Dominion Power 2007 Annual Report Download - page 58

believes that it is unlikely that a material adverse effect on our
financial position, results of operations or cash flows would occur
as a result of counterparty nonperformance.
Risk Factors
Our business is influenced by many factors that are difficult to
predict, involve uncertainties that may materially affect actual
results and are often beyond our control. We have identified a
number of these factors below. For other factors that may cause
actual results to differ materially from those indicated in any
forward-looking statement or projection contained in this report,
see Forward-Looking Statements.
Our operations are weather sensitive. Our results of operations
can be affected by changes in the weather. Weather conditions
directly influence the demand for electricity and natural gas, and
affect the price of energy commodities. In addition, severe weath-
er, including hurricanes and winter storms, can be destructive,
causing outages and property damage that require us to incur
additional expenses. In addition, droughts can result in reduced
water levels that could adversely affect operations at some of our
power stations.
We are subject to complex governmental regulation that could
adversely affect our operations. Our operations are subject to
extensive federal, state and local regulation and require numerous
permits, approvals and certificates from various governmental
agencies. We must also comply with environmental legislation
and associated regulations. Management believes that the neces-
sary approvals have been obtained for our existing operations and
that our business is conducted in accordance with applicable laws.
However, new laws or regulations, the revision or reinterpretation
of existing laws or regulations, or penalties imposed for non-
compliance with existing laws or regulations may require us to
incur additional expenses.
We could be subject to penalties as a result of mandatory reliability
standards. As a result of the Energy Policy Act of 2005, owners
and operators of bulk power transmission systems, including
Dominion, are subject to mandatory reliability standards enacted
by NERC and enforced by FERC. If we are found not be in
compliance with the mandatory reliability standards we could be
subject to sanctions, including substantial monetary penalties.
Our costs of compliance with environmental laws are significant,
and the cost of compliance with future environmental laws could
adversely affect our cash flow and profitability. Our operations are
subject to extensive federal, state and local environmental statutes,
rules and regulations relating to air quality, water quality, waste
management, natural resources, and health and safety. Com-
pliance with these legal requirements requires us to commit sig-
nificant capital toward permitting, emission fees, environmental
monitoring, installation and operation of pollution control
equipment and purchase of allowances and/or offsets. Addition-
ally, we could be responsible for expenses relating to remediation
and containment obligations, including at sites where we have
been identified by a regulatory agency as a potentially responsible
party. Our expenditures relating to environmental compliance
have been significant in the past, and we expect that they will
remain significant in the future. Costs of compliance with
environmental regulations could adversely affect our results of
operations and financial position, especially if emission and/or
discharge limits are tightened, more extensive permitting require-
ments are imposed, additional substances become regulated and
the number and types of assets we operate increases. We cannot
estimate our compliance costs with certainty due to our inability
to predict the requirements and timing of implementation of any
new environmental rules or regulations related to emissions.
Other factors which affect our ability to predict our future envi-
ronmental expenditures with certainty include the difficulty in
estimating clean-up costs and quantifying liabilities under
environmental laws that impose joint and several liability on all
responsible parties.
If federal and/or state requirements are imposed on energy compa-
nies mandating further emission reductions, including limitations on
carbon dioxide emissions, such requirements could make some of our
electric generating units uneconomical to maintain or operate.
Environmental advocacy groups, other organizations and some
agencies are focusing considerable attention on carbon dioxide
emissions from power generation facilities and their potential role
in climate change. We expect that federal legislation, and possibly
additional state legislation, may pass resulting in the imposition of
limitations on greenhouse gas emissions from fossil fuel-fired elec-
tric generating units. Such limits could make certain of our elec-
tric generating units uneconomical to operate in the long term,
unless there are significant improvements in the commercial
availability and cost of carbon capture and sequestration technol-
ogy. There are also potential impacts on our natural gas businesses
as federal greenhouse gas legislation may require greenhouse gas
emission reduction requirements from the natural gas sector.
Several regions of the U.S. have moved forward with greenhouse
gas regulations including regions where we have operations. For
example, Massachusetts has implemented regulations requiring
reductions in carbon dioxide emissions and RGGI, a cap and
trade program covering carbon dioxide emissions from power
plants in the Northeast, will affect several of our facilities. In
addition, a number of bills have been introduced in Congress that
would require greenhouse gas emissions reductions from fossil
fuel-fired electric generation facilities, natural gas facilities and
other sectors of the economy, although none have yet been enact-
ed. Compliance with these greenhouse gas emission reduction
requirements may require us to commit significant capital toward
carbon capture and sequestration technology, purchase of allow-
ances and/or offsets, fuel switching, and/or retirement of high-
emitting generation facilities and replacement with lower emitting
generation facilities. The costs of compliance with expected
greenhouse gas legislation are subject to significant uncertainties
due to the outcome of several interrelated assumptions and varia-
bles, including timing of the implementation of rules, required
levels of reductions, allocation requirements of the new rules, the
maturation and commercialization of carbon capture and seques-
tration technology and associated regulations, and our selected
compliance alternatives. As a result, we cannot estimate the effect
of any such legislation on our results of operations, financial
condition or our customers.
We are exposed to cost-recovery shortfalls because of capped base
rates for our regulated electric utility. Under the Restructuring Act,
as amended in 2004 and 2007, our base rates remain capped
through December 31, 2008. Although the Restructuring Act
allows for the recovery of certain generation-related costs during
the capped rates period, we remain exposed to numerous risks of
56 Dominion 2007 Annual Report