferred taxassetsrecognized
as aresult of impairments of certain DCI investments discussed in
Note 27.
74 DOMINION2006 Annual Report