Dominion Power 2007 Annual Report Download - page 42

Management’s Discussion and Analysis of Financial Condition and Results of Operations, Continued
Outlook
Our 2007 results were positively impacted by the gain recognized
from the sale of our non-Appalachian E&P business. In 2008, we
believe our remaining businesses will provide growth in earnings
per share, including the impact of lower expected average shares
outstanding. The following are factors that will impact our
expected 2008 results:
‰A full year of deferred fuel accounting for Virginia jurisdiction
fuel costs as compared to six months in 2007;
‰Higher margins for our merchant generation fleet;
‰Increased production and higher realized prices for our Appa-
lachian E&P operations and fixed-term overriding royalty
interests formerly associated with VPP agreements, as dis-
cussed in Note 13 to our Consolidated Financial Statements;
‰Lower interest expense reflecting a full year’s benefit from our
debt tender offer completed in July 2007;
‰A decrease in outage costs reflecting a decrease in the number
of scheduled outage days at certain of our electric utility gen-
erating facilities; and
‰Continued growth in utility customers.
The increase in 2008 is expected to be partially offset by:
‰A potential decrease in regulated electric sales, as compared to
2007, assuming our utility service territory experiences a
return to normal weather in 2008; and
‰An increase in depreciation expense, partially attributable to
revised depreciation rates for our utility generation assets
resulting from a new depreciation study implemented in the
fourth quarter of 2007.
S EGMENT R ESULTS OF O PERATIONS
Segment results include the impact of intersegment revenues and
expenses, which may result in intersegment profit or loss. Pre-
sented below is a summary of contributions by our operating
segments to net income:
Year Ended
December 31, 2007 2006 2005
Net
Income
Diluted
EPS
Net
Income
Diluted
EPS
Net
Income
Diluted
EPS
(millions, except EPS)
DVP $ 415 $0.64 $ 411 $0.59 $ 378 $ 0.55
Dominion Energy 387 0.59 347 0.49 362 0.53
Dominion
Generation 756 1.15 537 0.76 416 0.60
Primary operating
segments 1,558 2.38 1,295 1.84 1,156 1.68
Corporate and Other 981 1.50 85 0.12 (123) (0.18)
Consolidated $2,539 $3.88 $1,380 $1.96 $1,033 $ 1.50
DVP
Presented below are operating statistics related to DVP’s
operations:
Year Ended December 31, 2007 % Change 2006 % Change 2005
Electricity delivered
(million mwhrs)(1) 84.7 6% 79.8 (2)% 81.4
Degree days:
Cooling(2) 1,794 15 1,557 (9) 1,707
Heating(3) 3,500 10 3,178 (16) 3,784
Average electric
distribution
customer
accounts(4) 2,361 1 2,327 2 2,286
Average retail energy
marketing customer
accounts(4) 1,551 15 1,354 17 1,162
mwhrs = megawatt hours
(1) Includes electricity delivered through the retail choice program for our
Virginia jurisdictional electric utility customers.
(2) Cooling degree days (CDDs) are units measuring the extent to which the
average daily temperature is greater than 65 degrees. CDDs are calcu-
lated as the difference between the average temperature for each day and
65 degrees.
(3) Heating degree days (HDDs) are units measuring the extent to which the
average daily temperature is less than 65 degrees. HDDs are calculated
as the difference between the average temperature for each day and 65
degrees.
(4) Thirteen-month average, in thousands.
Presented below, on an after-tax basis, are the key factors impact-
ing DVP’s net income contribution:
2007
VS . 2006
Increase (Decrease)
Amount EPS
(millions, except EPS)
Regulated electric sales:
Weather $ 22 $ 0.03
Customer growth 11 0.02
Major storm damage and service restoration(1) 9 0.01
Reliability and outside services expenses (18) (0.02)
Salaries, wages and benefits expense (15) (0.02)
Other (5) (0.01)
Share accretion — 0.04
Change in net income contribution $ 4 $ 0.05
(1) Primarily resulting from the absence in 2007 of expenses associated with
tropical storm Ernesto in September 2006.
40 Dominion 2007 Annual Report