Dominion Power 2006 Annual Report Download - page 83

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
obligationtothe VIEs istopurchase the synthetic fuel that the VIEs
produce according totheterms oftheapplicablepurchase contracts.
In September 2006, we, along with three othergas andoil
exploration companies, entered into along-term contract with an
unrelated LLC whose onlycurrent activities are to design, con-
struct, install andown the Thunder Hawk facility, asemi-
submersible production facility, to be locatedinthedeepwater
Gulf of Mexico. Certain variable pricingterms and guarantees in
the contract protect the equity holder from variability, andthere-
fore, the LLC wasdetermined to beaVIE. After completing our
FIN 46R analysis,weconcluded that although our25% interest in
the contract, as aresult ofitspricing terms and guarantee, repre-
sents avariable interest in the LLC, we are not theprimary benefi-
ciary. Our maximumexposure to loss from the contractual
arrangement is approximately $63 million. AsofDecember 31,
2006 we have notmadeanypayments to the LLC.
In June2006, we entered intoasix-month weather derivative
contract with aspecial purpose entity (SPE) that would have pro-
vided us cash payments based ontheoccurrence of specific
hurricane-related weather eventsintheGulf of Mexico. This
weather derivative wasexecuted as an alternative to traditional
business interruption insurance. Concurrent withtheexecution of
the weather derivative contract,the SPE issued $50 million of
catastrophe bonds. If specific weather events had occurred, we
wouldhave been entitled to proceeds from the SPE of upto$50
million. Asnospecific weather events occurred during the term of
the contract,which expiredDecember 2006, we did notreceive
any payments from the SPE. Under the weather derivative con-
tract, we were required to make fixedpayments totheSPE, which
were used by the SPE topayaportion of the bondinvestors’
interest payments. Wepaid approximately $5.2 million in fixed
payments to the SPE for theyear ended December 31, 2006. We
were also required to reimburse theSPE for certain operating costs,
including bondissuance costs and other ongoing fees.Wepaid
$1.3 million to the SPE for these operating costs in the yearended
December 31, 2006. OurFIN 46R analysis determined thatthe
SPEdid nothavesufficientequityinvestment atrisk,and therefore
wasaVIE. Furthermore, we concluded thatalthough our interest
in the contract represented avariable interest in the SPE, we were
notthe primary beneficiary. Wewere not subject toanyrisk of loss
from the contractualarrangement, asouronly obligation was to
make fixedpayments totheSPEandpaycertain operatingcosts of
the SPE.
As discussed inNote 27, DCI holds an investment in the sub-
ordinated notes of athird-party collateralized debt obligation
(CDO) entity. In June 2006, the CDO entity’s equity investor
withdrewits capital, which required aredetermination of whether
the CDO entity is aVIEunder FIN 46R. Weconcluded that the
CDO entity is aVIE and that DCI istheprimary beneficiary of
the CDO entity, which we have consolidatedinaccordance with
FIN 46R.
Our Consolidated Balance Sheets as of December 31, 2006
and 2005 reflect net property, plant and equipment of $337 mil-
lion and$943 million, respectively, and debt of $370 million and
$1.1 billion, respectively, related to the consolidation, in accord-
ance with FIN 46R, of certain variable interest lessor entities
through which we have financed and leased several power gen-
eration projects, as well as our corporate headquarters and aircraft.
The debt is non-recourse to us and is secured by the entities’
property, plant and equipment. In 2006, the leases on our corpo-
rate headquarters and aircraft and three of the power generation
facilities terminated. Upon termination of the leases, we took
legal title to these assets through repayment of the lessor’s related
debt.The remaining debt at December 31, 2006, relates to the
lease of apower generation facility that terminates in August
2007. We also intend to take legal title to this generation facility
through the repayment of the lessor’s related debt at the end of
the lease term.
NOTE 17. SHORT-TERM DEBT AND CREDIT
AGREEMENTS
Joint Credit Facility
We use short-term debt, primarily commercial paper, to fund
working capital requirements, as abridge to long-term debt
financing and as bridge financing foracquisitions, if applicable.
The level of borrowings mayvary significantly during the course
of the year, depending upon the timingand amount of cash
requirements not satisfied by cash from operations. In addition,
we utilize cash and letters of credit tofund collateral requirements
under our commodities hedging program.Collateral requirements
are impactedby commodity prices, hedging levels and the credit
quality of our companies and their counterparties. Short-term
financing is supported by a$3.0 billion five-yearjoint revolving
credit facilitywith Virginia Power and CNG, dated February
2006 that terminates in February 2011. This credit facility is
being used forworking capital, as support for the combined
commercial paper programsofVirginiaPower, CNG and the
Company and other general corporate purposes. This credit
facility can also be used to support up to $1.5 billion of letters of
credit.
At December 31, 2006, total outstanding commercial paper
supported by the joint credit facilitywas$1.76 billion, with a
weighted average interest rate of 5.41%. At December 31, 2005,
total outstanding commercial paper supported by the previous
joint credit facility was $1.4 billion, with a weighted average
interest rate of 4.46%.
At December 31, 2006 and 2005, total outstanding letters of
credit supported by joint credit facilities were $236 million and
$892 million, respectively.
At December 31, 2006, capacity available underthejoint
credit facilitywas$1.0 billion.
82 DOMINION2006 Annual Report