Dominion Power 2007 Annual Report Download - page 40

Management’s Discussion and Analysis of Financial Condition and Results of Operations, Continued
‰A $60 million charge due to the elimination of hedge account-
ing for certain interest rate swaps associated with our junior
subordinated notes payable to affiliated trusts.
Gain on sale of U.S. non-Appalachian E&P business reflects a
pre-tax gain of $3.6 billion resulting from the completion of the
sale of our U.S. non-Appalachian E&P business.
Depreciation, depletion and amortization expense (DD&A)
decreased 12% to $1.4 billion, principally due to decreased oil
and gas production resulting from the sale of our U.S.
non-Appalachian E&P business ($297 million); partially offset by
an increase in DD&A rates for our remaining Appalachian E&P
business ($124 million).
Other income decreased 41% to $102 million, resulting primar-
ily from the recognition of decommissioning trust earnings as a
regulatory liability due to the reapplication of SFAS No. 71 to the
Virginia jurisdiction of our utility generation operations, as well
as an increase in charitable contributions.
Interest and related charges increased 14% to $1.2 billion, result-
ing principally from charges related to the early extinguishment of
outstanding debt associated with our debt tender offer completed
in July 2007, partially offset by a reduction in interest expense
resulting from the retirement of this and other debt.
Income tax expense increased to $1.8 billion, primarily reflecting
income tax expense on the gain realized from the sale of our U.S.
non-Appalachian E&P business.
Extraordinary item reflects a $158 million after-tax charge in
connection with the reapplication of SFAS No. 71 to the Virginia
jurisdiction of our utility generation operations.
Loss from discontinued operations decreased to $8 million primar-
ily reflecting the absence of a $164 million after-tax charge in 2006
related to the Peaker facilities, which were sold in March 2007.
2006
VS . 2005
Operating Revenue decreased 8% to $16.3 billion, primarily
reflecting:
‰A $1.0 billion decrease primarily attributable to lower vol-
umes associated with requirements-based power sales con-
tracts that were exited. The effect of this decrease was more
than offset by a corresponding decrease in Electric fuel and
energy purchases expense;
‰An $844 million decrease in our producer services business
consisting of a decrease in both volumes and prices associated
with gas aggregation, partially offset by favorable price
changes related to gas marketing activities. The effect of this
decrease was partially offset by a corresponding decrease in
Purchased gas expense;
‰A $367 million decrease from gas distribution operations,
primarily reflecting a $219 million decrease resulting from the
loss of customers to Energy Choice programs and a $270 mil-
lion decrease associated with milder weather and variations in
rates resulting from changes in customer usage patterns, sales
mix and other factors, partially offset by a $122 million
increase related to the recovery of higher gas prices. The effect
of this net decrease was partially offset by a corresponding
decrease in Purchased gas expense;
‰A $308 million decrease in nonutility coal sales, primarily
resulting from decreased volumes. This decrease was largely
offset by a corresponding decrease in Other energy-related
commodity purchases expense;
‰A $178 million decrease in sales of emissions allowances
purchased for resale, reflecting lower prices ($115 million)
and lower overall sales volume ($63 million). The effect of
this decrease was largely offset by a corresponding decrease in
Other energy-related commodity purchases expense; and
‰A $100 million decrease in revenue from sales of gas pur-
chased by E&P operations to facilitate gas transportation and
other contracts, primarily due to the impact of netting sales
and purchases of gas under buy/sell arrangements associated
with the implementation of EITF 04-13.
These decreases were partially offset by:
‰A $313 million increase from our merchant generation busi-
ness, primarily reflecting higher revenue for nuclear oper-
ations as a result of higher realized prices and new business
from the addition of Kewaunee nuclear power station
(Kewaunee), which was acquired in July 2005. This increase
was partially offset by lower sales volume for fossil plants
driven largely by comparably milder weather and lower prices;
‰A $235 million increase associated with hedging activities for
our merchant generation assets. The effect of this increase was
offset by a corresponding increase in Otheroperationsand
maintenance expense;
‰A $189 million increase in sales of gas and oil production,
primarily due to higher volumes ($351 million), partially off-
set by lower prices ($162 million);
‰A $184 million increase in gas sales by our retail energy mar-
keting operations primarily resulting from increased customer
counts ($141 million) and higher contracted sales prices ($43
million). This increase was largely offset by a corresponding
increase in Purchased gas expense;
‰A $165 million increase in sales of extracted products, primar-
ily due to increased prices and a contractual change for a por-
tion of our gas production processed by third parties. We now
take title to and market the extracted products from this gas;
‰An increase of $95 million resulting from higher business
interruption insurance revenue received in 2006 related to the
2005 hurricanes ($274 million) versus business interruption
insurance revenue received in 2005 ($179 million) related to
Hurricane Ivan; and
‰An $88 million increase due to a sale of gas inventory by our
Ohio gas distribution subsidiary related to the
implementation of the Standard Service Offer (SSO) pilot
program as approved by the Ohio Commission. The SSO was
initiated to encourage and assist other suppliers to enter the
gas procurement market. By the end of the transition period,
we plan to exit the gas merchant function in Ohio and have
all customers select an alternate gas supplier. The effect of this
increase was offset by a comparable increase in Purchased gas
expense.
Operating Expenses and Other Items
Electric fuel and energy purchases expense decreased 31% to $3.2
billion, primarily reflecting the combined effects of:
‰A $1.2 billion decrease associated with lower volumes asso-
ciated with requirements-based power sales contracts, as dis-
cussed in Operating Revenue;
‰A $162 million decrease for our utility generation operations,
primarily due to lower commodity prices, including pur-
chased power, and decreased consumption of fossil fuel,
38 Dominion 2007 Annual Report