Dominion Power 2007 Annual Report Download - page 38

Management’s Discussion and Analysis of Financial Condition and Results of Operations, Continued
business, a charge for the termination of a long-term power sales
agreement at our State Line power station (State Line) and the
absence of business interruption insurance revenue received in
2006, associated with Hurricanes Katrina and Rita (2005
hurricanes).
2006 VS . 2005
Net income increased 34% to $1.4 billion. Favorable drivers
included increased gas and oil production, higher margins at our
merchant generation business, an increased contribution from our
retail energy marketing operations, higher business interruption
insurance proceeds received in 2006 than in 2005 and the absence
of losses incurred in 2005 due to the discontinuance of hedge
accounting for certain gas and oil derivatives resulting from
hurricane-related interruptions of gas and oil production in the
Gulf of Mexico. These favorable drivers were partially offset by an
impairment charge related to the Peaker facilities, milder weather
in our gas and electric service territories, lower realized gas prices
for our E&P operations and a reduction in gains from sales of
emissions allowances held for consumption.
Analysis of Consolidated Operations
Presented below are selected amounts related to our results of
operations:
Year Ended December 31, 2007 $ Change 2006 $ Change 2005
(millions)
Operating Revenue $15,674 $ (623) $16,297 $(1,512) $17,809
Operating Expenses
Electric fuel and
energy purchases 3,511 275 3,236 (1,434) 4,670
Purchased electric
capacity 439 (42) 481 (23) 504
Purchased gas 2,766 (171) 2,937 (1,004) 3,941
Other energy-
related commodity
purchases 252 (770) 1,022 (369) 1,391
Other operations
and maintenance 4,854 1,676 3,178 198 2,980
Gain on sale of U.S.
non-Appalachian
E&P business (3,635) (3,635) ———
Depreciation,
depletion and
amortization 1,368 (189) 1,557 198 1,359
Other taxes 552 (16) 568 (9) 577
Other income 102 (71) 173 10 163
Interest and related
charges 1,175 147 1,028 84 944
Income tax expense 1,783 856 927 354 573
Income (loss) from
discontinued
operations,
net of tax (8) 142 (150) (156) 6
Extraordinary item,
net of tax benefit (158) (158) ———
An analysis of our results of operations for 2007 compared to
2006 and 2006 compared to 2005 follows.
2007
VS . 2006
Operating Revenue decreased 4% to $15.7 billion, primarily
reflecting:
‰A $535 million decrease in sales of gas and oil production
primarily due to lower volumes due to the sale of our U.S.
non-Appalachian E&P business ($1.4 billion), partially offset
by higher realized prices ($880 million);
‰A $422 million decrease in revenue from sales of oil pur-
chased by E&P operations, primarily due to the impact of
netting sales and purchases of oil under buy/sell arrangements
associated with the implementation of Emerging Issues Task
Force (EITF) Issue No. 04-13, Accounting for Purchases and
Sales of Inventory with the Same Counterparty (EITF 04-13) in
2006. This decrease was largely offset by a corresponding
decrease in Other energy-related commodity purchases expense;
‰A $309 million decrease in nonutility coal sales, primarily
from reduced sales volumes ($281 million) related to exiting
certain sales activities and lower prices ($28 million). This
decrease was offset by a corresponding decrease in Other
energy-related commodity purchases expense;
‰A $273 million decrease reflecting the absence of business
interruption insurance revenue received in 2006, associated
with the 2005 hurricanes;
‰A $222 million decrease in gas sales by our gas distribution
operations reflecting the combined effects of:
‰A $185 million decrease reflecting lower gas prices; and
‰A $198 million decrease resulting from the migration of
customers to energy choice programs; partially offset by
‰A $161 million increase in volumes due to an increase in
the number of heating degree days, primarily in the first
quarter of 2007, and changes in customer usage patterns
and other factors. The effect of this net decrease was more
than offset by a corresponding decrease in Purchased gas
expense;
‰A $77 million decrease in revenue from sales of gas purchased
by E&P operations to facilitate gas transportation and other
contracts primarily due to the implementation of EITF 04-13
and a reduction in quantities of purchased gas. This decrease
was more than offset by a corresponding decrease in Purchased
gas expense;
‰A $54 million decrease in the sales of emissions allowances
held for resale. This decrease was largely offset by a corre-
sponding decrease in Other energy-related commodity purchases
expense; and
‰A $47 million decrease in sales of extracted products due to
the sale of our U.S. non-Appalachian E&P business;
These decreases were partially offset by:
‰A $593 million increase in revenue from our electric utility
operations, largely resulting from:
‰A $166 million increase due to the impact of a com-
paratively higher fuel rate in certain customer jurisdictions;
‰A $162 million increase in sales to retail customers attrib-
utable to variations in rates resulting from changes in sales
mix and other factors ($95 million) and new customer
connections ($67 million) primarily in our residential and
commercial customer classes;
36 Dominion 2007 Annual Report