Dominion Power 2006 Annual Report Download - page 82

At December 31, 2006, approximately $252 million of our
regulatoryassets represented past expenditures on which we do
not earn areturn. These expenditures consist primarily of
unrecovered gas costs, RTO start-up costs and administration
fees, customer bad debts and aportion of deferred fuel costs.
Unrecovered gas costs, the ongoing portionofbad debts and
deferred fuel are recovered within two years. The previously
deferred bad debts will also be recovered over a2-year period.
NOTE 15. ASSET RETIREMENT OBLIGATIONS
Our AROs are primarily associated with the decommissioning of
our nuclear generation facilities. In addition, our AROs include
dismantlement and removal of gasandoilwells and platforms;
interim retirements of natural gas gathering, transmission, dis-
tribution andstorage pipeline components; the retirement of cer-
tain nonutility offshore natural gaspipelines; and the future
abatement of asbestos in our generation facilities. These obliga-
tionsresult from certain safety and environmental activities we are
required to perform when any pipeline is abandoned or asbestos is
disturbed.
We also have AROs related to the retirement of the approx-
imately 2,300 gas storagewells in our underground natural gas
storage network, certain electric transmission and distribution
assetslocated on property that we do not own, hydroelectric gen-
eration facilities and LNG processing and storage facilities. We
currently do nothave sufficient informationtoestimate areason-
able range of expected retirement dates forany of these assets.
Thus, AROs forthese assetswill not be reflected in our Con-
solidated Financial Statements until sufficient information
becomes available to determine areasonable estimate of the fair
value of the activitiesto be performed. Generally, this will occur
when the expected retirement or abandonment dates are
determined by our operational planning. The changes to our
AROs during 2006 were as follows:
Amount
(millions)
Asset retirement obligations at December 31, 2005(1) $2,255
Obligations incurred during the period 12
Obligations settled during the period (25)
Accretion 109
Revisions in estimated cash flows(2) (384)
Other(3) (35)
Asset retirement obligations at December 31, 2006(1) $1,932
(1) Includes $6 million and $2 million reported in other current liabilities at
December 31, 2005 and 2006, respectively.
(2) Primarily reflects areduction in cost escalation rate assumptions that were
applied to updated decommissioning cost studies, which generally reflected
increases in base year costs, received for each of our nuclear facilities during
the third quarter of 2006.
(3) Primarily reflects reclassification of Peoples and HopeAROs that are reported
in liabilities held for sale.
We have established trusts dedicated to funding the future
decommissioning of our nuclear plants. At December 31, 2006
and 2005 the aggregate fair value of these trusts, consisting
primarily of debt and equity securities, totaled $2.8 billion and
$2.5 billion, respectively.
NOTE 16. VARIABLEINTEREST ENTITIES
FASB Interpretation No. 46 (revised December 2003), Con-
solidation of Variable Interest Entities, (FIN 46R) addresses the
consolidation of VIEs. An entity is considered aVIEunder FIN
46R if it does not have sufficient equitytofinance its activities
without assistance from variable interest holders or if its equity
investors lack any of the following characteristics of a controlling
financial interest:
control through voting rights,
the obligation to absorb expected losses, or
the right to receive expected residual returns.
FIN 46R requires the primary beneficiary of aVIE to con-
solidate the VIE and to disclose certain information about its
significant variable interests in the VIE. The primary beneficiary
of aVIE is the entity that receives the majority of aVIE’s
expected losses, expected residual returns, or both.
Certain variable pricing terms in some of our long-term power
and capacity contracts causethem to be consideredpotential
variable interestsin the counterparties. Two potential VIEs, with
which we have existing power purchaseagreements (signed prior
to December 31, 2003), have not provided sufficient information
forusto perform ourFIN 46R evaluation.
As of December 31, 2006, no further information has been
received from the two remaining potential VIEs. We will con-
tinue our efforts to obtain information andwill complete an
evaluation of our relationship with each of these potential VIEs if
sufficient information is ultimately obtained. We have remaining
purchasecommitments with these two potential VIE supplier
entities of $1.3 billion at December 31, 2006. We are not subject
to any risk of loss from these VIEs, other than the remaining
purchasecommitments. We paid $98 million, $106 million and
$111 million for electric generation capacity and $75 million,
$102 million and $59 million for electric energy from these enti-
ties for the years ended December 31, 2006, 2005 and 2004,
respectively.
In February 2006, we restructured three long-term power
purchase contracts withtwoVIEs, ofwhich we are not the primary
beneficiary. The restructured contractsexpire between 2015 and
2017. Total debtheld bytheentities is approximately $299 mil-
lion. Wehave remaining purchase commitments with thesetwo
VIE supplier entities of$1billion at December 31, 2006. We are
not subject toanyrisk ofloss fromtheseVIEs, other than the
remaining purchase commitments. Wepaid $116 million, $116
millionand$114 million for electric generation capacity and $55
million, $57 millionand$47million for electric energy tothese
entities for theyears ended December 31, 2006, 2005 and 2004,
respectively.
During 2005, we entered intofour long-term contracts with
unrelated limited liability companies (LLCs)topurchase synthetic
fuel produced from coal. Certain variable pricing terms in thecon-
tracts protect theequity holders fromvariability in the cost oftheir
coal purchases, andtherefore, the LLCs weredetermined tobeVIEs.
After completing our FIN 46R analysis, we concluded that although
our interests in the contracts, as aresult of their pricing terms, repre-
sent variable interests in the LLCs, we are not the primary benefi-
ciary. We paid $341 millionand$205 million to the LLCsfor coal
andsynthetic fuelproduced fromcoal for theyears ended
December 31, 2006 and2005, respectively. We are notsubject to
anyriskof loss from thecontractual arrangements, as our only
DOMINION2006 Annual Report 81