ML18151A540
| ML18151A540 | |
| Person / Time | |
|---|---|
| Site: | Surry, North Anna, 05000000 |
| Issue date: | 03/29/1989 |
| From: | Cartwright W VIRGINIA POWER (VIRGINIA ELECTRIC & POWER CO.) |
| To: | NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM) |
| References | |
| NUDOCS 8904030252 | |
| Download: ML18151A540 (66) | |
Text
e VIRGINIA ELECTRIC AND POWER COMPANY RICHMOND, VIRGINIA 23261 W. R. CARTWRIOHT VICE PRESIDENT NucLEAR March 29, 1989 United States Nuclear Regulatory Commission Attention:
Document Control Desk Washington, D. C. 20555 Gentlemen:
VIRGINIA ELECTRIC AND POWER COMPANY SURRY POWER STATION NORTH ANNA POWER STATION PRICE-ANDERSON ACT Serial No.89-219 NO/DAS:vlh Docket Nos. 50-280 50-281 50-338 50-339 License Nos. DP R-32 DPR-37 NPF-4 NPF-7 Pursuant to 10 CFR 140.21 (e) regarding licensee guarantees of payment of deferred premiums, we are providing the following information:
- 1.
Annual Report to Securities and Exchange Commission on Form 10-K for 1988.
- 2.
Comparative Statement of Income for the three months ended December 31, 1988 and 1987.
- 3.
Internal cash flow projection for calendar year 1989 with certification by officer of the Company.
- 4.
Statement ensuring availability of funds for payment of retrospective premiums without curtailment of construction expenditures.
fYJ oo I
'/'
In accordance with 10 CFR 140.7, we submitted a check to the NRC for
$1,000 on October 27, 1988, which is the minimum required premium for the period November 15, 1988 through November 14, 1989.
Enclosures cc:
U. S. Nuclear Regulatory Commission Region II 101 Marietta Street, N. W.
Suite 2900 Atlanta, Georgia 30323 Mr. W. E. Holland NRC Senior Resident Inspector Surry Power Station Mr. J. L. Caldwell NRC Senior Resident Inspector North Anna Power Station
VIRGINIA ELECTRIC AND POWER COMPANY STATEMENTS OF INCOME (UNAUDITED)
Operating Revenues Operating Expenses:
Operation - Fuel used in electric generation
- Purchased and interchanged power
- Other Maintenance Depreciation Amortization of abandoned project costs Taxes - Federal income
- Other Total Operating Income Other Income:
Allowance for other funds used during construction Miscellaneous, net Income taxes associated with miscellaneous, Total Income Before Interest Charges Interest Charges:
Interest on long-term debt Other Allowance for borrowed funds used during construction Total Net Income Preferred Dividends Balance Available for Common Stock net Three Months Ended December 31, 1988 1987 (OOO's)
$769,162
$711,148 147,347 98,759 125,663 76,546 76,886 15,497 24,375 44,319 609,392 159,770 655 18,540 (9,684) 9,511 169,281 79,408 2,282 1,018 82,708 86,573 14,255
$ 72,318 133,995 84,380 105,805 77,678 74,820 14,628 23,191 40,834 555,331 155,817
\\
194 9,806 (2,139) 7,861 163,678 77,355 5,286 (2,116) 80,525 83,153 13,192 69,961
VIRGINIA ELECTRIC AND POWER COMPANY 1989 ESTIMATED INTERNAL CASH FLOW (Millions of Dollars)
January April July through through through March June September Cash Receipts
$885.1
$762.3
$889.4 Less:
Cash for Operations 444.7 432.9 431.1 Taxes paid 47.4 160.3 77.0 Interest paid 65.4 100.8 74.9 Dividends paid
- Preferred Stock 13.3 14.8 13.5
- Common Stock 73.5 73.3 73.8 Decommissioning Trust 5.5 5.5 5.5 Changes in working capital 124.3 (7.0) 9.6 Internal cash flow 111.0 (18.3) 204.0 Plus:
Proceeds from sale of 11.6% of North Anna to Old Dominion Electric Coop 1.2 I. 2 1.2 Total Cash Flow
$112.2
${17.1)
$205.2 October Estimated through 1989 December Total
$ 798.5
$3,335.3 421.8 1,730.5 135.3 420.0 104.9 346.0 15.5 57.1 77.2 297.8 5.4
- 21. 9
{117.5) 9.4 155.9 452.6 1.2 4.8
$ 157.1
$ 457.4
VIRGINIA ELECTRIC AND POWER COMPANY CERTIFICATE I, the undersigned B. D. Johnson, do hereby certify, pursuant to the guarantee requirements set forth in the Cammi ss ion's 1 etter dated June 15, 19,77, that the cash flow projection for 1989, provided herewith, is based on the best available information and is a reasonably accurate projection of the Company's 1989 cash flow.
Sworn to and subscribed before me this ;?a7JI day of~ 1989 Notary Public My commission expires: ~6~
c:?5; /CJCJt>
NOTARIAL SEAL Vice
e VIRGINIA ELECTRIC AND POWER COMPANY STATEMENT The Company currently estimates 1989 construction and nuclear fuel expenditures to be $860 million.
In addition, the Company must provide $115 million for debt maturities and mandatory sinking fund payments.
The Company expects to raise about $517 million through the sale of securities and borrowings under its inter-company credit agreement with Dominion Resources.
The Company is reasonably assured that, based on the best available cash flow projections which are provided herewith, curtailment of capital expenditures would not be required to cover the Price-Anderson maximum retrospective premium assessment for a single incident of $252 million ($63 million for each of the four reactors owned by the Company with assessments not to exceed $10 million per reactor per year) currently in force.
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR lS(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1988 Commission file number 1-2255 Virginia Electric and Power Company (Exact name of registrant as specified in its charter)
VIRGINIA (State or other jurisdiction of incorporation or organization)
One James River Plaza Richmond, Virginia (Address of principal executive offices) *
(804) 771-3000 54-0418825 (IRS Employer Identification No.)
23261-6666 (Zip Code)
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Preferred Stock (cumulative)
$100 liquidation value:
$5.00 dividend
$7.72 dividend
$7.45 dividend
$7.20 dividend
$7.72 dividend (1972 Series)
$8.60 dividend Name of each exchange on which registered New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act:
None (Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes Y' No The aggregate market value of the voting stock held by non-affiliates of the registrant as of February 28, 1989 was zero.
As of February 28, 1989, there were issued and outstanding 142,433 shares of the registrant's common stock, without par value, all of which were held, beneficially and of record, by Dominion Resources, Inc.
DOCUMENTS INCORPORATED BY REFERENCE.
None
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VIRGINIA ELECTRIC AND POWER COMPANY Item Number Page Number PART I
- 1. Business..................................................*.................... ~.. :.................... '...... :...........
1 The Company.................................................................. :...................................
1 Capital Requirements and Financing Program.......................................... :.................
2 Construction and Nuclear Fuel Expenditures.:..-.......................... ;........................
2 Financing Program.....................................*....... :..................................'..........
2
- Rates..,.......... :.*...... :...............................................................................,..............
3 Virginia............................................................................................................
3 North Carolina..................................... :.................................................. ::.........
4 County and Municipal Customers................ :.. :.........,..................... ;....,................
4
- Governmental-Commonwealth of Virginia.................. ;............................ ;............
5 Federal Energy Regulatory Commission................................................................
5 Federal Government Installations....... :.................................................................
5 Generating Units........... '.......................................................................... :......'.......
5 Sources of Energy Used and Fuel Costs...................................................................
6 Nuclear Fuel Supply.......................................................... :................................
6 Coal Supply.......................................... :...................... ~**********************************
6 Coal Conversions.........................................................,.................................
- 6 Purchases and Sales of Power................. ;.........................................................
6 Interconnections........ :.. :.. ;......... :............'........... :,...... *......... :......................"...........
7
- Future Sources of Power.......................................... :............................. ;... :... *....... ;
7 Competition............................ ::...................... :.*................... :...............................
8 2.* Properties............... *............. ;............... :.:....,..........",........................ :........................
9
- 3. Legal Proceedings...................... ;.......................... :....... :.......... ;................................
9 Regulation-General........... :....................-............ *............................................. :.... *.. 9
. Water Quality Control... :.......... :.... ;................... :..................... :'.;..................... :......
9 Air Quality Control.... :..... :.......................................................-........ :.....................
10 Nuclear Operations.;................ *............... :......................."........................... :........... 10
- 4. Submission of Matters to a Vote of Security Holders............................................... :.....
11 PART II
- 5. Market for the Registrant's Common Stock ~nd Related Stockholder Matters.....................
11 12 Management's Discussion and Analysis of Financial Condition and Results of Operations....
12
- 6. Selected Financial Data............................,................................................................
- 7.
- 8.
- 9.
Financial Statements and Supplementary Data...............,...............................................
16 Changes.in and Disagreements with Accountants on Accounting and Financial Disclosure.... 48 PART III
- 10. Directors arid Ex~cutive Officers of the Registrant............................... '....................... :.. 48
- 11. Executive Compensation......... *........................... :......................... *............................. 51
- 12. Security Ownership of Certain Beneficial Owners and Management..........'.................,...... 55
- 13. Certain Relationships and Related Transactions......,...................................................... 55 PARTIV
- 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................. 55
PART I ITEM 1. BUSINESS THE COMPANY Virginia Electric and Power Company was incorporated in Virginia in 1909 and has its principal office at One James River Plaza, Richmond, Virginia 23261-6666, telephone (804) 771-3000. It is a wholly-owned subsidiary of Dominion Resources, Inc. (Dominion Resources), a Virginia corporation.
Virginia Electric and Power Company is a regulated public utility engaged in the generation, transmission, distribution and sale of electric energy within a 30,000 square mile area in Virginia and northeastern North Carolina. It transacts business under the name Virginia.Power in Virginia and under the name North Carolina Power in North Carolina. It sells electricity to retail customers (including governmental agencies) and to wholesale cus.tomers such as rural electric cooperatives and municipal-ities. The Virginia service area comprises about 65% of Virginia's total land area, but accounts for over 80% of its population. As used herein, the term~ "Virginia Power" and the "Company" shall refer to the entirety of Virginia Electric and Power Company, including, without limitation; its Virginia and North Carolina operations.
The Company has nonexclusive franchises or permits for electric operations in substantially all cities and towns now served. It also has certificates of convenience and necessity from the Virginia State Corporation Commission (the Virginia Commission) for service in all territory served at retail in that State. The North Carolina Utilities Commission (the North Carolina Commission) has assigned territory to the Company for substantially all of its retail service outside certain municipalities in that State:
Tlie Company owns its principal properties in fee (except as indicated below), subjec;t to defects and encumbrances that do not interfere materially with their use. Substantially an of its property is subject to the lien of a mortgage securing its First and Refunding Mortgage Bonds. Right-of-way grants from the apparent owners of real estate have been obtained for most electric lines, but underlying titles have not been examined except for transmission lines of69,000 volts or more. Where rights of way have not been obtained, they could be acquired from private owners by condemnation if necessary. Many electric lines are on publicly owned property as to which permission for use. is generally revocable.
Portions of a 500,000 volt transmission line from the Company's coal-fired station at Mt. Storm, West Virginia, cross nati.onal parks and forests under permits entitling the federal government to use, at sp~cified charges, surplus electricity in the line *if any exists.
The Company leases combustion turbines. and certain buildings and equipment. See Note E to FINANCIAL STATEMENTS.
A wholly~owned subsidiary of the Company, Virginia Power Fuel Corporation (VP Fuel), owns and finances nuclear fuel and related materials for the Company's Surry nuclear units, and sells the heat from such fuel to the Company. See Note N to FINANCIAL STATEMENTS.
The Company strives to operate its generating facilities in accordance with prudent utility industry practice and in conformity with applicable statutes, rules and regulations. Like other electric utilities, the Company's generating facilities are subject to unanticipated or extended outages for repairs, replacements or modifications of equipment or other~is~ to comply with regulatory requirements. Such outages may involve significant expenditures not previously budgeted, including replaceinent energy costs. See RATES under BUSINESS and LEGAL PROCEEDINGS.
The Company had 13,424 employees on Decemb.er 31, 1988. Approximately 4,600 of the.Com-pany's employees are represented by the International Brotherhood of Electrical Workers under -a yearly contract extending to April 1, 1989. The Company is currently negotiating a new one-year contract with its union employees, which is expected to be in place by April 1, 1989. The Company considers its relations* with its union and nonunion employees to be good.
CAPITAL REQUIREMENTS AND FINANCING PROGRAM Construction and Nuclear Fuel Expenditures Virginia Power's estimated construction and nuclear fuel expenditures, including Allowance for Funds Used During Construction (AFC), for the three-year period 1989-1991, total $2.7 billion. It has adopted a 1989 budget for construction and nuclear fuel expenditures as set forth below, New Generating Facilities:
Estimated 1989 Expenditures (Millions)
Chesterfield Unit 7......................................
$ 44 Chesterfield Unit 8......................................
3 Gravel Neck Combustion Turbines..........................
61 Other................................................
1 Existing Generating Facilities:
Regulatory Required.....................................
16 Upgrade Projects.......................................
86 Plant' Support Facilities...................................
4 Other Production.......................................
99 General Support Facilities..................................
100 Transmission............................................
88 Distribution............................................ *.
334 Nuclear Fuel............................................
24 Total Construction Requirements and NucJear Fuel........... *....
860
- AFC...............................................,...
8 Total Expenditures......................................
$868 Financing Program In 1988, Virginia Power obtained $378 million from the sale of securities. Its long-term financings included $150 million of First and Refunding Mortgage Bonds, $75 million of preferred stock, $118 million of unsecured notes having maturities ranging from 2 to 15 years and $35 million of Coinmon Stock sold to Dominion Resources. From the proceeds of the 1988 securities sales, the Company retired
$134 million of securities through mandatory debt maturities and sinking fund requirements, retired an additional $31 million of debt financing and preferred stock through optional redemptions and sinking fund payments and reduced borrowings under the Virginia Power Financing Trust by $101 million. See Liquidity and Capital Resources under MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Virginia Power's 1989 capital requirements, exclusive of AFC and refundings, are estimated to be
$860 million, as detailed above. Of this amount, it is expected that approximately $453 million will be obtained from internal sources. The remaining $407 million of capital requirements, as well as the $115 million of debt and preferred stock maturities and sinking fund requirements, will be financed by a combination of sales of securities and borrowings under an inter~company credit agreement with Dominion Resources. A portion of the Company's sales of securities will be used to retire its obligation relating to the Virginia Power Financing Trust. See Liquidity and Capital Resources under MANAGE-MENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
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RATES The Company was subject to electric rate regulation in 1988 as follows:
Virginia retail:
Non-Governmental customers....
Governmental customers........
North Carolina retail............
Wholesale....................
Virginia Commission Not regulated (negotiated agreements)
North Carolina Commission Federal Energy Regulatory Commission (FERC) 1988
% of Electric
% of Revenues Kwh Sales 80 78 12 13 4
4 4
5 100%
100%
All of the Company's electric sales are subject to recovery of changes in fuel costs either through fuel adjustment factors or periodic adjustments to base rates, each of which requires prior regulatory approval. Rate relief obtained by the Company is frequently less than requested.
The principal rate proceedings in which the Company was involved in 1988 are described below by jurisdiction..
Virginia On April 7, 1988, the Virginia Commission issued an Order in the Company's rate proceeding that began on March 6, 1987. The Order required (i) an adjustment of the Company's allowed rate of return on equity from 14.5 percent per annum to 13.25 percent per annum; (ii) a one-time refund to customers, resulting from a reduction in certain deferred income tax balances, to reflect lower federal income tax rates enacted in the Tax Reform Act of 1986; and (iii) a two-phase reduction in base electric rates. The reduction in deferred income tax balances ordered by the Virginia Commission amounted to approxi-mately $51.2 million and, after consideration of the current federal income tax effects, resulted in a one-time refund to customers of approximately $80 million. Such refund reduced deferred income tax balances previously provided for, and did not affect 1988 earnings. The base rate reduction amounted to $54 million on an annualized basis from September 14, 1987 through the end of that year. The reduction was adjusted to $44 million on. an annualized 'basis effective January 1, 1988, as a result of a settlement with Old Dominion Electric Cooperative (ODEC). The settlement allowed ODEC to reduce its purchases of power from the Company by 300 Mw and permitted the Company to reallocate to Virginia jurisdictional rates a pro rat a portion of the costs associated with this power. The Company received compensation from ODEC over a one-year period, which began January 1, 1988, approximat-ing $29 million. As a result of the two-phase reduction in base rates, the Company refunded to customers $26.9 million, including interest, in 1988 as a credit on June and July bills, representing overcollections of base rate revenues. The Company had begun reserving a sufficient amount of revenues, effective September 14, 1987, to cover the ordered refunds and had adequately provided for the effects of the Order in net income reported for the year ended December 31, 1987.
The April 7, 1988 Order allowed the Company to recover an ongoing level of purchased capacity costs effective September 14, 1987, but postponed until the Company's next rate proceeding (discussed below), based on a 1987 test year, a decision on the recovery of approximately $33 million in capacity costs deferred in 1987. In addition, the Order provided for the institution by the V1rginia Commission of a proceeding to determine an appropriate method for collecting capacity costs in future rate proceedings. The Order was appealed to the Supreme Court of Virginia by ODEC on the ground that the Virginia Commission should have reopened the case after hearings were completed to receive further evidence in connection with the compensation from ODEC to the Company for ODEC's 300 Mw reduction in purchased power. The Supreme Court of Virginia has issued an Order affirming the Virginia Commission's decision.
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On May 20, 1988, the Company filed a request for an increase in base rates of $96.7 million, including the collection over a two-year period of the approximately $33 million of capacity charges previously deferred in 1987. The Virginia Commission Staff and other intervenors recommended no change in base rates. A hearing in the case was held on September 8 through 12, 1988, and briefs were filed on September 26, 1988. On October 18, 1988, the proposed rates were placed in effect on an interim basis, subject to refund pending the Virginia Commission's Final Order. On November 10, 1988, the Hearing Examiner issued his report recommending that a rate increase of $24.8 million be approved. On December 30, 1988, however, the Virginia Commission issued its Final Order, which allowed no rate increase and ordered a refund of all amounts collected on an interim basis in excess of the rates previously in effect. The Virginia Commission also held that the Company had earned a reasonable rate ofreturn in 1987 and, therefore, had fully recovered its previously deferred capacity charges and denied the recovery of the $33 million balance in the deferral account. The Order also held that a revenue adjustment to reflect growth in customers, which decreased the Company's revenue requirement by
$38.6 million, was appropriate; that the Company's rate of return on common equity of 12.527 percent was reasonable despite the Virginia Commission's prior determination that 13.25 percent was appro-priate; and that increases in the Company's cost of capital between December 31, 1987 and June 30, 1988 should not be considered. The Company has noted an appeal to the Virginia Supreme Court and requested the Virginia Commission to suspend its Final Order. The Virginia Commission denied the Company's request. The Supreme Court of Virginia denied suspension of the Order pending appeal.
Refunds aggregating $29.6 million were completed by March 1, 1989.
On October 17, 1988, the Virginia Commission issued an Order approving an increase in the fuel factor (a component of rates based on fuel costs) by approximately $107 million for the twelve months beginning October 18, 1988.
On June 14, 1988, the Virginia Commission instituted a proceeding to consider the appropriate ratemaking treatment for capacity charges associated with power purchases by electric utilities in Virginia. On September 12, 1988, the Virginia Commission heard oral arguments in that generic proceeding and, on November 10, 1988, the Virginia Commission adopted a policy that allows rates to include projections of capacity charges that will be paid in the year in which the rates will be in effect.
To the extent capacity charges actually incurred are greater than those included in rates, the Company will be given an opportunity to recover them in a later proceeding if it is determined that the Company did not earn an adequate rate of return in the period during which those charges were incurred.
On October 11 through 13, 1988, a hearing was held before the Virginia Commission in its generic proceeding to consider and implement methodologies for calculating the avoided costs to be paid to cogenerators and small power producers. On December 30, 1988, the Virginia Commission entered* its Order generally approving the Company's proposal that such costs be determined using a differential revenue requirement approach. One party to the proceeding has given notice of appeal to the Supreme Court of Virginia and requested the Virginia Commission to suspend its Order pending appeal. The Virginia Commission denied that request and that party requested suspension from the Supreme Court of Virginia which, on February 9, 1989, denied the request.
North Carolina On September 9, 1988, the Company filed a request with the North Carolina Commission seeking a continuation of the then-current fuel factor. A hearing was held on November 14, 1988, and on December 21, 1988, the North Carolina Commission issued a Final Order requiring the Company to reduce its fuel factor by approximately $1.48 million on an annual basis effective with the billing month of January 1989.
County and Municipal Customers On February 15, 1989, Virginia Power reached agreement on the terms of a three-year contract governing rates for county and municipal customers, which will continue through June 30, 1991. Pursuant to this contract, an annual decrease of$25.5 million retroactive to July 1, 1988 has been implemented and adequately reserved on the books of the Company, effective with the billing month of February 1989.
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An increase of $4 million will become effective July 1, 1989, and an increase of $4 million will become effective July 1, 1990.
Governmental-Commonwealth of Virginia Governmental base rates for the Commonwealth of Virginia are unregulated but follow the methodology approved by the Virginia Commission for jurisdictional base rates. As the Virginia Commission's Final Order, dated December 30, 1988, allowed no rate increase and ordered a refund of all amounts collected on an interim basis in excess of rates previously in effect, a refund of approximately $1 million will be made in March 1989 to Virginia governmental customers.
Federal Energy Regulatory Commission In September 1988, the Company refunded to its FERC customers approximately $2.1 million related to certain spent nuclear fuel interim storage costs. These costs were determined to have been improperly charged through the fuel adjustment clause instead of through base rates.
Federal Government Installations Beginning with the billing month of October 1989, the Company will refund approximately $1 million related to certain spent nuclear fuel interim storage costs. These costs were determined to have been improperly charged through the fuel adjustment clause instead of through base rates.
GENERATING UNITS Name of Station, Units and Location Nuclear:
Surry Units 1 & 2, Surry, Va....................
North Anna Units 1 & 2, Mineral, Va..............
Total nuclear stations.......................
Fossil:
Bremo Units 3 & 4, Bremo Bluff, Va...... *........
Chesterfield Units 3-6, Chester, Va................
Mt. Storm Units 1-3, Mt. Storm, W. Va............
Chesapeake Units 1-4, Chesapeake, Va............
Possum Point Units 3 & 4, Dumfries, Va...........
Yorktown Units 1 & 2, Yorktown, Va.............
Possum Point Units 1, 2, & 5, Dumfries, Va.........
Yorktown Unit 3, Yorktown, Va..................
Total fossil stations............. :..........
Combustion Turbines, 27 units, Va., W. Va. and N.C.
Hydroelectric:
Gaston Units 1-4, Roanoke Rapids, N.C..........
Roanoke Rapids Units 1-4, Roanoke Rapids, N.C...
Other....................................
Bath County Units 1-6.......................
Total hydro stations.........................
Total Summer Generating Capability...........
Years Installed 1972-73 1978-80 1950-58 1952-69 1965-73 1953-62 1955-62 1957-59 1948-75 1974 1967-71 1963 1955 1930-87 1985 Type of Fuel Nuclear Nuclear Coal Coal Coal Coal Coal Coal Oil Oil & Gas Oil & Gas Conventional Conventional Conventional Pumped Storage (a) Includes an undivided interest of 11.6% (212 Mw) owned by ODEC.
Summer Capability Mw 1,562 l,830(a) 3,392 227 1,250 1,585 595 322 336 929 818 6,062 439 225 104
.2 1,260(b)
- 1,591 11,484 (b) Includes only the Company's 60% undivided interest in the 2,100 Mw station. A 40% undivided interest in the facility is owned by Allegheny Generating Company, a subsidiary of Allegheny Power System, Inc. (APS).
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The Company's highest one-hour integrated service area winter peak demand was 10,911 Mw established on December 12, 1988, and the highest one-hour integrated summer peak demand was 11,756 Mw established on August 15, 1988. -The Company has an aggregate winter capability of 13,261 Mw and an aggregate summer capability of 13,031 Mw, in each case including firm purchases and co generation.
For financial data a~ to the property, plant and equipment of the Company, see Schedule V to FINANCIAL STATEMENTS Schedules.
SOURCES OF ENERGY USED AND FUEL COSTS For information as.to energy supply mix and the average fuel cost of energy. supply, see Results of Operations under MANAOEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Nuclear Fuel Supply Virginia Power's nuclear fuel supply and related services are expected to.be adequate to support current and planned nuclear generation requirements. A combination of long-term contracts and spot purchases is utilized by the Company to fulfill its nuclear fuel needs.. The Company continually evaluates market conditions in order to assure adequate nuclear fuel supply. Current agreements, inventories and market conditions will support planned fuel cycles into the mid-1990s.
. See Nuclear Operations under LEGAL PROCEEDINGS for information relating to (i) litigation involving the Department of Energy (DOE) enrichment services for foreign source uranium and (ii) spent fuel storage and disposal and the effect thereof on continued operations.
Coal Supply.
In 1988, Virginia Power consumed approximately 10.1 million tons of coal. As with nuclear fuel, the Company utilizes both long-term contracts and spot purchases to support its needs. The central Appalachian coal market, from which the Company purchases most of its coal, continues to produce coal supplies sufficient for the Company's needs. The Company presently anticipates that sufficient coal supplies at reasonable prices will be available at least into the early 1990s..
Coal Conversions Since 1975, twelve of Virginia Power's generating units (aggregating 2,503 Mw) have been converted from oil to coal. The Company presently has only three operating oil-fired generating units (Yorktown Unit 3 and Possum Point Units 2 & 5, aggregating 1,673 Mw). One other oil-fired unit, Possum Point Unit 1 (74 Mw) is undergoing renovation and is expected to be returned to service in June 1989.
Purchases and Sales of Power Virginia Power reduces fossil fuel costs by purchasing power from other utility systems when it is available at a cost lower than the Company's own generation costs. Conversely, it seeks to sell energy to other utilities when the proceeds from such sales will reduce its fuel expenses.
Under contracts effective January 1, 1985, Virginia Power agreed to purchase 400 Mw of electricity through 1999 from Hoosier Energy Rural Electric Cooperative, Inc. (Hoosier), and agreed to purchase 500 Mw of electricity during 1987-99 from certain operating subsidiaries of American Electric Power Company, Inc. (AEP). Through December 31, 1989, the Company is also committed to a limited-term power purchase of 200 Mw from APS with weekly options to purchase an additional 200 Mw.
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In late 1988, the Company contracted with South Carolina Electric & Gas to purchase 250 Mw of short-term power for six months during the winter and summer periods of 1989. Additionally, the Company has contracted for a limited-term purchase of 200 Mw from South Carolina Public Service Authority (SCPSA) for similar periods in both 1989 and 1990. The SCPSA contract also requires that the Company take the power in at least six of the remaining twelve months in the two-year period.
By. the end of 1988,. Virginia Power also had 27 non-utility power purchase contracts with a combined dependable capacity of 317 Mw. Over half of these agreements have a contract life of 15 years or longer (see Note M to FINANCIAL STATEMENTS).
Virginia Power and 0DEC entered into an agreement on January 1, 1988, which has been approved by the Virginia Commission, allowing ODEC to reduce its purchases of supplemental power from the Company by 300 Mw. This reduction, for* which the Company received compensation from ODEC during 1988 of approximately $29 million, is expected to benefit the Company's remaining customers over the long term by avoiding increased costs that would have been incurred to purchase such power from other sources.
INTERCONNECTIONS The Company and its neighboring utilities maintain major interconnections and arrangements for coordinated planning, operation, emergency assistance and exchanges of capacity and energy.
FUTURE SOURCES OF POWER Virginia Power is committed to obtaining new sources of reliable and economic generating capacity. This capacity may be built, owned and operated by others and sold to the Company under a competitive bid process or may be built by Virginia Power if the Company determines it can build capacity at a lower overall cost.
The Company presently anticipates that system load growth will require approximately 3,200 Mw of additional capacity through 1994. The Company has pursued several options to provide that capacity and maintain a high degree of service reliability.
The Virginia Commission issued an Order on July 17, 1987, approving the Company's planned 214 Mw combined cycle generating facility (Chesterfield Unit 7) to be built at the site of the Chesterfield Power Station. On January 26, 1989, the Company filed with the Virginia Commission an application for approval of a second combined cycle unit (Chesterfield Unit 8) at the Chesterfield Power Station. On September 9, 1988, Virginia Natural Gas, Inc. (VNG), a Dominion Resources subsidiary, received approval from the Virginia Commission to build a natural gas pipeline from northern Virginia to a point near Williamsburg, Virginia. The approval has been appealed to the Supreme Court of Virginia by the existing supplier of gas for the new generating unit. On November 16, 1988, the Company filed an application for approval to construct a 16~inile lateral to connect the VNG pipeline to the Chesterfield Power Station. Subsequently, the Company entered into a Letter of Intent with the City of Richmond under which the City will build the major portion of the pipeline lateral, and on December 6, 1988, a Hearing Examiner temporarily suspended the procedural schedule and granted the Company leave to amend its application to reflect this change. On February 6, 1989, the Company filed a Motion for Jurisdictional Determination in which it requested the Virginia Commission to rule that the Company's small remaining portion of the pipeline project is an ordinary extension for which approval is not required. When completed, the proposed pipeline lateral would provide an alternative source of fuel for Chesterfield Unit 7 and, if approved, Chesterfield Unit 8 as well as for other gas-fired generating facilities that may be built by the Company or with which the Company has or in the future may have power purchase contracts..
On January 29, 1988, the Virginia Commission issued an Order approving in concept the voluntary use of competitive bidding for procuring new capacity. Virginia Power supported such a result.
Notwithstanding its Order, the Virginia Commission allowed, as a transition to competitive bidding, certain third parties to retain the right to negotiate contracts for the sale of power to the Company from 7
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encouraged. non-utilities to enter the business of producing electricity, which utilities may be required to purchase. The Company supports a competitive system for utilities to buy capacity to meet future energy demands;
- Technological developments have given some retail customers increased opportunities to obtain power through self-generation. But Virginia Power's relatively low retail rates make widespread use of this optfon unlikely' for the forseeable future. Competition for retail customers would require fundamental changes in law and regulatory policies that are not currently under consideration. Virginia Power is committed to maintaining high standards of service at competitive rates to all classes of customers, -
ITEM 2. PROPERTIES See G°i:NERATING UNITS under Item i' and Schedule V of the FINANCIAL STATEMENTS Schedules.
- ITEM 3. LEGAL PROCEEDINGS Regulation-'-General. **
The Company is pres~ritly subject to regulation by the Virginia Commission and the North Carolina Commission, DOE, the Environmental Protection Agency (EPA), FERC, the Nuclear Regulatory Commission (NRC), *the Army Corps of.Engineers and other federal, state and local authorities.
Virginia Power inay riot construct, or incur fi~ancial commitments for construction of, any substantial generating facilities or large capacity transmission lines without the prior approval of state and federal,.governmei:J.tal agencies having jurisdiction over various aspects of its business.; Such approvals relate fo, among other things, the environmental impact of such activities, the relationship of stich activities to the need for providing adequate utility service and the design and operation of proposed'facilities.
Ope.rating licenses. issued by NRC are subject. to revocation, iuspension or *modification, and operation of a nuclear unit may be suspended if NRC determines that the public interest, health or safety so requires.
From time to time, the Company may be in violation of or in default under orders, *statutes, rules or regulations relating to protection ofthe environment, compliance plans imposed upon or agreed to by the Company* or permits issued by various local, state and federal agencies for the construction or operation of facilities. There may be pending from time to time administrative proceedings involving violations of state or federal environm~ntal regulations that the Company believes are not material with respect to it and for which its aggregate liability for fines or penalties will not ex~eed $100,000. There are no material agency.. enforc'tment actions.or citizen suits pending or, to the Company's present knowledge, t)l.reatened against the Company.
Water Quality.control,
From.1957 through 1974, fly ash from Virginia Power's Yorktown Power Station was deposited by an independent contractor at sites near Chisman Creek, York County, Virginia. Poll utan.ts from these sites entered local groundwater and Chisman Creek. Pursuant to the Superfund Act, EPA identified the sites on the National Priorities List as a single entity, the Chisman Creek Superfund Site, and divided the site into two administrative or operable units. With respect to Operable Unit 1, the Company and EPA entered into a consent decree on September 25, 1987, under which the Company agreed to conduct remedial actions at three disposal pits at the site and to pay EPA's past costs related to this operable unit. These remedial actions and cost payments were completed on December 27, 1988, although EPA has not authorized the Company to begin operation of the completed wastewater treatment plant. With respect to Operable Unit,2, the U.S. Fish and Wildlife Service completed a remedial investigation and the Company completed a feasibility study on the surface waters at the site. The Company and EPA have signed a consent decree under which the Company agreed to conduct remedial actions on surface water and to pay EPA's past costs related to this operable unit. This consent decree has not been 9
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planned facilities aggregating approximately 750 Mw. The Company has reached agreement on several of these projects to purchase approximately 250 Mw of power. Developers of projects aggregating
- approximately 250 Mw are continuing discussions* with the Company while the remainder have withdrawn.
In 1987, the Company signed agreements for the purcha~e ofapproximately 1,200 Mw of additional capacity from non-utility power producers. On March 1, 1988, the Company solicited bids for 1,750 Mw of capacity to be delivered at various dates through 1994. The Company received firm offers of over 14,000 Mw from 43 potential suppliers. Ninety-five separate projects were proposed by cogenerators, small power producers, independent power producers and other utilities. The projects covered a variety of technologies, fuel supplies, pricing mechanisms and in-service dates. The Company has signed contracts with each of the 19 successfully bid projects, aggregating approximately 2,086 Mw of capacity (see Note M to FINANCIAL STATEMENTS). None of the generating facilities that will produce the power discussed in this paragraph has been constructed, and there is no certainty that any will be completed on schedule. Each agreement for the purchase of power contains provisions which require the project developers to keep the Company informed of construction progress. These agreements also contain penalty provisions that may be invoked if the electricity is not available as scheduled, and the Company anticipates that there will be alternate.energy sources in the event of a failure of any of these power purchase agreements to be performed.
During the summer of 1988, the Company and certain other utilities in the mid-Atlantic and Northeast regions of the United States experienced difficulties in obtaining purchased power from sources to the west. The principal reasons for this were (i) high demand for purchased power due to growth and hot weather, (ii) outages at certain generating facilities in the Northeast and mid-Atlantic areas and (iii) full capacity usage of the transmission facilities through which the power flows from west to east.
Due to. difficulties of importing power from the west, and because the greatest part of the power offered to the Company in the competitive negotiation process will not be available befQre 1991, the Company evaluated the installation of additional peaking capacity by the summer of.1989 and proposed the installation of four 80 Mw gas-fired combustion turbines to be located at Gravel Neck, Virginia. On September 7, 1988, the Company filed with the Virginia Commission an application for approval to install the four generating units. A hearing was held on November 9, 1988, and the Commission granted such approval in its Final Order of November 17, 1988. Two of the units are scheduled to begin operation during June 1989, with the remaining two units going into service during October and November 1989. Total costs for the four units are estimated to aggregate $94 million.
To meet the. projected 1990 need, the Company issued its second solicitation of 1988 in
- mid-November to outside suppliers requesting 300 Mw of peaking capacity to be on line by April 1990.
The bids on this proposal were received in early 1989. Over 2,100 Mw of capacity were submitted for final consideration, and the initial evaluation indicates that at least 300 Mw of firm capacity will be available by April* 1990. Simultaneously, the Company sought bids for combustion turbine units totaling approximately 300 Mw of capacity. The bids for the combustion turbine units were received in late January for evaluation. In February 1989, the Company made the decision tq purchase and install the combustion turbine units rather than buy this peaking capacity from outside suppliers.
.
- COMPETITION Competition is playing an increasingly important role in the Company's business. Public utilities such as the Company have been granted exclusive franchises to serve all classes of retail customers within designated service areas in return for a commitment to provide adequate service on a fair and reasonable basis. This traditional arrangement is being altered due to changing federal and state governmental regulations, technological developments, rising costs of constructing generating facilities and alternative energy sources. As a result of these factors, some industrial and municipal*customers of the Company are presented with increasing opportunities. The Company now has, and in the future will have, increased opportunities to obtain power from sources other than its own generating facilities (see FUTURE SOURCES of POWER). In particular, the Public Utility Regulatory Policies Act of 1978 (PURPA) has 8
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formally filed in federal court. However, for economic and environmental reasons, the Company completed the Operable Unit 2.remedial actions along with the Operable Unit 1 remedial actions. The remedial action costs for Operable Units I and 2 and EPA's past costs for Operable Unit 1 have been paid and totaled approximately $9.4. million, for which a liability of $9.6 million was recorded on the Company's books in December 1986. Iri 1989, the Company will pay EPA's past costs for Operable Unit 2 of approximately $174,000. Future EPA costs and site operation and maintenance costs are not expected to be material.
In 1986, Virginia Power began a proje~t to expand the capacity of two* existing ash disposal ponds at its Possum Point Power Station. As a condition of the environmental permitting process, on Aprii 14, 1987, the Company accepted a special order, issued by the Virginia Water Control Board (VWCB),
requiring it to perform a six-month evaluation of groundwater quality in the vicinity of the two ponds.
The study, which has been completed and submitted to the VWCB, concluded that the quality of groundwater near existing domestic wells adjacent to the,site was good and met all health-based EPA primary drinking water standards. However, some groundwater contamination associated with the disposal of certain fossil fuel by-products at the facilities was identified. In order to remedy this impact, the Company has proposed a course of action that includes removal and relocation of certain wastes, back-fitting impermeable liners and additional monitoring to measure improvement in site groundwater.
The proposed action is estimated to cost up to $3.5 million. The Coniipany believes that this is the most practicable and scie{!tifically sound means of protecting groundwater quality while managing waste disposal in a~ environmentally responsible manner.
From time to time, the Company may be identified as a potentially responsible party with. respect to a Superfund site. EPA (or a state) can either (a) allow such a party to conduct and pay for a remedial investigation and feasibility study and remedial action or (b) conduct the remedial investigation and action and then seek reimbursement from the parties. Each party can be held jointly, severally and strictly liable for all costs, but the parties can then bring contribution actions against each other. As a result of the Superfund Act, the Company may be required to expend amounts on remedial investigations and actions, which amounts cannot be determined at the* present time:*6ut could ultimately prove to be significant.
Permits under the Clean Water Act and state laws have.been issued for all of the Company's steam generating stations now in operation. Such permits are subject to reissuance and continuing review.
Air Quality Control The Company is subject to the Clean Air Act, which provides the statutory basis for ambient air quality standards. In order to maintain compliance with such standards and re.duce the impact of emissions on ambient air "quality, the Compan'y may be required.to incur additional expenditures, the amount of which is not presently determinable but which could be significant, in constructing new facilities or in modifying existing facilities.
Nuclear Operations Surry Units 1 and 2 have been out of service since September 1988. Surry Unit 1 was taken out of service for a maintenance outage because of concerns with emergency diesel generators. Surry Unit 2 was taken out of service for a scheduledrefueling. These outages were extended to undertake safety system inspections and upgrades, as weU as engineering and support analysis. The Surry Units are scheduled to return to service during the second quarter of 1989.
The NRC imposed fines on Virginia Power totaling $300,000 at Surry and $100,000 at North Anna in 1988 for violations of NRC's rules and regulations. Virginia Power has worked closely with NRC to assure that corrective actions at both stations meet or exceed all applicable' Federal standards.
The Nuclear Waste Policy Act of 1982 (the Act) requires the federal government to make available by 1998 a permanent repository for high-level radioactive waste and spent nuclear fuel. The permanent repository will be financed by a fee imposed on licensees (including the Company) of 1.0 mill per 10
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kilowatt-hour of net nuclear generation on and after April 7, 1983, and an equivalent fee for spent nuclear fuel discharged or in the reactor prior to that date. The Company continues to operate under a contract with DOE providing for permanent disposal of its spent nuclear fuel by DOE beginning not later than January 31, 1998, and for the Company to make the required payments (currently about $22 milliqn annually). The 1988 Annual Capacity Report issued by DOE to the Company and other holders of the contract indicated that the schedule for acceptance of spent fuel for disposal has slipped to the year 2003. The Company has licensed and is currently operating an Independent Spent Fuel Storage Installation at the Surry Power Station which utilizes large metal dry storage casks and is designed and licensed to provide adequate interim storage capacity for spent nuclear fuel until accepted by DOE. The schedule slippage to the year 2003 may require similar interim spent fuel storage facilities to be constructed at the Company's North Anna Power Station in the late 1990's.
In 1984, the Company and other nuclear utilities entered into a new contract with DOE for uranium enrichment services. The new contract offered such services at a substantially lower price than was available under,the Company's former contract with DOE. In September 1985, a suit was brought by uranium producers to find the contract void. On January 27,.1989, the uranium producers filed with the U.S. District Court a motion to dismiss, thereby terminating this lawsuit.
. NRC has adopted string~nt requirements in the areas of ~mergency planning, training requirements for all p~rsonnel, procedures and facilities for prevention of and minimizing the effect of nuclear accidents, and staffing of nuclear operations. NRC has also required, and the Company has made or is making, certain modifications in the Company's operating nuclear generating units. If NRC were to adopt further requirements for changes in the design and operation of nuclear reactors, this could result in substantial increas.es in the costs of operating and maintaining the Company's nuclear generating units.
For detail regarding nuclear insurance and certain contingent liabilities related thereto, as well as a new NRC rule that requires proceeds from certain insurance policies to be used first to pay stabilization and decontamination expenses (see Note M to FINANCIAL STATEMENTS).
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None PARTU ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS All of the Company's Common Stock is owned by Dominion Resources.
During 1988 and 1987, the Company paid quarterly cash dividends on its Common Stock as follows:
1988........ :.... :...
i987:.. *.. *.......,.....
1st 2nd 3rd (Millions)
$71.7
$71.6
$63.5(a) $67.5
$71.3
$69.6 4th
$74.5
$71.6 (a) In addition to the $63.5 million cash dividend, the Company transferred by dividend to Dominion Resources preferred stock of Occidental Petroleum Corporation valued at $4 million (see Note N to FINANCIAL STATEMENTS).
11
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. ITEM 6. SELECTED FINANCIAL DATA 1988 1987 1986 1985 1984 (Millions)
Operating revenues...............
$3,098
$3,078
$2,960
$2,712
~2,605 Operating income *. *. *.... * ;...... :...
737 737
- 693
- 600 563 Net income*...... *..... *... *..... *..
460 456 428 391 362 Balance available for Common Stock.*
407 407 380 340 311 Total assets,................ ;...
9,495 9;256
- 8,750
- 8,295 7,990 Total net utility-plant..............
7,998 7,639 7,228 6,805 6,524 Long-term debt, noncurrent capital lease obligations and preferred stock subject to mandatory redemption e
o o
o o
o o
o o
I Io o o
o 4,089 4,052 3,978 3,426 3,642 ITEM 7. MANAG.EMENT'S DISCUSSION,AND °ANALYSiS
. OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Recently Issued and Proposed Accounting Standards._
In December 1987, the Financial Accountipg Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 96, .Accounting for Income Taxes." As a result of a subsequent amendment, the provisions of SFAS No. 96 must be adopted by the Company no later than 1990. The objective of the new standard is to recognize the amount of current and deferred taxes payable and refundable for all events that have been recognized in the financial statements based on
. enacted tax laws at the date of the financial statements. (See Note A to FINANCIAL STATEMENTS, Significant Accounting Policies, Federal lncome Taxes.)
The FASB r~cently' issued an expo~ure draft of a proposed SFAS, Employers': Accou~ting for Postretirement Benefits Other Tha~ Pensions. The proposed statement by the F ASB focuses* on the recognition of the costs, determined on an actuarial basis, of providing future, postretirement health care and other benefits as they are earned by employees. The Company is unable to assess the ultimate.
outcome of the proposal or the financial and regulatory impacts that a final statement may have. (See Note L to FINANCIAL STATEMENTS, Retirement Plan and Postretirement Plan.)
Liquidity and Capital Resources The Company has significant capital requirements due to its program of maintenance, upgrading and expansion of facilities,* and the need for \\YOrking capital _and cash requirements for the retirement of maturing debt and sinking fund obligations. Its 'construction prograin, related expenditures and financing requirements can change as a result of additional regulatory.and environmental costs and other
. factors. (See Note M to FINANCIAL STATE;-1ENTS.)
The 1989 construction requirements (excluding AFC) include $836 million for construction expenditures and $24 million for nuclear fuel expenditures. The $74.9 million of securities due within one year, plus an additional $39.8 million of sinking fund payments, as well as those construction requirements not met by internal cash generation, are expected to be financed by a combination of sales*
of Virginia Power's securities and borrowings under its inter-company credit agreement with Dominion Resources. The Company presently: estimates that approximately 53% of its 1989 construction requirements, including nuclear fuel expenditures, will be met by internal cash generation and that the balance will be financed.
At December 31, 1988,. the Company's borrowings from Dominion Resources under the inter-company credit agreement were $28.5 million.
During 1988, Virginia Power issued $150 million of First and Refunding Mortgage Bonds, $75 million of Money Market Cumulative Preferred Stock, $118 million of Medium-Term Notes and $35 12
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million of Common Stock. From these proceeds, the Company retired $134 million of securities through mandatory debt maturities and sinking fund requirements, retired an additional $14 million of high cost debt and preferred stock through optional sinking fund_payments and reduced borrowings under the Virginia Power Financing Trust by $101.3 million.
Using proceeds from the sale of Money Market Municipal Pollution Control Bonds issued in December 1987, the Company redeemed in January 1988, its First and Refunding Mortgage Bonds, Pollution Control Series A, in the amount of $17 million.
In February 1989, the Company issued $150 million of First and Refunding Mortgage Bonds, 1989 Series A, the proceeds of which were used principally to reduce the Company's obligations relating to the Virginia Power Financing Trust.
From 1986 through 1988, the Company's major sources of funds from financings were as follows:
1988 1987 1986
{Thousands)
Common Stock..............................
$ 34,994
$ 79,990
$ 57,498 Preferred stock..............................
75,000 175,000 60,000 Mortgage bonds..............................
150,000 200,000 250,000 Medium-term notes...........................
118,000 121,850 180,015 Pollution control financings (including refunding).....
108,000 18,600 Virginia Power Financing Trust..................
400,000 VP Fuel, a wholly-owned subsidiary of the Company, was incorporated in Virginia on October 8, 1987. VP Fuel was formed for the purpose of purchasing nuclear fuel, the heat from which is sold to the Company for use in electric generation at the Company's Surry Power Station. The acquisition and ownership of the nuclear fuel is financed by VP Fuel through the sale of commercial paper that is guaranteed by the Company. The total amount of commercial paper outstanding at December 31, 1988, was $100.7 million, of which $34.8 million was classified as short-term debt, representing the Company's estimated cost of the nuclear fuel to be consumed by the Company during 1989.
Results of Operations The balance available for Common Stock increased $0.4 million from 1987 to 1988, and increased
$26.5 million, or 7.0%, fro~ 1986 to 1987.
Electric revenues were $19.4 million higher in 1988 as a result, in part, of increased unit sales resulting from weather conditions and a continuing high level of new customer connections. This increase is offset, in part, by a decrease in sales to ODEC, primarily as a result of the reduction of ODEC's purchases by 300 Mw (see Results of Operations, Other income-miscellaneous, net and associated taxes under MANAGE-MENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS) and a reduction in electric rates, including a one-time refund of approximately $80 million attributable to a reduction in certain deferred income tax balances ordered by the Virginia Commission. Electric revenues were $188.9 million higher in 1987 primarily as a result of increased unit sales resulting from weather conditions and a continuing high level of new customer connections. The effect of these items, among others, on electric revenues is shown in the following table.
Increase {Decrease) From Prior Years (Millions) 1988 1987 1986 Kwh sales..........................
$69.1
$161.2
$307.4 Base and fuel rates....................
(57.3) 24.7 (39.0)
Other, net...........................
7.6 3.0 34.6 Total.............................
$19.4
$188.9
$303.0 13
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On July 1, 1986, Virginia Power transferred its gas division to VNG (see Note N to FINANCIAL STATEMENTS). The results of gas operations, through June 30, 1986, are included in the Company's statement of income. Gas division revenues accounted for approximately 2.4% of 1986 total revenues.
Purchased and interchanged power increased in 1987 as compared to 1986 as a result of higher customer demands that were supplied in part through increased purchases, an increase in power purchases under an existing long-term contract with AEP and purchases of replacement power necessitated by nuclear plant outages.
The average fuel cost of energy supply is shown below (a):
Nuclear......................
Coal-Mt. Storm (mine-mouth).....
-Other..................
Oil..........................
Purchased and interchanged (b)....
Gas.........................
Combustion turbines............
Average fuel costs..............
Energy supply mix is shown below (a):
Nuclear (c)........................
Coal.............................
Oil..............................
Purchased and interchanged...........
Other............................
1988 5.72 13.12 15.54 30.04 26.21 26.31 60.88 14.13 Estimated 1989 32%
48 4
15 1
Mills Per Kilowatt-hour 1987 6.05 13.47 16.42 32.81 26.94 27.84 65.40 15.02 1986 5.70 14.57 18.00 33.18 26.92 92.89 87.75 14.57 Actual 1988 34%
45 4
16 1
1987 32%
45 5
17 1
100%
100%
100%
1986 38%
44 5
12 1
100%
(a) The table does not include any explicit reference to the Bath County Pumped Storage Station, which uses electricity generated from other fuel sources to pump water from a valley reservoir to another reservoir at the top of an adjacent mountain. The water stored in the upper reservoir is used to generate electricity when the water flows through a hydroelectric generator into the lower reservoir.
Accordingly, the Bath County Pumped Storage Station may be viewed as storing previously generated electricity for later use. Hydroelectric generation is included in determining average fuel costs.
(b) Excludes costs attributable to capacity charges paid under long-term power purchase agree-ments. Amounts for 1987 and 1986 have been restated to exclude such costs.
(c) Excludes ODEC's 11.6% ownership interest in the North Anna Power Station (see Note F to FINANCIAL STATEMENTS). Percentages for 1987 and 1986 have been restated to reclassify ODEC's percentage to purchased and interchanged power.
Deferred fuel expenses, net increased in 1988 as compared to 1987 as a result of: (1) a higher level of recovery in current rates for previously deferred fuel expenses, (2) deferral in 1987 of certain capacity costs which were written off in 1988 as ordered by the Virginia Commission (see Part I, BUSINESS-
-RATES) and (3) a decrease in fuel cost subject to deferral accounting in 1988 attributable to a lower cost of fossil fuel and an improved energy supply mix consisting of more economical nuclear generation.
Deferred fuel expenses, net decreased in 1987 as compared to 1986 because actual fuel expenses were higher than the level included in rates.
14
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Depreciation expenses increased in 1988 as a result of an increase in depreciable plant in service, due, in part, to the placing in service of additional distribution facilities, a higher level of decommis-sioning accrual approved by the Virginia Commission effective September 14, 1987 and an increase in the amortization of leasehold improvements and computer software.
Federal income taxes decreased in 1988 primarily as a result of the one-time refund for reductions in certain deferred income tax balances as ordered by the Virginia Commission (see Part I, BUSINESS-
-RATES) and the reducti,;m in tax rates under the Tax Reform Act of 1986. Federal income taxes decreased in 1987 primarily as a result of the reduction in tax rates under the Tax Reform Act of 1986.
For additional information with respect to Federal income and other taxes, see Notes B and D to FINANCIAL STATEMENTS.
Other income-miscellaneous, net and associated taxes reflect the payments received from ODEC.
Virginia Power and ODEC entered into an agreement, approved by the Virginia Commission, allowing ODEC to reduce its purchases of supplemental power from the Company by 300 Mw, effective January 1, 1988. This reduction, for which the Company received compensation from ODEC over a period of one year approximating $29 million, is expected to benefit the Company's remaining customers over the long term by avoiding increased costs that would have been incurred to purchase such power from other sources. In 1986, other income-miscellaneous net and associated taxes reflected the gain on the disposition of Laurel Run Mining Company (see Note N to FINANCIAL STATEMENTS).
Future Sources of Power The Company is committed to filling a portion of its total requirements for new generating capacity through the purchase of power as an alternative to the construction of power plants. Purchased power provided 14.8% of the Company's peak capacity requirements in 1988, and it is estimated that this figure will approximate 27% by 1994.
As a result of the 1988 competitive bidding solicitation, the Company entered into 19 contracts for 2,086 Mw of additional power for initial delivery at various dates through 1994. On average, these contracts are for a duration of 25 years. Competition is expected to reduce the cost of electricity to the ultimate consumer. While certain business and financial risks may result from the Company's growing dependence upon other power producers for a stable supply of power, the Company has taken steps in the selection process to mitigate such risks. For example, the financial strength, reputation and experience of the potential suppliers are weighed heavily in the selection process. (See Note M to FINANCIAL STATEMENTS.)
Significant Trends The decision by the Virginia Commission on Decemb_er 30, 1988, will, unless reversed on appeal, affect the Company's earnings adversely. That decision denied in its entirety an application filed by the Company in May 1988 seeking a $96.7 million annual increase in base rates to offset increases in costs incurred in 1987. The Virginia Commission ruled, in part, that the Company was entitled only to the opportunity to earn a rate of return on equity within the 12.5 to 13.5 percent range established by the Virginia Commission for the 1987 "test year" rather than the specific 13.25 percent rate of return established by the Virginia Commission for tariff calculation purposes. The Virginia Commission found that the Company's actual return on equity for the 1987 test year was 12.527 percent, and accordingly denied any upward revision in the utility's rates to produce additional revenues.
The Company appealed the December 1988 decision to the Supreme Court of Virginia in January 1989. If the Supreme Court of Virginia affirms the decision of the Virginia Commission, that finding would have an adverse impact on the Company's near-term revenues and earnings.
Inflation The rate of inflation, as measured by the consumer price index, has been low in recent years.
However, due to the capital intensive nature of the electric utility industry, inflation continues to have 15
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an impact on the Company's business. Under ratemaking prescribed by the regulatory commissions to which the Company is subject, only the historical cost of property, plant and equipment is recoverable through rates as depreciation. While the ratemaking process gives no recognition to the current cost of replacing property, plant and equipment, the Company believes, based on past practices, that it will be allowed to recover the increased cost when replacement of facilities actually occurs.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA' R~ports of Independent Certified Public Accountants................
R,eport Qf Management.......................................
Statements of Income for the years ended December 31, 1988, 1987 and 1986...................................................
Balance Sheets at December 31, 1988 and 1987.....................
Statements of Earnings Reinvested in Business for the years ended December 31, 1988, 1987 and 1986.......................... ;.
Statements of Cash Flows for the years ended December 31, 1988, 1987
- and 1986.............'..................... **-:,. :........ *..
Statements of Capitalization at December 31, 1988 and 1987...........
Notes to Financial Statements.................................
Financial Statements Schedules:
IY.:.-Indebtedness of and to Related Parties-Not Current for the years ended December 31, 1988, 1987 and 1986.......
V-Property, Plant and Equipment for the years ended December 31, 1988, 1987 and 1986.................
VI-Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment for the years ended December 31, 1988, 1987 and 1986.................
VIII-Valuation and Qualifying Accounts and Reserves for the years ended December 31, 1988, 1987 and 1986........
Schedules other than those listed above have been omitted since
- they are not required, are inapplicable or are unnecessary due to the presentation of the required information in the financial statements or -
notes thereto.
16 Page No.
17 19 20 21 23 24 26 28 42 43 46
. 47
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To* the Board of Directors ~f Vfrginia Electric and Power Company:
We have audited the accompanying financial statements of Virginia Electric and Power Company as of December 31, 1988 and the year then ended listed in the index on page 16. These financial statements and the supplemental schedules discussed below are the responsibility of the Company's management. Our responsibility is to express an opinion ori these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obt~in reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the ac.counting principles used and significant estimates made. by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such 1988 financial statements present fairly, in all material respects; the financial position of Virginia Electric and Power Company at December 31, 1988 and the results of its operations and its cash flows for the year then ended in: conformity with generally accepted accounting principles.
- Our audit also comprehended the supplemental schedules of Virginia Electric and Power Company for the year ended December 31, 1988 listed in the index on page 16. In our opinion, such supplemental schedules, when considered in relation to the basic financial statements, present fairly in all material respects the information shown therein.*
Richmond, Virginia February 3, 1989 17 DELOITTE HASKINS & SELLS
e
- e REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors of Virginia Electric and Power Company:
We have examined the financial statements and the financial statement schedules of Virginia Electric and Power Company as of and for the years ended December 31, 1987 and 1986 as listed in the index on page 16 of this Form 10-K. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we cons,idered necessary in the circumstances.
In our opinion, the financial statements referred to above present fairly the finaridal po.sitiori of Virginia Electric and Power Company as of December 31, 1987, and the results of its operations and its cash flows for the years ended December 31, 1987 and 1986, in conformity with generally accepted accounting principles applied on a consistent basis after restatement for the change, with which we concur, in the method of accounting for terminated construction project costs as described in Note C to FINANCIAL STATEMENTS. In addition, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly the information required to be included therein.
Richmond, Virginia February _5, 1988 18 COOPERS.&. LYB.JµND
e REPORT. OF MANAGEMENT.
The Company's management is responsible for all information and representations contained in the Financial Statements and other sections of the Company's report on Form 10-K. The Financial Statements, which include amounts based on estimates and judgments of management, have been prepared in conformity with generally accepted accounting principles. Other financial information in the Form 10-K is consistent with that in the Financial Statements.
Management maintains a system of internal accounting controls designed to provide reasonable assurance, at a reasonable cost, that the Company's ass.ets are safeguarded against loss from unauthorized use or disposition and that transactions are executed and recorded in accordance with established procedures. Management recognizes the inherent limitations of any system of internal accounting control and, therefore cannot provide absolute assurance that the objectives of the established internal accounting controls will be met.
The Financial Statements* have been audited by Deloitte Haskins & Sells (for the year ended December 31, 1988) and Coopers & Lybrand (for the years ended December 31, 1987 and 1986),
independent certified public accountants whose designation by the Board of Directors was ratified by the shareholders. Their audits were conducted in accordance with generally accepted auditing standards and included a review of the Company's accounting systems, procedures and internal controls, and the performance of tests and other auditing procedures sufficient to provide reasonable assurance that the Financial Statements are not materially misleading and do not contain material errors.
The Audit Committee of the Board of Directors, composed entirely of directors who are not officers or employees of the Company, meets periodically with the independent auditors, the internal auditors and management to discuss auditing, internal accounting control and financial reporting matters and to ensure that each is properly discharging its responsibilities. Both the independent auditors and the internal auditors periodically meet alone with the Audit Committee and have free access to the Committee at any time.
Management recognizes its responsibility for fostering a strong ethical climate. This is reflected in the Company's Code of Ethics, which is distributed throughout the Company. The Code of Ethics addresses, among other things, the importance of ensuring open communication within the Company; potential conflicts of interest; compliance with all domestic and foreign laws, including those relating to financial disclosure; and the confidentiality of proprietary information.
VIRGINIA ELECTRIC AND POWER COMPANY 19
e e
VIRGINIA ELECTRIC AND POWER COMPANY STATEMENTS OF INCOME For The Years Ended December 31, 1988 Operating revenues:
Electric.......................... *........... :. * $3,097,579 Gas..........................................
Total........................................
3,097,579 Operating expenses:
Operation:
Fuel used in current generation....................
562,732 Purchased and interchanged power, net..............
396,737 Deferred fuel expenses, net.,.....................
38,026 Other.......................................
414,374 Maintenance :...................................
'271,883 Depreciation....................................
322,738 Amortization of terminated construction project costs.....
62,068 Taxes-Federal income............................
110,780
-Other.................. ;................
181,713.
Total......................................
2,361,051 Operating income..... :............................
736,528 Other income:
Allowance for other funds used during construction..................................
1,845 Miscellaneous, net..........*........'............
71,401 Income taxes associated with miscellaneous, net.........
(28,901)
Total......................................
44,345 Income before interest charges........................
780,873 Interest charges:
Interest on long-term debt..........................
313,625 Other.........................................
8,757 Allowance for borrowed funds used during construction..................................
(1,615)
Total......................................
320,767 Net income...................................*..
460,106.
Preferred dividends................................
53,095 Balance available for Common Stock...................
$ 407,011 1987 (Thousands)
$3,078,180 3,078,180 578,458 412,647 (128,440) 430,827 275,047 293,612 57,349 243,272, 177,963 2,340,735 737,445 1,966 35,930 (12,093) 25,803 763,248 301,022 12,853 (6,482) 307,393 455,855 49,195
$ 406,660 The accompanying notes are an integral part of the financial statements.
20
- 1986
$2,889,310 70,782 2,960,092 582,809 242,405 (88,569) 456,951 265,076 268,991 57,363 311,919 169,716 2,266,661 693,431 1,290 52,358 (18,281) 35,367 728,798 285,528 17,996 (2,479) 301,045 427,753 47,592
$ 380,161
e e
VIRGINIA ELECTRIC AND POWER COMPANY BALANCE SHE~TS Assets At December 31, 1988 1987 UTILITY PLANT:
Electric (includes $641,491 plant under construction
[1987-$488,674]).............................
Less accumulated depreciation....................
Nuclear fuel (less accumulated amortization of $525,623
. [1987-$426,721])............................
. Total net utility plant........................
PLANT AND PROPERTY UNDER CAPITAL LEASES
' (less accumulated amortization of $40,000
[1987-
$33,854]).....,.......................
INVESTMENTS:
Non-utility property (less accumulated depreciation of:
$239 [1987~$239])............................
Notes receivable...............................
Pollution control project funds....................
Nuclear decommissioning trust funds...............
Other................,......................
Total net investments........................
CURRENT ASSETS:
Cash........................................
Accounts receivable:
Customers.................................. $277,505 Other............................,..... :..
36,938 314,443 Less allowance for doubtful accounts............
1,286 Accrued unbilled revenues.......................
Materials and supplies at average cost or less:
Plant and general............................. 158,123 Fossil fuel..................................
90,258 Other............................... ;........
Total current assets.,.......................
DEFERRED DEBITS AND OTHER ASSETS:
Terminated construction project costs (less accumulated amortization of $357,645 [1987-$295,578])..........
Deferred fuel expenses... *. *......................
Other.......................................
Total deferred debits and other assets......... :..
Total assets...................... *. :.........
(Thousands)
$10;353,800 2,615,011 7,738,789 258,888 7,997,677 47,982.
5,632 30,733 87,062 69,079 3,206 195,712 10,557
$256,132 22,701 278,833 313,157 2,225 134,419 179,089 248,381 156,633 38,186 744,700 276,214 135,832 97,101 509,147
$ 9,495,218 The accompanying notes are an integral part of the financial statements.
21
$9,695,002 2,350,065 7,344,937
- 294,031
- 7,638,968 54,128
- 6,070 35,564 121,675 44,240 3,278
. 210,827 10,499 276,608 121,686 335,722 16,592 761,107 311,476 173,808 105,776 591,060
$9,256,090
e e
VIRGINIA ELECTRIC AND POWER COMPANY BALANCE SHEETS Capitalization and Liabilities At December 31, 1988 1987 (Thousands)
CAPITALIZATION:
Long-term debt (see Statements of Capitalization)...........
$3,695,545
$3,631,263 Preferred stock subject to mandatory redemption...........
349,743 371,027 Preferred stock not subject to mandatory redemption........
394,014 319,014 Common stockholder's equity:
Common Stock-no par.............................
2,096,671 2,060,841 Other paid-in capital...............................
18,666 19,501 Earnings reinvested in business.......................
910,335 795,107 Total common stockholder's equity..................
3,025,672 2,875,449 Total capitalization...............................
7,464,974 7,196,753 OBLIGATIONS UNDER CAPITAL LEASES.................
43,350 49,516 CURRENT LIABILITIES:
Securities due within one year (see Statements of Capitalization)....................................
114,622 150,663 Short-term debt....................................
35,640 42,304 Obligations under capital leases due within one year.........
6,301 6,144 Accounts payable, trade..............................
202,946 155,041 Cash due to banks..................................
48,807 59,986 Customer deposits..................................
40,245 36,650 Payrolls accrued....................................
36,374 38,015 Taxes accrued.......................... ;..........
55,681 19,431 Interest accrued....................................
86,579 88,227 Other............... ;............................
84,193 86,792 Total current liabilities............................
711,388 683,253 DEFERRED CREDITS AND OTHER LIABILITIES:
Uranium settlement.................................
30,782 50,442 Accumulated deferred income taxes:
Liberalized depreciation............................
625,648 567,276 Terminated construction project costs..................
29,090 68,517 Other..........................................
155,585 191,506 Deferred investment tax credits.........................
409,621 419,919 Other............................................
24,780 28,908 Total deferred credits and other liabilities..............
1,275,506 1,326,568 COMMITMENTS AND CONTINGENCIES Total capitalization and liabilities....................
$9,495,218
$9,256,090 The accompanying notes are an integral part of the financial statements.
22
e e
VIRGINIA ELECTRIC AND POWER COMPANY STATEMENTS OF EARNINGS REINVESTED IN BUSINESS Balance at beginning of year Net income (see Statements of Income).................
Total......................................
Cash dividends:
Preferred stock subject to mandatory redemption:
Series:
$ 7.30....... *........................... * * *
$ 7.325.............. *........ *..............
$ 7.58....,.................................
- * $ 8.20....... *..............................
$ 8.40.....................................
$ 8.60.....................................
$ 8.625....................................
$ 8.925... -~................................
$ 9.125....................................
$10.25.....................................
Preferred stock not subject to mandatory redemption:
Series:
$5.00.... :.................................
$4.04....... :....................... -.......
$4.20......................................
$4.12...... *... -...............................
$4.80......................................
$7.72......................................
$8.84......................................
$7.45....... :..............................
$7.20.......................................
$7.72 (1972 Series).........................,..
$9.75......................................
Money Market Preferred (January 1987 Series).. ;....
Money Market Preferred (June 1987 Series).........
Money Market Preferred (October 1988 Series).......
Common Stock............................. *.....
Other dividends to Dominion Resources:
Common Stock of VNG...........................
Common Stock of Dominion Exploration, Inc...........
Preferred stock recdved on sale of Laurel Run Mining Company.....................................
Total dividends..............................
Other deductions*, net...............................
Balance at end of year..............................
For the Years Ended December 31, 1988
$ 795,107 460,106 1,255,213 3,650 4,153 4,548 3,629 5,242 2,374 2,314 2,007 2,563
- 533 52 62 134 351 2,702 2,980 3,240 3,860 3,300 4,972 1,460 289,101 1987 (Thousands)
$ 668,966 455,855 1,124,821 2,485 4,365 4,536 3,875 5,797 2,476 2,473 2,101 2,562 533
- 52.
62 134 351 2,702 2,980 3,240 3,860 2,495 2,389 272,284 4,000 1986 584,904 427,753 1,012,657 4,570 2,198 4,121 6,259 2,578 2,713 2,265 1,132 2,563 533 52 62 134 351 2,702 2,406 2,980 3,240 3,860 3,087 230,632 28,202 208 36,000 343,227 325,752 342,848 1,651 3,962 843
$ 910,335
$ 795,107
$ 668,966 The accompanying notes are an integral part of the financial statements.
23
e e
VIRGINIA ELECTRIC AND POWER COMPANY STATEMENTS OF CASH FLOWS For the Years Ended December 31, Cash Flow From Operating Activities:
Net income.................................
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization...............
Allowance for other funds used during construction..
Deferred income taxes..............
Deferred investment tax credits, net............
Pretax loss on sale of West Virginia territory......
Pretax gain on sale of Laurel Run Mining Company..
Pretax gain on partial settlerrient-pension plan.....
Noncash return on terminated construction project costs-pretax..................................
Deferred fuel expenses..............
Uranium settlement...............
Changes in assets and liabilities(*):
Accounts receivable.............
Accrued unbilled revenues..........
Materials and supplies...................
Accounts payable, trade.......................
Accrued expenses.....................
Other..............................
Net Cash Flow From Operating Activities...........
Cash Flow From (To) Financing Activities:
Common Stock..............................
Preferred stock..............................
Long-term debt.........................
Short-term debt.........................
Inter-company credit agreement...............
Repayment of long-term debt and preferred stock.....
Common Stock dividend payments.............
Preferred stock dividend payments..............
Principal payments under capital lease obligations....
Other..............................
Net Cash Flow From (To) Financing Activities..........
Cash Flow Used in Investing Activities:
Utility plant expenditures (excluding AFC-other funds)..
Nuclear fuel (excluding AFC-other funds).........
Pollution control project funds.................
Nuclear decommissioning trust funds.............
Nuclear fuel progress payments................
Sales of nuclear fuel to lessor..................
Sale of West Virginia service territory.............
Sale of Laurel Run Mining Company.............
Other...............................
Net Cash Flow Used in Investing Activities...........
Increase (Decrease) in cash and cash equivalents........
Cash and cash equivalents at beginning of year.........
Cash and cash equivalents at end of year............
1988 460,106 489,928 (1,845)
(27,843)
(10,270)
(17,287)
(27,995) 37,976 (19,660)
(36,549)
(12,733) 87,341 47,905 32,961 35,571 1,037,606 34,994 75,000 273,258 (6,664) 1,500 (267,095)
(289,101)
(54,126)
(6,009)
(2,356)
(240,599)
(743,270)
(63,444) 34,613 (24,839) 11,170 (785,770) 11,237 (49,487)
$ (38,250).
1987 1986 (Thousands)
$455,855
$427,753 428,631 432,318 (1,966)
(1,290) 109,739 141,211 3,893 (4,530) 3,784 (18,204)
(30,726)
(33,167)
(128,346)
(84,939)
(13,676)
(19,579)
(32,253) 2,826 (433)
(50,194)
(68,869) 55,659 (19,196) 22,643 *
(43,554) 41,252 12,348 (15,486) 675,231 896,273 79,990 57,482 175,000 60,000 491,170 848,615 41,804 (10,700)
(22,600)
(116,475)
(264,295)
(655,670)
(272,284)
(230,632)
(49,468)
(47,806)
(37,083)
(52,580)
(4,805) 38,822 137,429 (108,944)
(677,539)
(789,164)
(158,201)
(45,367) 9,508 8,979 (15,617)
(26,806)
(28,997)
(27,963) 25,982 62,120 23,013 623 5,000 21,162 (2,395)
(800,066)
(815,596) 12,594 (28,267)
(62,081)
(33,814)
$ (49,487)
$ (62,081)
(*) Does not include reclassification as current liabilities of maturing long-term debt and cash sinking fund obligations of debt and preferred stock as follows: 1988-$114,622; 1987-$150,663; and 1986---$56,866.
(Continued) 24
e e
VIRGINIA *ELECTRIC AND POWER COMPANY STATEMENTS OF CASH FLOWS (Continued)
CASH PAID DURING THE YEAR FOR:
. Interest (reduced for the net cost of borrowed funds capitalized as AFC).................
- Income taxes..................... ;......
NONCASH TRANSACTIONS FROM INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations Additions of capital leases and related obliga-tions................. *...............
- Retirements. of capital lea~es and related obligations :..........................
Sale of Laurel Run Mining Company:
- Cash received..........................
Accounts receivable.....................
Preferred stock received..................
Transfer of VNG:
VNG Common Stock received..............
VNG preferred stock received..............
VNG long-term debt received..............
,Conversion of Convertible Debentures.........
Noncash dividends to Dominion Resources:
Common Stock of VNG..................
Common Stock of Dominion Exploration, Inc...
- *
- Preferred stock received on sale of Laurel Run Mining Company.... ;.*...............
DISCLOSURE OF ACCOUNTING POLICY:
1988
$329,091 146,391 1987 (Thousands)
$314,028 202,029 26,299 106,385
- 623 4,000 4,000 1986
$320,010 143,107 64,185 5,611 5,000 4,623 36,000 28,202 6,118 37,020 26,344 28,202 208 36,000 For purposes or' the Statements of Cash Flows, the Company considers cash and cash equivalents to include cash on hand, cash due to banks and temporary investments purchased with a maturity of three months or less.
The accompanying notes are an integral part of the financial statements.
25
e e
VIRGINIA ELECTRIC AND POWER COMPANY STATEMENTS OF CAPITALIZATION
-At December 31, 1988 1987 (Thousands)
Long-term debt:
First and refunding mortgage bonds (I):
Pollution Control Series A, 8.5%, due 1988..................... :....
17,000 Series 0, 3.875%, due 1988.. ;................................
25,000 1983 Series A, 10.5%, due 1988..................................
25,000 Series P, 4.625%, due 1990.....................................
25,poo 25,000 Series Q, 4.875%, due 1991....................................
30,000 30,000 1984 Series D, 11.5%, due 1991.................................
20,000 20,000 Series R, 4.375%, due 1993..... :.............................
.30,000 30,000 Series S, 4.5%, due 1993.... *..................................
29;985 29,985 Various series, 4.5%-15.75%, due 1994-1998..........................
616,640 472,390 Various series, 7.125%-12.5%, due 1999-2003........................
6i3,200 622,950 Various series, 6.75%-12.85%, due 2004-2008........................
748,000 754,750 Various series, 10.25%, due 2009-2013.............................
71,396 79,797 Various series, 8.5%-9.875%, due 2014-2017..................,......
350,000 350,000 Total first and refunding mortgage bonds....................,...,..
2,534,221 2,481,872 Other long-term debt:
Bank loans, notes and term loans:
Fixed interest rate, 6.7%-12.375%, due 1988-2003....................
563,591 446,799 Variable interest rate, due 1988 (2)... :............. *............
- 50,000 Pollution control financings:
Fixed interest rate, 5.625%, due 2002............................
22,000 22,000 Money Market Municipals, due 2008-2017 (3).......................
388,600 388,600 Virginia Power Financing Trust (4)...............................
198,695 300,000 Iriter~company credit agreement (5)...... *...... : *......... *........
- 28,500 27,000 Nuclear fuel financing (6)....................................
65,930 61,320 Total other long-term debt ;..................................
1,267,316.
1,295,719 3,801,537 3,777,591 Less amounts due within one year:
Firs.t and refunding mortgage bonds...............................
67,000 Bank loans, notes and term loans.......... *.....................
74,860 50,500 Sinking fund obligations (7)... *...................,............
21,679 20,080 Total amount due within one year.................. :...........
96,539 137,580 Less unamortized discount, net of premium.... *.......................
9,453 8,748 Total long-term debt.......................................
3,695,545 3,631,263 Preferred stock.............................................
761,840 703,124 Less amounts due within one year-sinking fund obligations..................
18,083 13,083 Total preferred stock............... _..........................
743,757 690,041 Common stockholder's equity (8)..................................
~,025,672.
2,875,449 Total capitalization...........................................
$7,464,974
$7,196,753 (Continued) 26
e e
VIRGINIA ELECTRIC AND POWER COMPANY STATEMENTS OF CAPITALIZATION (Continued)
(1) Substantially all of the Company's property is subject to the lien of its mortgage, securing its First and Refunding Mortgage Bonds.
(2) Interest rates were b.ased on 118% of.the base lending rate not to exceed an average annual rate of9%.
(3) Interest rates vary based on short-term tax-exempt market rates.
(4) In April 1986, the Company established the Virginia Power Financing Trust, a $400 million multi-option credit facility to replace the $250 million Bath County Pumped Storage Station financing, two floating rate bank loans aggregating $100 million and $50 million of inter-company borrowings from Dominion Resources. Borrowings under the facility have a maximum life ofup to 5 years. During 1988, the Company reduced the facility commitment, thereby limiting borrowings under the Trust to. $200 million. The weighted average interest rate for 1988, including fees for supporting letters and lines of credit, for borrowings made through the Trust was 8.15%.
(5) Effective January 1, 1985, the Company entered into an inter-company credit agreement with Dominion Resources. Under the terms of this agreement, which was amended arid restated September 1, 1987, the Company may borrow funds from Dominion Resources on a daily basis and repay all or any part of the loan at any time during the term of the agreement, presently due to expire on July 1, 1990. Borrowings under the agreement are limited to $300 million. The weighted average interest rate for 1988 was 7.86%.
(6) In October 1987, VP Fuel, a wholly-owned subsidiary of the Company, entered into a four-year standby revolving credit agreement, in support of its commercial paper financing of nuclear fuel used at the Company's Surry Power Station. Subject to the terms of the revolving credit agreement, which is unconditionally guaranteed by the Company, VP Fuel may borrow ahd reborrow up to $200 million at any one time, minus the aggregate amount of outstanding commercial paper. The weighted average interest rate for VP Fuel financing in 1988 including bank facility fees was 7.90%.
(7) $8,383,250 of the annual sinking fund requirements on the First and Refunding Mortgage Bonds may be satisfied by waiving the privilege to issue an equal amount of bonds and by substituting property therefor. The Company intends to exercise such waiver in 1989.
(8) Common Stock was represented by 142,433 shares outstanding at December 31, 1988 (300,000 shares authorized). An amendment to the Articles oflncorporation effective June 25, 1986, reduced the number of authorized shares of Common Stock from 150,000,000 shares, without par value, to 150,000 shares, without par value. The Common Stock was reverse split on a one to one thousand basis and amounts representing fractional shares were paid in cash. Effective January 7, 1987, the Articles of Incorporation were amended to increase the number of authorized shares of Common Stock to 300,000.
In February 1989, the Company issued $150 million of First and Refunding Mortgage Bonds, 1989 Series A, the proceeds of which were used principally to reduce the Company's obligations relating to the Virginia Power Financing Trust.
Maturities (including cash sinking fund obligations) through 1993 are as follows: 1989-
$U4,622,400; 1990--$162,776,400; 1991-$371,441,400; 1992-$98,991,400 and 1993-$175,601,400.
The accompanying notes are an integral part of the financial statements.
27
e e
VIRGINIA ELECTRIC AND POWER COMPANY NOTES TO FINANCIAL" STATEMI\\:NTS A.. Significant Accounting Policies:
General:
The Company's accounting practices are prescribed by the Uniform System of Accounts promul-gated by the regulatory commissions having jurisdiction.
The Company is a wholly~owned subsidiary of Dominion Resources, a Virginia corporation. The financial statements include the accounts of the Company and VP Fuel, with all significant inter-company transactions and accounts being eliminated in consolidation.
Revenues:
Operating revenues are recorded on the basis of service rendered. In 1986, operating revenues reflected a refinement in the method of calculating unbilled kilowatt-hour sales which resulted in an additional $58.2 million in unbilled revenues and an increase in net income of $24.1 million.
Utility Plant and Depreciation:
Utility plant is recorded at original ccist which includes labor, materials, services, AFC and other indirect costs.
Depreciation of utility plant (other than nuclear fuel) for financial reporting purposes is computed on the straight-line method based on projected useful service lives. The cost of depreciable utility plant retired and the cost of removal, less salvage, are charged to accumulated depreciation. The provision for depreciation is based on weighted average depreciable plant using rates of 3.2% for 1988 and 3.3%
for 1987 and 1986.
The cost of maintenance and repairs is charged to the appropriate operating expense and clearing accounts. The cost of additions and replacements is charged to the appropriate utility plant account, except that the cost of minor additio~s and replacements is charged to maintenance e,xpense.
Nuclear Decommissioning:
- Based on the most recent decommissioning cost study completed in 1986, future decommissioning costs for the Company's four nuclear units are approximately $665 million, as measured in 1986 dollars.
Funds collected in.1984-1988 have been placed in a special trust in order that the Company may avail itself of certain federal income tax benefits. Pre-1984 collections have been placed in a separate trust. Trust funds will be invested with earnings generated and accumulated in the trusts for funding of future decommissioning obligations. Additional funds needed for decommissioning will be collected as approved by the jurisdictional regulatory commissions. The accumulated provision for decommissioning of$71.8 million and $47.4 million is included in Utility Plant Accumulated Depreciation at December 31, 1988 and 1987, respectively.
Provisions for decommissioning of $21.2 million, $15.9 million and $13.1 million applicable to 1988, 1987 and 1986, respectively, are included in Depreciation Expense.
Nuclear Fuel:
Operating expenses include amortization of nuclear fuel, which is provided on a unit of production basis sufficient to fully amortize, over the estimated service life, the cost of the fuel plus future storage and disposal costs.
In 1979, a settlement was reached in the Westinghouse uranium dispute which provides for cash and discounts on uranium and goods and services over the period 1979-1997. The cash and discounts have fully covered the value of the litigated contracts had they been performed by Westinghouse.
Settlement proceeds are applied to reduce fuel expenses.
28
--- ----~
e Federal Income Taxes:
The Company files a consolidated federal income tax return with Dominion Resources.
The Company's practice is to reduce the current provision for federal income taxes to reflect the tax benefit resulting from the use of the accelerated depreciation methodology for property additions.
Prior to 1974, the Company flowed through to income the tax effect of most timing differences between book and tax accounting. Effective with property additions placed in service in 1974, deferred income taxes have been provided on the effects of accelerated depreciation and, subsequently, deferred taxes have been provided on most other timing differences between book income and federal taxable income to the extent permitted by the regulatory commissions having jurisdiction.
To the extent timing differences have arisen in prior periods which have not been normalized, the tax increase or decrease will be recorded when the timing differences reverse. The Company's only significant non-normalized timing difference pertains primarily to accelerated tax depreciation of plant placed in service prior to 1974. Deferred tax provisions have not been recorded on these timing differences (with the exception of FERC jurisdictional operations) because they are not allowed for ratemaking purposes. As of December 31, 1988, the cumulative net amount of such timing differences was approximately $769. 7 million. The tax effect of this amount is not recorded currently, but such costs are expected to be reflected in rates when the timing differences reverse.
Deferred investment tax credits are being amortized over the service lives of the property giving rise to such credits. The Tax Reform Act of 1986 repealed the investment tax credit, effective January 1, 1986, except for certain transitional property qualifying for the credit.
In December 1987, the FASB issued SFAS No. 96, "Accounting for Income Taxes." As a result of a subsequent amendment, the provisions of SFAS No. 96 must be adopted by the Company no later than 1990. The objective of the new standard is to recognize the amount of current and deferred taxes payable and refundable for all events that have been recognized in the financial statements based on enacted tax laws at the date of the financial statements. Implementation of the standard may be accomplished by either restating financial statements for prior periods or reporting the cumulative effect of the change in income of the current year.
The Company has preliminarily determined that the net effect provided by adoption of the standard will be the recording of additional deferred income taxes on the Company's balance sheet. These additional deferred income taxes represent the tax effects of those timing differences between book income and federal taxable income for which deferred income taxes have not been provided. At the time the Company records these additional deferred income taxes, a regulatory receivable for that amount will also be recorded. The Company will recognize the tax effects in future customer rates when such timing differences reverse.
Pending further analysis of forthcoming guidance from the F ASB and resolution of the regulatory treatment for deferred income tax balances, the Company has not yet completed its determination of the impact that adoption of the standard will have on its financial statements.
Allowance for Funds Used During Construction:
The applicable regulatory Uniform System of Accounts defines AFC as the net cost for the period of construction of borrowed funds used for construction purposes and a reasonable rate on other funds when so used.
The Company separately determines rates and reports amounts applicable to borrowed funds, calculated on a net-of-tax basis, and to equity funds. Aggregate rates of 8.89%, 8.26% and 8.44% were used for 1988, 1987 and 1986, respectively. Substantially all of the Company's construction work in progress is now included in rate base, and a cash return is collected currently thereon.
Deferred Fuel and Capacity:
Approximately 77% of fuel expenses is subject to a deferral method of accounting. Under this method, the difference between actual fuel expenses and the level of fuel expenses included in current rates is deferred and matched against fuel-related revenues.
29
~.
e During 1987, the Company, based on regulatory authorization, deferred approximately $33 million of capacity charges in excess of the level of such charges included in base rates. Subsequently, in Virginia's base rate proceeding, the Company sought recovery of these deferred capacity charges over a two-year period. On December 30, 1988, the Virginia Commission denied recovery of these costs in its Order. As a result, these capacity costs have been expensed in 1988.
Pollution Control Project Funds:
Pollution control project funds represent unexpended proceeds, plus interest earned thereon, from the sale of pollution control securities. These funds are placed in a trust for the benefit of the Company, until the Company requisitions monies from the trustee for the reimbursement of qualified project expenditures. For certain regulatory jurisdictions, investment earnings generated from the unused portion of such funds are recorded as interest income.
Reclassification:
Certain amounts in the 1987 and 1986 financial statements have been reclassified to conform to the 1988 presentation.
B.
Federal Income Taxes:
Details of federal income tax expense are as follows:
Years 1988 1987 1986 (Thousands)
Current expense.............................
$151,726
$132,609
$190,876 Deferred expense, resulting from timing differences:
Plant related items:
Liberalized depreciation..................
58,809 80,649 84,956 Indirect construction costs................
(13,924)
(9,576) 2,985 Cost of removal-property retirements........
4,788 3,120 5,079 Nuclear decommissioning costs............
1,928 (4,563)
(592)
Other................................
(2,439)
(3,978) 2,983 Deferred fuel adjustment...................
(15,167) 50,844 39,274 Unbilled revenues........................
(4,127) 32,614 Terminated construction project costs.........
(15,976)
(19,067)
(18,798)
Customer accounts reserve.................
(333)
(11,932) 14,735 Refund of certain deferred tax balances pursuant to regulatory order (*)...................
(49,062)
(5,436)
Other............ *.....................
4,827 (7,418)
(5,049)
(30,676) 105,257 125,573 Deferred investment tax credits:
Gross...................................
10,969 30,483 18,951 Amortization.............................
(21,239)
(25,077)
(23,481)
Net deferred investment tax credits..............
(10,270) 5,406 (4,530)
Federal income tax expense-operating income.......
110,780 243,272 311,919 Federal income tax expense associated with nonoperating income:
Current..................................
26,068 9,124 2,643 Deferred.................................
2,833 4,482 15,638 Net deferred investment tax credits.............
(1,513) 28,901 12,093 18,281 Total federal income tax expense................
$139,681
$255,365
$330,200
(*) Represents the effect of a refund to customers for a reduction in certain deferred income tax balances as ordered by the Virginia Commission. (See Item 1, BUSINESS-RATES.)
30
e e
Total federal income tax expense differs from the amount computed by applying the statutory federal income tax rate to pretax inc.ome for the following reasons:
Years 1988 1987 1986
% of
% of
% of Pretax Pretax Pretax Amount Income Amount Income Amount Income (Thousands, except percentages)
Computed federal tax expense at statutory rate on income (1).......
$203,928 34.0% $284,132 39.9% $348,658 46.0%
Increases (decreases) resulting from:
Utility plant differences (2)........
(2,753)
- (0.5)
(4,931)
(0.7)
(3,756)
(0.5)
Ratable amortization of investment tax credits...................
(21,239)
(3.5)
(26,590)
(3.7)
(23,481)
(3.0)
Refund of certain deferred tax balances pursuant to regulatory order (3)....................
(49,062)
(8.2) *
(5,436)
(0.8)
Terminated construction project costs (2)........... _....... *..
8,880 1.5
. 6,208 0.9 7,894.
LO Other, net.....................
(73) 0.0 1,982 0.3 885 0.1 (64,247)
(10.7)
(28,767)
(4.0)
(18,458)
(2.4)
Total federal income 'tax expense.....
$139,681 23.3% $255,365 35.9% $330,200 43.6%
(1) Net income plus total federal income tax expense.
(2) Items for which deferred taxes had not been provided in prior years, net of amortization of certain deferred tax provisions recorded at higher levels than the current statutory rate.
(3) Represents the effect of a refund to customers for a reduction in certain deferred income tax balances as ordered by the Virginia Commission. (See Item 1, BUSINESS-RATES.)
C.
Terminated Construction Project Costs:
Costs, net of taxes, incurred in connection with terminated construction projects are summarized as follows:
Nuclear Unit North Anna 3 North Anna 4 Surry 3 & 4
- Date Construction Terminated
-November 1982 November 1980 March 1977 Net Costs._
Incurred Unamortized Balance At December 31, 1988 (Thousands)
$387,583
$220,190 85,641
. 25,020 54,611 1,914 Period of Amortization in Rates
(*)
10 years 10 years
(*) The amounts deferred are being amortized over 15 years for Virginia and FERC jurisdictional customers and over a ten-year period in the North Carolina jurisdiction.
In 1986, the Company adopted the provisions of SPAS No. 90, "Regulated Enterprises-Ac-counting for Abandonments and Disallowances of Plant Costs," and restated financial statements of prior years. SPAS No. 90 requires, in part, that future revenues authorized by regulators to recover the allowable cost of terminated construction projects be reflected on a present value basis with the excess of actual cost over present value of future revenues recognized as a loss in the year of project termination. Accordingly, because no jurisdiction has permitted a cash return to be earned on the 31
e unamortized balance of terminated construction project costs, these costs have been restated to their discounted value using incremental debt rates. *Balance available for Common Stock is higher in subsequent ye~rs due to the inclusion in miscellaneous other income of the imputed interest income related to the terminated construction project costs being recovered through rates. The unrecovered costs are amortized.in a manner that produces a constant noncash return on such costs using the.rate at which the expected revenues were discounted. The cumulative effect of the restatement (net of $86:6 million in associated taxes) resulted in a decrease in earnings reinvested in business of $101.7 million on January 1, 1986. in addition, the adoption of SPAS No. 90 had the effect of increasing balance available for Common Stock for the twelve months ended December 31, 1986 by $14.0 million, net of associated taxes of $12.0 million.
In 1987, FASB Technical Bulletin No. 87-2, "Computation of a Loss on an Abandonment" was issued, which changed the method of computing the present value of future revenues authorized by regulators to recover the cost ofterminated construction projects. In 1987, the Company adopted the provisions of FASB Technical Bulletin No. 87-2 and* restated prior years. As part of that restatement, other adjustments were made to the amortization of terminated construction projects to better reflect revenue recovery. The cumulative effect of the restatement (net of $12.3 million in associated taxes) resulted in a decrease in earnings reinvested in t?usiness of $15.5 million on January 1, 1986_. These changes increased balance available for Common Stock for _the twelve-month period ended December 31, 1987 and 1986 by $3.8 million and $5.4 million, net of associated taxes of $2.6 million and
$4.3 million, respectively.
D.
Supplementary Income Statement Information:
Taxes other than federal income taxes charged to expenses were as follows:
Years 1988 1987 1986 (Thousands)
Real estate and property..................... *.....
$ 57,714
$ 51,746
$ 49,292 State and local gross receipts......... ;............
81,438
- 87,410 84,553 Payroll related.......,....... *...................
26,659 24,756 22,281 Other......... :*..............................
15,902 14,051 13,590 Total........................................
$181,713
- $177,963
$169,716 E.
Leases:.
The Company has leases for certain property a~d ~quipment that meet the criteria for capitaliz~tion under the provisions of SF AS No. 13, "Accounting for Leases," which require recognition of all capital leases, with a phase-in provision requiring capitalization of leases effective subsequent to 1982 beginning in 1984 and all earlier leases beginning in 1987. Plant and property under capital leases at December 31, 1988 and December 31, 1987 included the following:
32
\\
e Combustion turbines.....................,............. *...
Office buildings (*)........................................
Data processing equipment and other...........,.......... *....
Total plant and property under capital leases...................
Less accumulated amortization...............................
Net plant and property under capital leases.....................
1988 1987 (Thousands)
$42,601 40,827 4,554 87,982 40,000
$47,982
$42,601 40,827 4,554 87,982 33,854
$54,128
(*) The Company currently leases one building from its parent, Dominion Resources. The capitalized cost of the property under that lease, net of accumulated amortization, represented $29.9 million and $30.5 million at December 31, 1988 and 1987, respectively. Rental payments for such lease.were $3.0 million for each of the three years ended December 31, 1988, 1987 and 1986.
The Company is responsible for expenses in connection with the leased turbines and buildings noted above, including insurance, taxes and maintenance.
Future minimum lease payments for each of the next five years and in the aggregate under noncancellable capital leases and for operating leases that have initial or remaining lease terms in excess of one year as of December 31, 1988, are as follows:
1989...............................................
1990...............................................
1991...............................................
1992...............................................
1993...............................................
After.1993..........................................
Total future minimum lease payments......................
Less interest element included above......................
Present value of future minimum lease payments.............
Capital Leases (Thousands)
Operating Leases
$10,183
$ 4,706 10,048 3,814 10,048 1,370 3,603 551 3,603 502 44,264 5,478 81,749
$16,421 32,098
$49,651 Rents on leases have been charged to fuel used in current generation (payments under nuclear fuel heat supply contracts) and other operation expenses (all other leases) and included the following:
1988 1987 1986 (Thousands)
Interest on capital lease obligations...........
$ 3,723
$ 9,949
$11,544 Amortization of property under capital leases....
4,417 40,183 51,376 Rental expense relating to capital leases (*).....
8,140 50,132 62,920 Rental expense relating to operating leases......
10,878 11,218 8,087 Less: sublease rentals.....................
59 52 319 Total..................................
$18,959
$61,298
$70,688
(*) In October 1987, the Company terminated several heat supply contracts for nuclear fuel used at its Surry Power Station that qualified as capital leases. Upon termination of these heat supply contracts, the nuclear fuel subject to the contracts was acquired by VP Fuel (see Note N to FINANCIAL ST A TEMENTS).
33
F.. Jointly Owned Plants:
The following information relates to the Company's proportionate share of jointly owned plants at December 31, 1988:
Ownership interest............................
. Utility plant in service.........................
Accumulated depreciation......................
Construction work in progress........ :..........
Bath County Pumped Storage Station 60.0%
North Anna Power Station 88.4%
(Thousands)
$1,070,411
$1,937,919 65,359 838,020 727 228,176 The co-owners each will pay a share of all future construction expenditures and operating costs of the jointly owned facilities in the same proportion as their respective ownership interests. The Company's share of operating costs is classified in the appropriate operating expense (fuel, mainte-nance, depreciation, taxes, etc.) in the Statements of Income.
G.
Preferred Stock Subject to Mandatory Redemption:
Preferred stock subject to mandatory redemption, $100 liquidation preference, at December 31, 1988, was represented by the following:
Annual Sinking Fund Requirements Entitled Per Share Upon Voluntary Liquidation Redemption at $100 per share Authorized and And Thereafter To Outstanding Amounts Declining Dividend Shares Amount Through In Steps To Shares
$ 7.30 500,000
$107.30 4/15/93
$100.00 after 4/15/02 (a) 7.325 560,000 101.00 28,000 7.58 600,000 107.58 6/19/92 100.00 after 6/19/93 (b) 8.40 608,000 104.48 3/31/89 100.00 after 3/31/04 32,000 8.20 420,000 103.69 9/20/89 100.41 after 9/20/96 30,000.
8.60 264,266 105.00 12/19/92 100.00 after 12/19/97 11,834 8.625 259,000 105.04 6/20/89 100. 00 after 6/20/02 18,500 8.925 217,000 106.25 9/20/89 100.00 after 9/20/09 10,500 10.25 250,000 104.00 4/20/89 101.00 after 4/20/90 (c) 3,678,266 Less shares due within one year 180,834 Total 3,497,432 (a) 15,000 shares annually commencing in June 1992.
(b) 120,000 shares annually commencing in June 1992.
- (c) 50,000, 150,000 and 50,000 shares in April 1989, 1990 and 1991, respectively.
Maturities through 1993 are as follows: 1989- $18,083,400; 1990-$28,083,400; 1991-$18,083,400; 1992-$26,583,400; and 1993-$26,583,400.
In 1988, 32,000 shares of the $8.40 Dividend Preferred Stock were redeemed through an optional sinking fund.
In 1987, 500,000 shares of $7.30 Dividend Preferred Stock were issued and 32,000 shares of the
$8.40 Dividend Preferred Stock were redeemed through an optional sinking fund.
34
e e
In 1986, 600,000 shares of $7.58 Dividend Preferred Stock were issued and 160,000 shares of the
$9.125 Dividend Preferred Stock were redeemed. The Company made optional sinking fund redemp-
-tions of 18,500 shares of the $8.625 Dividend Preferred Stock and 10,500 shares of the $8.925 Dividend Preferred Stock.
The total number of authorized shares for all preferred stock is 10,000,000 shares. Upon involuntary liquidation, all presently outstanding preferred stock is entitled to receive $100 per share plus accrued dividends. Dividends are cumulative.
H.
Preferred Stock Not Subject to Mandatory Redemption:
Preferred stock not subject to mandatory redemption, $100 liquidation preference, at December 31, 1988, was represented by the following:
Entitled Per Share Upon Voluntary Liquidation Redemption Authorized and And Thereafter To Outstanding Amounts Declining Dividend Shares Amount Through In Steps To
$5.00 106,677
$112.50 4.04 12,926 102.27 4.20 14,797 102.50 4.12 32,534 103.73 4.80 73,206 101.00 7.72 350,000 101.50 7.45 400,000 101.00 7.20 450,000 101.00
- 7. 72 (1972 Series) 500,000 101.00 Money Market Preferred (January 1987 Series) (*)
500,000 101.00 1/21/90
$100.00 after 1/21/90 Money Market Preferred (June 1987 Series) (*)
750,000 102.00 6/22/89 100. 00 after 6/22/90 Money Market Preferred (October 1988 Series) (*)
750,000 100.00 Total 3,940,140
(*) Dividend rates are variable and are set every 49 days via ari auction process. The combined weighted average rate for these series in 1988, including fees for broker/dealer agreements, was 6.39%.
In October 1988, 750,000 shares of Money Market Cumulative Preferred Stock were issued.
In January and June 1987, 500,000 shares and 750,000 shares, respectively, of Money Market Cumulative Preferred Stock were issued.
In June and September 1986, 600,000 shares of the $9:75 Dividend Preferred Stock and 350,000 shares of the $8.84 Dividend Preferred Stock were redeemed.
35 I
\\
I. Common Stock:
During the years 1988 through 1986 the following changes in.Common Stock occurred:
Balance at January 1. *... _.
Conversion of Debentures.....
Transfer from Other Paid-in Capital...
Reverse Stock Split (1 for 1000).....
Cash* for Fractional Shares........
Issuance to Dominion Resources......
Balance at December 31..
J.
Short-Term Debt:
1988 Shares Outstanding
- 140,788 1,645
. 142,433 Amount
$2,060,841 836 34,994
$2,096,671 Year End Maturity Amount 1988 Nuclear fuel financing Real estate notes.........
Total........ :......
1987 Nuclear fuel financing Pollution control notes *.....
Total..............,..
1986 Pollution control notes*.....
Total..... *......... *..
(a) Weighted average.
(b) Maximum 270 days.
(b)
(d)
(b)
(d)
(d)
- $34,815 825
$35,640
$42,304
.$42,304 500 5QO Years 1987 1986 (Thousands, except shares)
Shares Outstanding Amount 136,885 3,903 140,788
$1,980,015 836 79,990
. $2,060,841 Shares.
Outstanding
.132,779,136 1,254,483 (13.3,899,586).
. 2,852*
136,885 Daily Average Outstanding Interest Rate(a)
Amount (Thousands, except percentages) 7.90%
(c) 10.00 2
7.70%
(c)
$ 661 5.25%
$8,767 Interest Rate(a)
(c) 10.00%
Cc) 4.61%
5.00%
Amount
$1,895,353 26,344 836 (16) 57,498
$1,980,015
. Maximum
.Outstanding (c) 825 (c)
$ 1,000*
$11,700.
(c) The total amount of commercial paper outstanding under this arrangement at December 31,.
1988 and 1987 was $100.7 million and $103.6 million, respectively. The totals include amounts classified as other long-term debt of $65.9 million and $61.3 million at December 31, 1988 and 198.7, respectively (see Note (6) to the Statements of Capitalization). The amount of such debt that is classified as short-term is based on the Company's estimate of the cost of the nuclear fuel to be consumed during 1989 and 1988.
(d) Maximum 364 days.
36
K.
Effect of Rate Changes on Operating Revenues:
See Item 1, BUSINESS-RATES.
L.
Retirement Plan and Postretirement Benefits:
The Company participates in Dominion Resources' Retirement Plan (the Retirement Plan), a defined benefit pension plan. The Retirement Plan covers virtually all employees of Dominion Resources and its subsidiari~s, including the Company. The Company's disclosure regarding partici-pation by its employees in the Retirement Plan is provided in accordance with guidelines applicable to multiemployer plans. The benefits are based on years of service and the employee's final average compensation.
Effective January 1, 1986, the Company adopted the provisions of SFAS No. 87, "Employers' Accounting for Pensions." For 1988, the pension plan expense was $2.5 million; no funding was provided to the Retirement Plan in accordance with the full funding limitation of the Employee Retirement Income Security Act of 1974 (BRISA). Adoption of SFAS No. 87 had the effect of eliminating the need for any pension plan funding or expense provision in 1987 and 1986 and increased balance available for Common Stock in 1986 by $7.3 million.
In November 1988, $72.2 million of the Retirement Plan's $355.5 million projected benefit obligation was settled by purchasing nonparticipating insured annuities for certain retirees. The settlement was accounted for in accordance with SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Plans and for Termination Benefits." As a result, a gain of $11.4 million (net of related deferred federal income taxes of $5.9 million) attributable to the Company's allocable portion of the transaction was recognized in 1988 and reported as a reduction of Other Operating Expenses.
In addition to providing pension benefits, Dominion Resources and its subsidiaries, including the Company, provide certain health care and life insurance benefits for retired employees. Generally, employees remain eligible at retirement for certain health and life insurance benefits if they reach retirement age while working for the Company. These and similar benefits for active employees are provided through insurance companies with annual premiums based on benefits paid during the year.
The Company recognizes the cost of providing health care and life insurance benefits by expensing the annual insurance premiums. The approximate number ofretired employees for 1988, 1987 and 1986 was 2,100, 1,900 and 1,600, respectively. Health care premiums attributable to these retirees were $3.0 million, $2.7 million and $2.4 million for 1988, 1987 and 1986, respectively. The cost of providing life insurance benefits for retirees is not separable from the cost of providing benefits for active employees.
As a result of life insurance benefit claims being paid from reserve funds held by the insurance company, the Company paid no premiums for this coverage in 1987 and 1986. During 1988, the Company resumed premium payments and paid $1.2 million, covering approximately 13,000 active and 1,700 retired employees.
The FASB recently issued an exposure draft of a proposed SFAS, "Employers' Accounting for Postretirement Benefits Other Than Pensions. The proposed statement by F ASB focuses on the recognition of the costs, determined on an actuarial basis, of providing future, postretirement health care and other benefits as they are earned by employees. The Company is unable to assess the ultimate outcome of the proposal or the financial and regulatory impacts that a final statement may have.
M.
Commitments and Contingencies:
Construction Program:
The Company has made substantial commitments in connection with its construction program and nuclear fuel expenditures. Those commitments are estimated to total $860 million (excluding AFC) for 1989. Additional financing is contemplated in connection with this program.
37
Purchased Power Contracts:
In 1984, the Company signed an agreement with Hoosier for the purchase of 400 Mw of electricity through 1999, and an agreement with certain operating subsidiaries of AEPfor the purchase of 500 Mw of electricity through 1999. The AEP agreement also provides for the transmission of the power purchased from Hoosier. In December 1987, the Company committed to power purchases from APS through 1989, with a minimum purchase of 200 Mw and weekly options to purchase an additional 200 Mw. In late 1988, the Company contracted to purchase 200 Mw of electricity through 1990 from SCPSA and 250 Mw through 1989 from South Carolina Electric and Gas Company. The Company also has 27 contracts producing 317 Mw of electricity from non-utility generating facilities. Over half of these agreements have a contract life of 15 years or longer.
In 1987, the Company signed agreements for the purchase of approximately 1,200 Mw of additional capacity from six non-utility power producers. As a result of the 1988 competitive bidding solicitation, the Company entered into 19 contracts for 2,086 Mw of additional power for initial delivery at various dates through 1994. These contracts are generally for a duration of 25 years after initial delivery.
The table below reflects the Company's minimum commitments for power purchases from suppliers that are currently operating or have obtained construction financing. The table does not reflect the remainder of the above-mentioned contracts, where necessary financing for the generating facility has not yet been obtained. This minimum purchase commitment includes both capacity payments.and the minimum required energy payments.
Year 1989................................
- 1990................ * * * * * * * * * * * * * * * *
- 1991.................................
1992.................................
1993.................................
Later years......... *..................
Total............................
Present value of the total..............
Commitment (Millions)
$ 344.4 382.3 409.6 416.6 424.4 6,876.8
$8,854.1
$3,509.9 Payments' under contracts for the years 1988, 1987 and 1986 were $363.2 million, $300.1 million and
$205.3 million, respectively. In addition to the minimum purchase commitments in the table above, under some of these contracts the Company may purchase, at its option, additional power as needed.
Coal and Uranium Purchases:
The Company's estimated coal and uranium contract purchases, excluding contrac*t extensions, for the next five years for system generation are as follows (millions): 1989-$245.8; 1990--$220.5; 1991-$180.7; 1992-$110.3 and 1993-$95.4.
Nuclear Insurance:
The Price-Anderson Amendments Act of 1988 was signed by the President on August 28, 1988. This law amends and extends for fifteen years the federal mandates regarding compensation of the public in the event of an accident at a federally licensed nuclear reactor. The current limit imposed by the Price-Anderson Act for the public liability of an owner of a nuclear power plant for a single nuclear incident is $7. 3 billion as of December 31, 1988.
38
e e
The Company's insurance coverages and maximum retrospective assessments for its nuclear operations are as follows:
Maximum Retrospective Assessments for a Type and Source of Coverage Maximum Single Coverage Incident (Millions)
Public Liability:
American Nuclear Insurers.....................
$ 200 Federal Government (a)........................
7,056
$252.0(b)
$7,256
$252.0 New Nuclear Workers:
American Nuclear Insurers (c)
$ 320
$ 10.4
$ 320
$ 10.4 Property Damage (per site):
Nuclear Mutual Limited (d).....................
$ 500
$ 41.6 Nuclear Electric Insurance Limited (NEIL) (d)......
825 17.2 American Nuclear Insurers.....................
250
$1,575
$ 58.8 Replacement Power:
NEIL.....................................
$606.9
$ 13.7 (a) Retrospective premium program under the Price-Anderson Liability provisions of the Atomic Energy Act of 1954, as amended. Subject to retrospective assessment with respect to loss from an incident at any licensed nuclear reactor in the United States.
(b) $63 million for each of the four reactors owned by the Company with assessments not to exceed
$10 million per year per reactor. This assessment is subject to inflation indexing every fifth year based on the consumer price index and also is subject to a surcharge of 5% if funds are insufficient to pay claims. There is no limit on the number of nuclear incidents for which the licensee of a reactor may be retroactively assessed.
(c) Includes one automatic reinstatement of $160 million. Provides coverage against claims, except those arising out of an extraordinary nuclear occurrence, made by *nuclear workers first hired after January 1, 1988. The maximum coverage is for the entire nuclear industry and not just the Company. The amount of the maximum retrospective assessment is the most the Company could be assessed under the Master Worker insurance program which is effective from January 1, 1988 through December 31, 1992.
(d) Mutual insurance companies of which the Company is a member. The Company is subject to retrospective assessment with respect to loss at any nuclear generating station covered by such insurance.
For any property losses in excess of the $1.6 billion property coverage, and to the extent that insurance proceeds would be unavailable for property coverage because they must be used for decontamination as required by the NEIL Decontamination Liability and Excess Property Program, the Company has the financial responsibility for the losses.
A new NRC rule effective October 4, 1988 requires licensees of nuclear plants, including the Company, to maintain at least $1.06 billion of property insurance on each reactor site. It also requires that the insurance proceeds be used first to pay stabilization and decontamination expenses and that the proceeds required to be used for decontamination be paid by the insurer into a special trust. The effect of the rule would be to prevent the use of property insurance proceeds for the rebuilding of damaged 39
e facilities or the payment of holders of the Company's First and Refunding Mortgage Bonds (which are secured in part by such facilities) until after stabilization and decontamination are completed. The NRC has exempted the Company and other similarly situated utilities from implementing this rule until April 4, 1990. Prior to such date; the NRC will review petitions filed by the Company's insurers and others suggesting alternatives to the rule in its current form.
As part owner of the North Anna Power Station, ODEC is responsible for its proportionate share (11.6%) 9f the insurance premiums applicable to that station, including any. retrospective premium assessments.
Chisman Creek Superfund Cleanup:
See Item 3, LEGAL PROCEEDINGS-Water Quality Control.
N.
Corporate Restructuring:
On June 30, 1986, the Virginia Commission issued an Order allowing the Company to transfer its natural gas division to VNG. The transfer was consummated on July 1, 1986. Gas-related assets of
$100.4 million less liabilities and deferred credits of $29.1 million were removed from the books of the Company and recorded.on VNG's books. As compensation for the transferred gas division assets, securities in the form of common stock valued at $28.2 million, preferred stock valued at $6.J million and a long-term note in the principal amount of $37.0 million were issued to the Company. The resultipg capital structure of VNG approximated the same capital ratios as the Company at June 30, 1986. The VNG common stock was simultaneously transferred by dividend from the Company to Dominion Resources, thus establishing VNG as a wholly-owned subsidiary of Dominion Resources. In December 1986, the VNG preferred stock and long-term note were purchased from the Company by Dominion Resources. The results of gas operations through June 30, 1986 are* included in the Company's statement of income.
On September 15, 1986, the Company's wholly-owned subsidiary, Laurel Run Mining Company, was acquired by a wholly-owned subsidiary of Occidental Petroleum Corporation for cash and preferred stock of Occidental, resulting in a net gain of $11.9 million. Of the preferred stock received, $36 million was transferred by dividend from the Company to Dominion Resources in 1986. The balance of $4 million was received by the Company and transferred by dividend to Dominion_Resources in 1987..
On March 1, 1987, the Company sold its West Virginia service territory to UtiliCorp United Inc. for
$22.3 milljon and a related transmission line to Appalachian Power Company for $0. 7 *million. The Company purchased Potomac Electric Power Company's northern Virginia service territory for $73.6 million in June 1986.
VP Fuel, a wholly-owned subsidiary of the Company, was incorporated in Virginia on October 8, 1987. VP Fuel was formed for the purpose of purchasing nuclear fuel, the heat from which is sold to the Company for use in electric generation at the Company's Surry Power Station. The acquisition and ownership of the nuclear fuel is financed by VP Fuel through the sale of commercial paper that is guaranteed by the Company. A heat supply contract between the parties provides that the Company will make quarterly payments to VP Fuel for the thermal output of the nuclear fuel plus financing costs.
O.
ODEC Load Loss See Results of Operations, Other income-miscellaneous, net and associated taxes under MAN-AGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.
40
e P.
- Quarterly Financial Data (Unaudited):
The following amounts (not audited by independent certified public accountants) reflect all adjustments, consisting of only normal recurring accruals (except as discussed below), necessary in the opinion of the management for a fair statement of the results for the interim periods.
Quarter 1988 1st..................
2nd.................
3rd..................
4th..... *.............
1987 1st..................
2nd.................
3rd..................
4th..................
Operating Revenues
$744,594 707,005 876,819 769,161
$770,726 713,545 882,761 711,148 Operating Income (Thousands)
$208,405 141,169 227,185 159;769
$196,406 158,355 226,867 155,817 Balance Available for Common Stock
$118,997 70,849 144,847 72,318
$118,412 75,832 142,455 69,961 Results for interim periods may fluctuate as a result of weather conditions, rate relief and other factors.
In the fourth quarter of 1988, a portion of the Retirement Plan's projected benefit obligation was settled. As a result, operating income and balance available for Common Stock increased by $11.4 million. (See Note L to FINANCIAL STATEMENTS.)
In December 1988, the Virginia Commission found that the Company had earned a reasonable rate of return in 1987, and, therefore, had fully recovered the approximately $33 million of capacity charges previously deferred in 1987. As a result, in the fourth quarter of 1988, the Company expensed such costs, resulting in a decrease in operating income and balance available for Common Stock of $19.8 million.
41
Col. A e
VIRGINIA ELECTRIC AND POWER COMPANY SCHEDULE IV-INDEBTEDNESS OF AND TO RELATED PARTIES-NOT CURRENT For the years ended December 31, 1988, 1987 and 1986 Col. B Col. C Col. D Col. E Col. F Col. G SCHEDULE IV Col. H Col. I Indebtedness of Indebtedness to Name of person Dominion Resources:
1988..........
1987..........
1986..........
Balance at Beginning Additions Deductions Balance Balance at at End Beginning (Thousands)
$ 27,000
$ 49,600
$166,075 See Note (5) to the Statements of Capitalization included herein.
42 Balance Additions Deductions at End
$ 504,006
$ 502,506
$28,500
$1,096,000
$1,118,600
$27,000
$1,310,700
$1,427,175
$49,600
VIRGINIA ELECTRIC AND*POWER COMPANY SCHEDULE V-,....PROPERTY, PLANT AND EQUIPMENT For the year ended December 31, 1988 Col. A Col.B Col. C Col.D Col. E Other Balance at Changes Beginning Additions Retirements Add ciassification of Period at Cost or Sales (Deduct)
Utility plant:
, (Thousands)
Electric plant:
In service:.
Intangible.............. :
36,226 11,904
$ 4,910 Production..............
5,379,668 136,599 13,778 1,881 Transmission........ :....
920,103 58,848 6,229 (236)
Distribution..............
2,404,886 304,757 33,934 116 General................
418,617 62,633 12,068 (30)
Total electric plant in service.. -
9,159,500 574,741 70,919 1,731 SCHEDULE V Col. F Balance at End of Period 43,220 5,504,370 972,486 2,675,825 469,152 9,665,053 Construction work in progress....
488,674 727,558 (574,741)(*)
641,491 Held for future use..........
4,050 659 13 (218) 4,478 Electric plant acquisition adjustment...............
42,778 42,778 Total electric plant........
9,695,002 1,302,958 70,932 (573,228) 10,353,800 Nuclear fuel................
720,752 64,797 1,038 784,511 Total utility plant.........
$10,415,754
$1,367,755
$71,970
$(573,228)
$11,138,311 Non-utility property......... :...
6,309 2
(436) 5,871 Capital leases.................
87,982 87,982
(*). Includes $166.7 million of distribution projects primarily resulting from new customer connections in 1988.
43
SCHEDULE V VIRGINIA ELECTRIC AND POWER COMPANY SCHEDULE V-PROPERTY, PLANT AND EQUIPMENT For the year ended December 31, 1987 Col. A Classification
- Utility plant:
Electric plant:
In service:
Intangible Production..
Transmission Distribution.
General...
Total electric plant in service..
Construction work in progress....
Held for future use...........
Electric plant acquisition adjustment..........
Total electric plant...
Nuclear fuel................
Total utility plant.........
Non-utility property..
Capital leases:
Nuclear fuel Other....
Total capital leases........
Col. B*
Balance at Beginning of Period 18,661 4,962,922 90,5,481 2,158,666 279,892 8,325,622 766,350 861 42;063 9,134,896 545,344
$9,680,240 7,999
$ 198,425 89,182
$ 287,607 Col. C Additions at Cost 18,263 450,380 19,305 309,129 152,490 949,567 671,891 3,189 1,624,647 44,099
$1,668,746 26,299 26,299 Col. D Col. E Other Changes Retirements Add or Sales (Deduct)
(Thousands) 698 33,953 319 5,070 387 62,413 (496) 13,779 14 115,913 224 (949,567)(a) 715 115,913 (948,628) 131,309(b)
$115,913
$(817,319)
$ (1,690)
$224, 724(b) l,200(c)
$225,924 Col. F Balance at End of Period 36,226 5,379,668 920,103 2,404,886 418,617 9,159,500 488,674 4,050 42,778 9,695,002 720,752
$10,415,754 6,309 87,982 87,982 (a) Includes production projects of $124.2 million for the Chesapeake Energy Center Units 1 and 2 coal conversions, $53.4 million for the Innsbrook System Technical Center, and three large power station projects totaling $71.7 million. Also includes $164.0 million of distribution projects primarily resulting from new customer connections in 1987.
(b) In October 1987, the Company terminated several heat supply contracts that qualified as capital leases and the nuclear fuel subject thereto was acquired by VP Fuel. Also includes the reclassification of nuclear fuel progress payments to nuclear fuel ( see Note N to FINANCIAL STATEMENTS).
(c) The Herndon District office building was repurchased on June 30, 1987.
44
SCHEDULE V VIRGINIA ELECTRIC AND POWER COMPANY SCHEDULE V-PROPERTY, PLANT AND EQUIPMENT For the year ended December 31, 1986 Col. A Classification Utility plant:
Electric plant:
In service:
Intangible...............
Production...............
Transmission.............
Distribution..............
General.................
Total electric plant in service..
Construction work in progress....
Held for future use...........
Electric plant acquisition adjustment...............
Total electric plant........
Gas plant:(b)
In service:
Production...............
Distribution..............
General................
Total gas plant in service.....
Construction work in progress....
Total gas plant...........
Nuclear fuel................
Total utility plant.........
Non-utility property.............
Capital leases:
Nuclear fuel................
Other....................
Total capital leases........
Col. B Balance at Beginning of Period 18,113 4,907,273 876,008 1,928,777 250,470 7,980,641 444,905 1,342 (2,731) 8,424,157 7,267 84,923 12,998 105,188 4,760 109,948 499,978
$9,034,083 10,300
$ 195,996 97,737
$ 293,733 Col. C Additions at Cost 8,908 72,120 31,682 219,469 39,672 371,851 693,296 1,065,147 6,886 626 7,512 7,871 15,383 48,974
$1,129,504 64,185 64,185 Col. D Col. E Other Changes Retirements Add or Sales (Deduct)
(Thousands)
$ 8,360 10,335
$ (6,136) 2,623 414 23,294 33,714 10,176 (74) 54,788 27,918 (371,85 l)(a)
(481) 44,794 54,788 (299,620)
(7,267)
(88)
(91,897) 65 (13,559)
(23)
(112,723)
(12,631)
(23)
(125,354) 3,616 8
$58,381
$(424,966)
$ (2,301)
$61,756 8,555
$70,311 (a) Includes $219.5 million of distribution projects primarily resulting from new customer connections in 1986.
Col. F Balance at End of Period 18,661 4,962,922 905,481 2,158,666 279,892 8,325,622 766,350 861 42,063 9,134,896 545,344
$9,680,240 7,999
$ 198,425 89,182
$ 287,607 (b) The gas division was transferred to a new corporation, VNG, on July I, 1986 (see Note N to FINANCIAL STATEMENTS).
45
SCHEDULE VI VIRGINIA ELECTRIC AND POWER COMPANY SCHEDULE VI-ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT For the years ended December 31, 1988, 1987 and 1986 Col. A Col. B Col. C Col. D Col. E Col. F Additions Other Balance at
- Charged to Changes Balance Beginning Costs and Add at End Description of Period Expenses Retirements (Deduct) of Period (Thousands) 1988 Accumulated depreciation and amortization of electric plant
$2,350,065
$300,706
$ 65,959
$ 30,199
$2,615,011 Accumulated amortization of capital leases.............
33,854
$ 6,144 2
40,000 Accumulated amortization of nuclear fuel..............
$ 426,721
$ 98,902
$ 525,623 1987 Accumulated depreciation and amortization of electric plant
$2,085,648
$345,642
$114,848
$ 33,623
$2,350,065 Accumulated amortization of capital leases:
Nuclear fuel............
87,516
$ 31,497
$119,013 Other................
27,262 5,586 526
$ 1,532 33,854 Total...............
$ 114,778
$ 37,083
$119,539
$ 1,532 33,854 Accumulated amortization of nuclear fuel..............
$ 366,153
$ 43,392
$17,176
$ 426,721 1986 Accumulated depreciation and amortization of utility plant:
Electric plant...........
$1,888,440
$265,014
$ 46,175
$(21,631)
$2,085,648 Gas plant(*)......... _...
30,827 2,061 (23)
(32,911)
Total...............
$1,919,267
$267,075
$ 46,152
$(54,542)
$2,085,648 Accumulated amortization of nuclear fuel..............
$ 309,871
$ 56,282
$ 366,153 Accumulated amortization of capital leases:
Nuclear fuel............
96,634
$ 47,028
$ 56,146
$- 87,516 Other............ -....
30,265 5,552 8,555 27,262 Total...............
$ 126,899
$ 52,580
$ 64,701
$ 114,778
(*) The gas division was transferred to VNG on July 1, 1986 (see Note N to FINANCIAL STATEMENTS).
Note:
Provision for depreciation of automobiles and trucks is charged to transportation expense clearing account and redistributed to operation expense, utility plant and other accounts.
46
SCHEDULE VIII VIRGINIA ELECTRIC AND POWER COMPANY SCHEDULE VIII-VALUATJON AND QUALIFYING ACCOUNTS AND RESERVES For the years ended December 31, 1988, 1987 and 1986 Col. A Description Reserves deducted from assets to which they apply:
1988 Doubtful accounts.....
Non-utility property...
1987 Doubtful accounts.....
Non-utility property...
1986 Doubtful accounts.....
Non-utility property...
Col. B Balance at Beginning of Period
$2,225
$ 239
$2,340
$1,057
$2,002
$1,057 Col. C Additions Charged to Costs and Expenses
$2,594
$2,968
$ 970 Charged to Other Accounts (Thousands)
(a) Uncollectible accounts.written-off, less recoveries.
Col. D Deductions
$3,533(a)
$3,083(a)
$ 818(b)
$ 632(a)
Col. E Balance at End of Period
$1,286
$ 239
$2,225
$ 239
$2,340
$1,057 (b) Represents transfer of accumulated depreciation relating to the sale of the Twelfth Street Substation to Dominion Lands, Inc., a wholly-owned subsidiary of Dominion Resources.
47
~
e e
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On November 10, 1987, Deloitte Haskins & Sells was engaged to audit the 1988 financial stateinent_s of the Company. The 1987 and earlier year financi~l statements had been audited by Coopers &
Lybrand, whose. engagement as auditors.was terminated by the Company effective with the conclusion of the audit of the Company's 1987 financial statements. The engagement of Deloitte Haskins & Sells was recommended by the Audit Committee and approved by the Board of Directors of the Company at their respective meetings on October 24, 1987.
In the last two fiscal years th~t Coopers & Lybrand served as auditors, there were no disagreements with Coopers &
- Lybrand 011
- any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure. Coopers & Lybrand's reports on the financial statements for.
those fiscal years contained no adverse opinion, disclaimer of opinion or qualification as to uncertainty, audit scope or acc_ountii;ig principles. Coopers & Lybrand fm;nished the Company with a letter addressed to the Securities and Exchange Commission stating that it agreed with the statements made in this paragraph. A copy of this letter was filed as an exhibit to the Company's Quarterly Report to the Securities and Exchange Commission (Form 10-Q) for the quarter ended September 30, 1987.
. PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(~) Information concerning directors of Virginia Electric and Power Company is as follows:
Name and Age Willjam W. Berry (56)
Jack H. Ferguson (57)
John B. Adams, Jr. (44).
Anna Ruth Inskeep (63)
Principal Occupation for Last 5 Years, Directorships in Public Corporations Chairman of the Board of Directors of Virginia Electric and Power Company and Dominion Resources (from May 1, 1985 to July 1, 1986, Chairman of the Board of Directors and Chief Executive Officer of Dominion Resources and Virginia Electric and Power
- Company; prior to May 1, 1985, President and Chief Executive Officer of Dominion Resources and Vir-ginia Electric and Power Company). He is a Director of Dominion Resources, Sovran Financial Corpora-
. tion, Ethyl Corporation and Universal Corporation.
President and Chief Executive Officer of Virginia Electric and Power Company (from May 1,1985 to July 1, 1986, President and Chief Operating Officer of Dominion Re-sources and Virginia Electric and Power Company; prior to May l, 1985, Executive Vice President and Chief Operating Officer of Virginia Electric and Power Company). He is a Director of Central Fidelity Banks, Inc. and Dominion Resources.*
Vice President and Director of A. Smith Bowman Distill-
. ery, Inc., Fredericksburg,Virginia, a manufacturer and bottler of alcoholic beverages.
Battle Park Farms, Rapidan, Virginia, a dairy farm and milk hauling business. She is involved in numerous civic activities.
48 Year First Elected a Director*
1980 1985 1987 1987
e Name and Age Dr. Allix B. James (66)
Shirley S. Pierce ( 65)
William G. *Thomas *(49) e Principal Occupation for Last 5 Years, Directorships in Public Corporations Chancellor of Virginia Union University, Richmond:.
Virginia; January 1, 1986 to date (prior to Jani.fa.ty 1, 1986, President Emeritus and Hendetson-Griffith'Pro-fessor of Pastoral' Theolt>gy); He isa Director of
. Consolidated Bank & Trust Company.
- Chairman of the Board arid President of The Ahoskie* **
1 Fertilizer Company, Inc., Ahoskie, North Carolina, a manufacturer and distributor *of fertilizer and agricul~
tural*products. He is a Director* of Planters National
- Bank and Trust Company.. *
- Presid~nt of Hazel, Thomasi Fiske, Beckhotn & *.*
Hanes, P.C., Alexandria, Virginia,:a: law finn: He is
. a Director of Perpetual Savings Bank, F.S.B.
Year First Elected a Director
.1971.
1972 1987 Each Director holds office until the next.Annual Meetipg of Shar:eh,ol,;:!ers or until hi_s,successqris
, duly elected.
(b) Information concerning the executive officers of Virginia Electric and Power Company is as follows:
. Name and Age William W. Berry (56) iack H. Ferguson (57)(*)
John I. Oatts (59)
John A. Ahladas (46)
Robert F. Hill (53)
James T. Rhodes (41)(**)
William L. Stewart (45)
William H. Blackwell, Jr. (59)
Business Exp.erience Past _Fi~e Years Chairman* of the Board of Directors, July 1, 1986 to date; Chair-man of the Board of Directors and Chief Executive Officer,
- May 1; 1985 to July 1, 1986; President arid Chief Executive Of-ficer prior to May 1, 1985.
. President and* Chief Executive Officer, July 1, 1986 to date; Presi-*
dent and Chief Operating Officer, May 1, 1985 to JulyT, 1986;
- Executive Vice President and Chief Operating Officer prior* tci *
'. May l., 1985.
Executiye Vice President-Staff, January 1, 1986 to date; Execu-
. tive_ Vice President-Qpera{ions, May 1, 1985 to January 1, 1986;.Senior Vice Pres}dent:-Power Operations prior to May 1,
. 1985.
Senior Vice President-Corporate Technical Services, April 1, 1988 to date; Vice President-Engineering, April 1, 1985 to April l, 1988; *Manager, Maintenance and Performance.Services
'pr~or t_o April_ 1', 1985; Senior Vice Pre~iden_t-Commercial Operations, April 1, 1984 to date; Vice Presi~ent-Personnel prior to April 1, 1984.
Senior.Vice President-...::.Finance, January 1, 1988 to date; Senior
. 'Vice President-Power ()perations, May 1, 1985 to January 1, 1988; Vice Pre~ident-Personnel, April 1, 1984 to May 1, 1985;
.Vice Presidet1t--:-Administrative Services prior to April 1, 1984.
S~nior Vi~~ President---:Power, April l, 1988 to <lat~; Vice Presi-dent-:--Nuclear Operations prior to April 1, 1988.
Vice President-Eastern Division.
49
Name and Age Charles A. Brown (46)
William R. Cartwright (46)
James T. Earwood, Jr.* (45)
Paul G. Edwards (50)
Larry W. Ellis ( 48)
James R. Frazier, Jr. (47)
Earl R, Gore (48)
K Wayne Harrell (42)
Donald T. Herrick, Jr. (45)
B. D. Johnson (56)
Horace A. Keever, Jr. (57)
Randolph-D. Mclver (58)
F. Kenneth Moore (47)
Business Experience Past Five Years Vice President-Procurement, September 1, 1988 to date; Man-ager, Materials Management, May 1, 1988 to September 1, 1988; Manager, Contracts, September 1, 1984 to May 1, 1988; Director Purchasing-Power Operations prior to September l, 1984.
Vice President-Nuclear Operations, September 1, 1988 to date; Vice President-Fossil and Hydro, March 1, 1986 to September 1, 1988; Manager, Maintenance and Performance Services, June 1, 1985 to March 1, 1986; Manager, Nuclear Op-erations Support prior to June 1, 1985.
Vice President-Division Services, September 1, 1986 to date; Vice President-Central Division, July 1, 1985 to September 1, 1986; Vice President-Southern Division, April 1, 1984 to July 1, 1985; Manager, Training and Development Technical Services prior to April 1, 1984.
Vice President-Public Affairs.
Vice President-System Planning & Power Supply, March 18, 1988 to date; Manager, System Planning & Power Supply, October 1, 1986 to March 18, 1988; Manager, Power Supply prior to October 1, 1986.
Vice President-Southern Division, July 1, 1985 to date; Manager, Community and Government Affairs prior to July 1, 1985.
Vice President-Northern Division, September 1, 1988 to date;**.
Manager, Operations & Construction, January 1, 1986 to
- September 1, 1988; District Manager (Metro), August 1, 1984 to January 1, 1986; Manager, Division Services prior to August 1, 1984.
Vice President-Fossil & Hydro Operations, September 1, 1988 to date; Manager, Fossil & Hydro Operation Support, April 1, 1988 to September 1, 1988; Station Manager, Nuclear prior to April 1, 1988.
Vice President-Information Systems, April 1, 1985 to date; Ex-ecutive Manager, Management Information Services prior to April 1, 1985.
Vice President and Controller.
Vice President-Human Resources, September 1; 1986 to date; Vice President-Division Services, April 1, 1984 to September 1, 1986; Vice President-Northern Division prior to April 1, 1984.
Vice President-Central Division, September 1, 1988 to date; Vice President-Northern Division, April 1, 1984 to September 1, 1988; Vice President-Southern Division prior to April 1, 1984.
- Vice President-Power Engineering Services, March 18, 1988 to date; Manager, Purchasing, May 1, 1985 to March 18, 1988; Manager, Projects-Fossil & Hydro prior to May 1, 1985.
50
Name and Age Irene M. Moszer (45)
Thomas J. O'Neil (46)
Robert E. Rigsby (39)
Linwood R. Robertson (49) e Business Experience Past Five Years Vice President-Administrative Services, April 1, 1984 to date; Manager, Corporate Compensation Services prior to April 1, 1984.
Vice President-Regulation, August 1, 1988 to date; Vice Presi-dent-Western Division, May 1, 1985 to August 1, 1988; Dis-trict Manager, Peninsula prior to May 1, 1985.
Vice President-Western Division, August 1, 1988 to date; Gen-eral Auditor, July 19, 1985 to August 1, 1988; Assistant Control-ler prior to July 19, 1985.
Vice President, Treasurer and Corporate Secretary, June 1, 1985 to date; Corporate Secretary prior to June 1, 1985.
(*) Retires on March 31, 1989.
(**) President, Chief Executive Officer and Director effective April 1, 1989.
There is no family relationship between any of the persons named in response to Item 10.
ITEM 11. EXECUTIVE COMPENSATION Executive compensation during 1988 was as follows:
Name and Capacity in Which Served William W. Berry-Chairman of the Board and Director......................
Jack H. Ferguson-President and Chief Executive Officer and Director...........
John I. Oatts-Executive Vice President.................................
Robert F. Hill-Senior Vice President...................................
James T. Rhodes-Senior Vice President.................................
Executive officers of the Company as a group-29 persons (including those named above)................ *.....
Cash Compensation
$ 254,735 329,513 234,696 197,508 181,533 3,579,903 The amount of all compensation, other than as described herein, to the executive officers of the Company as a* group, does not exceed the lesser of $25,000 times the number of persons in the group or 10 percent of the compensation reported in the table above.
A Management Incentive Plan has been in effect since 1981. The 1988 Management Incentive Plan provided for incentive compensation based on (1) individual achievement of managerial and executive department goals, (2) earnings per share contribution goals of the Company to Dominion Resources' 1988 consolidated earnings per share and (3) a comparison between the annual change in total expenses per kilowatt-hour and the annual change in the consumer price index. Amounts earned for the year 1988 were paid in March 1989 and are included in the table above. Amounts earned for the year 1987 under the Management Incentive Plan were paid in March 1988 and reported in the 1987 Form 10-K and are not included in the above table.
A Performance Achievement Plan (the Performance Plan) was established effective January 1, 1985, and was approved by the Dominion Resources Stockholders at the 1985 Annual Meeting. The Performance Plan awards shares of Dominion Resources Common Stock for the achievement of specific long-term goals and strategies that are approved by the Organization and Compensation Committee (the Committee) of the Board of Directors of the Company. Distributions of stock under the Performance Plan may not exceed 10,000 shares times the number of participants in the Performance Plan on the relevant date. The duration of each performance period is three years, and a new performance period and set of goals are initiated annually. Participants in the Performance Plan for the period of 1986-88 include the Chairman of the Board, the President and all Vice Presidents of the Company. Participants 51
e e
in the Performance Plans for the periods of 1987-89 and 1988-90 include the President and all Vice' Presidents of the Company. Subject to the Committee's approval and within certain time periods established in the Performance Plan, each participant may elect to receive up to 50 percent of any award in cash and to defer all or part of any award. To be eligible for an award, an employee must occupy a qualifying position. Individual awards will be determined on the basis of goal achievement, positions held during the performance period, and the salary grade mid-points of those positions. Following the conclusion of each performance period, the Committee determines the level of achievement of the goals for that performance period. The Board of Directors must approve each participant's award, and Dominion Resources' Board of Directors must approve any award for any participant who is also an officer or director of Dominion Resources.
Awards for the 1986-88 performance period were made in February 1989 and were based on (1) the performance of Dominion Resources' return on equity over the thre~-year period as compared to the average for comparable electric utilities, and (2) a comparison between the increase in total expenses per kilowatt-hour and the increase in the consumer price index over the three-year period. The following awards of Dominion Resources Common Stock were made for the 1986-88 performance period: William W. Berry: 3,006 shares; Jack H. Ferguson: 2,240 shares; John I. Oatts: 1,383 shares; Robert F. Hill: 827 shares; and James T. Rhodes: 827 shares, and 19, 124 shares for the 26 participating executive officers as a group.
Awards for the 1987-89 and the 1,988-90 performance periods will be based on (1) a comparison of the return on equity for the Company and the return on equity of a comparable group of utilities over the three-year periods, and (2) the comparison between the increase in total expenses per kilowatt-hour and the increase in the consumer price index over the three-year periods. No awards can be determined or made under the 1987-89 and the 1988-90 performance periods of the Performance Plans until March 1990 and 1991, respectively.
An Employee Savings Plan (the Savings Plan) has been in effect since 1963 and was revised effective July 1, 1987 to inc;orporate a salary reduction provision under Section 401(k) of the Internal Revenue Code of 1986 (the Code) for officers and employees. Under the Savings Plan, employees may make contributions of between 2% and 6% of their base compensation, and the Company contributes an amount equal to 50% of such contributions. Employees may also make additional contributions, which are not matched by th.eir employer. (In accordance with Section 40l(k) of the Code, the Savings Plan provides participants with the option to reduce their gross income for federal income tax purposes and the Company contributes that amount to the Savings Plan on behalf of the employee.) Participants' contributions and deferrals under Section 401(k) are subject to certain limitations prescribed in the Code. The compensation table above includes amounts deferred pursuant to Section 401(k). The employees may direct that their contributions be allocated between an interest bearing fund, which invests primarily in U.S. Government securities, and a stock fund, which invests in Dominion Resources Common Stock. All of the Company's matching contributions to the Savings Plan are invested in Dominion Resources Common Stock. In 1988, participants did not have a vested interest in the Company's matching contributions unless they were employed by the Company in each of three successive Plan Years following the Plan Year in which those contributions were made or they attained age 55. Accordingly, amounts shown in the Cash Compensation table above do not include any Company matching contributions. The following Company matching contributions vested under the Savings Plan during 1988: William W. Berry: 196 shares; Jack H. Ferguson: 184 shares; John I. Oatts:
133 shares; Robert F. Hill: 185 shares; James T. Rhodes: 0 shares; and 3,296 shares to the 29 executive officers as a group.
Effective January 1, 1977, an Employee Stock Ownership Plan (ESOP) was established which permitted Dominion Resources and its subsidiaries that adopted ESOP to claim certain additional investment and payroll-based tax credits, provided that the amount of the tax credit was contributed to ESOP. All salaried employees and hourly employees who completed six months of service by January 1, 1987 automatically became participants in ESOP. Contributions of one-half of 1 % of the eligible payroll for ESOP participants were allocated pro rata to a participant's account based on the participant's compensa-52
e e
tion, up to $100,000. Contributions were made either in Dominion Resources Common Stock or in cash which was used to purchase Dominion Resources Common Stock. Common Stock held for a participant in ESOP is 100% vested and is distributed either at the beginning of the eighth year following the allocation to the participant's account or upon retirement, hardship withdrawal, termination of employment or death.
Due to changes in federal tax laws, ESOP was terminated and all accounts distributed or transferred to the Savings Plan, effective May 1988. Although no contributions were made to ESOP in 1988, shares accrued to ESOP accounts of the executive officers as follows: William W. Berry: 8 shares; Jack H. Ferguson: 7 shares; John I. Oatts: 8 shares; Robert F. Hill: 7 shares; James T. Rhodes: 7 shares; and 185 shares to the 29 executives as a group. These additional shares were purchased with cash dividends of Dominion Resources Common Stock held by ESOP.
A contributory defined benefit plan (the Retirement Plan), which is integrated with Social Security benefits, has been in effect for officers and employees of the Company since 1945. Retirement Plan benefits are based on years of service and average compensation and accrue ratably during years of service with the Company. A noncontributory supplemental retirement plan (the Supplemental Plan) was established for officers in 1981 in connection with a reduction in life insurance coverage from 3 times to 1.5 times annual salary. The Supplemental Plan's retirement benefit is a ten-year-certain annuity (equal to 25% of a participant's final compensation), payable to a participant (or the designated beneficiary) if the participant has five years of service and (1) retires from the Company after age fifty-five, (2) becomes permanently disabled or (3) dies. In order to be entitled to any benefit under the Supplemental Plan, an employee must continue to be employed as an officer of the Company until death, disability or retirement. The Company's Excess Benefit Plan allows the Company to pay its affected employees the retirement benefits to which they would have become entitled under the terms of its Savings Plan, ESOP and Retirement Plan, based upon their contributions, salary-reduction agreements (under the Savings Plan), credited service and compensation, except for the limitations on benefits imposed by the Code. To the extent that the benefits accrued under those plans would exceed such limitations, they will be paid under the Excess Benefit Plan on a pay-as-you-go basis. Certain officers have additional contractual retirement arrangements that, in effect, give them additional credited years of service for retirement purposes, contingent upon reaching a specified age and remaining in the employ of the Company. At this time, credited years of service under the Retirement Plan, the Supplemental Plan, the Excess Benefit Plan and such additional arrangements (excluding contingent years) for the individuals named are as follows: William W. Berry-30, Jack H. Ferguson-27, John I.
Oatts-30; Robert F. Hill-17, and James T. Rhodes-17. Aggregate annual benefits under the Retirement Plan (exclusive of Social Security benefits), the Supplemental Plan and such additional contractual arrangements for such officers for the first 10 years following retirement would be as follows:
53
e Estimated Annual Benefits Payable Upon Retirement*
Credited Years of Service Remuneration at Retirement
$ 75,000 100,000 125,000 150,000 175,000 200,000 250,000 300,000 350,000 400,000 450,000 500,000 550,000 600,000 15
$ 34,919 47,637 60,355 73,073 85,791 98,510 123,946 149,382 174,819 200,255 225,691 251,124 276,563 302,000 20
$ 40,308 55,182 70,056 84,931 99,805 114,679 144,428 174,176 203,925 233,673 263,422 293,165 322,918 352,667 25
$ 45,697 62,727 79,758 96,788 113,818 130,849 164,909 198,970 233,030 267,091 301,152 335,206 369,273 403,334 30
$ 51,086 70,273 89,459 108,645 127,832 147,018 185,391 223,764 262,136 300,509 338,882 377,247 415,628 454,000
- Based on normal retirement at age 65 or at least age 60 with 30 years of service.
Changes in the Code recently became effective for the Retirement Plan and, as a result, the benefit formula must be changed effective January 1, 1989.
For purposes of the above table, based on 1988 compensation, remuneration at retirement for each of the individuals named in the compensation table on page 51 would be as follows: William W. Berry:
$203,810; Jack H. Ferguson: $270,650; John I. Oatts: $234,696; Robert F. Hill: $197,508 and James T.
Rhodes: $181,533. For participants in the Supplemental Plan whose compensation at retirement includes annual incentive payments, the estimated annual benefit figures in the above table will be increased by 25% of those payments. Based on 1988 compensation, the increase to the estimated annual benefit figures for each of the individuals named in the preceding sentence would be as follows:
William W. Berry: $17,731; Jack H. Ferguson: $14,716; John I. Oatts: $9,743; Robert F. Hill: $7,463 and James T. Rhodes: $6,715.
The Company has purchased an insurance policy that provides certain managers and all elected officers (including all of the executive officers of the Company) with accidental death and dismember-ment insurance. The policy provides a benefit to managers and officers ranging from $50,000 to
$250,000, with the specific dollar amount of coverage being determined on the basis of the covered employee's position. The policy also provides accidental death an.d dismemberment insurance to the spouses of all officers who are Vice Presidents or higher in rank, and the benefit ranges from $100,000 to $150,000 (depending on the officer's position). This insurance coverage is provided at no cost to covered employees.
The Company has entered into employment agreements (the Agreements) with key executives, including the officers named above. If, following a change in control of Dominion Resources (as defined in the Agreements), an executive's employment is terminated either by the Company without cause, or voluntarily by the executive within sixty days after a material reduction in the executive's compensa-tion, benefits or responsibilities, the Company will be obligated to pay to the executive an amount equalling the total compensation (including benefits) for the thirty-six month period preceding the change in control. In addition, the terminated executive will continue to be entitled to any benefits due under certain stock or benefit plans. Generally, continued compensation payments are subject to a cap designed to eliminate any excise tax imposed by the Code; as to benefits due under certain stock or benefit plans, however, the Company must compensate the executives for any such excise tax imposed on such benefits. The Agreements do not alter the compensation and benefits available to an executive whose employment with the Company continues for the full term of the executive's Agreement. The 54
e e
amount of benefits provided under each executive's Agreement will be reduced by any compensation earned by the executive from comparable employment by another employer during the thirty-six months following termination of employment with the Company.
The Company has made discretionary contributions to an irrevocable trust that holds assets for the benefit ofall Company employees. The trust's assets may be held for health and life insurance and other benefits for all Company employees. In the event of a change in control of Dominion Resources or other circumstances, the trust's assets may be held for the nonqualified plans described above.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The table below sets forth as of December 31, 1988, the number of shares of Common Stock of Dominion Resources owned by directors of Virginia Electric and Power Company.
Name William W. Berry...................
Jack fl. Ferguson...................
John B. Adams, Jr..................
Anna Ruth Inskeep.................
Allix B. James.....................
Shirley S. Pierce...................
William G. Thomas.................
Shares of Common Stock Beneficially Owned 12,686(*)
10,002 84 1,755 2,914 500
- 0.
(*) A member of Mr. Berry's family is a beneficiary of a trust that owns an additional 827 shares of Common Stock. Also includes 665 shares represented by options awarded and exercisable under the Dominion Resources, Inc. Long-Term Incentive Plan.
All current Directors and officers as a group (30 persons) beneficially own, in the aggregate, less than 1% of each class of Dominion Resources and the Company's equity securities, respectively.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Form 10-K.
- 1. Financial Statements See Index on page 16..
- 2. Financial Statement Schedules See Index on page 16.
- 3. Exhibits 3(i) 3(ii) 4(i) 4(ii)
-Restated Articles of Incorporation, as amended, as in effect on October 11, 1988 and the date hereof (filed herewith).
-Bylaws, as amended, as in effect on January 7, 1987 and the date hereof (Exhibit 3(ii), Form 10-K for the fiscal year ended December 31, 1986, File No.1-2255, incorporated by reference).
-See Exhibit (3(i)) above.
-Indenture of Mortgage of the Company, dated November 1, 1935, as supple-mented and modified by Fifty-Eight Supplemental Indentures, Exhibit 4(ii), Form 55
'II
~
r 10-K for the fiscal year ended December 31, 1985, File No. 1-2255, incorporated by reference; Fifty-Ninth Supplemental Indenture, Exhibit 4(ii), Form 10-Q for the quarter ended March 31, 1986, Fil~ No. 1-2255, incorporated by reference; Sixtieth Supplemental Indenture; Exhibit 4(ii), Form 10-Q for the quarter ended September 30, _ 1986, File No. 1-2255, incorporated by reference; Sixty-First Supplemental Indenture, Exhibit 4(ii), Form 10-Q for the quarter ended June 30, 1987, File No. 1~2255, incorporated by reference; Sixty-Second Supplemental Indenture, Exhibit 4(ii), Form 8-K, dated November 3, 1987, File No. 1-2255, incorporated by reference; Sixty-Third Supplemental Indenture, Exhibit 4(i),
Form 8-K, dated June 8, 1988, File No. 1-2255, incorporated by reference and Sixty-Fourth Supplemental Indenture, Exhibit 4(i), Form 8-K, dated February 8, 1989, File No. 1-2255, incorporated by reference.
4(iii)
- . --Indenture, dated April 1, 1985, between Virginia Electric and Power Company and Crestar Bank (formerly United Virginia Bank) (Exhibit 4(i), File No. 2-96772, incorporated by reference).
4(iv)
-Indenture dated as of June l, 1986, between Virginia Electric and Power Company and Chemical Bank (Exhibit 4(i), File No. 33-5763, incorporated by reference),
4(v)
-Indenture, dated April f, 1988, between Virginia Electric and Power Company and Chemical Bank (Exhibit 4(i), File No. 33-21319, incorporated by reference).
4(vi)
-Virginia Electric and Power Company agrees to fumish to the Commission upon request any other instrument with respect to long-term debt as to which the total amount* of securities authorized thereunder does not exceed 10% of Virginia Electric and Power Company's total assets.
IO(i)
_:,-Operating Agreement, dated June 17, 1981, between Virginia Electric and Power Company and Monongahela Power Company, The Potomac Edison Company, West Penn Power Company and Allegheny Generating Company (Exhibit lO(vi),
Form 10-K for the fiscal year ended December 31, 1983, File No. 1-2255, incorporated by reference).
IO(ii) *
-Purchase, Construction and Ownership Agreement, dated as of December 28, 1982 as amended and restated on October 17, 1983, between Virginia Electric and Power Company and Old Dominion Electric Cooperative (Exhibit IO(viii), Form 10-K for the fiscal year ended December 31, 1983, File No. 1-2255, incorporated by reference).
IO(iii)
-Interconnection and Operating Agreement, dated as of December 28, 1982 as amended and restated on October 17, 1983, between Virginia Electric and*Power Company and Old Dominion Electric Cooperative (Exhibit IO(ix), Form 10-K for the fiscal year ended December 31, 1983, File No; 1-2255, incorporated by reference).
lO(iv)
-Nuclear Fuel Agreement, dated as of December 28, 1982 as amended and restated on October 17, 1983, between Virginia Electric and Power Company and Old Dominion Electric Cooperative (Exhibit IO(x), Form 10-K for the fiscal year ended December 31, 1983, File No. 1-2255, incorporated by reference).
IO(v)
-Heat Supply Contract, dated as of October 14, 1987, between Virginia Electric and Power Company and Virginia Power Fuel Corporation (Exhibit lO(v), Form 10-K for the fiscal year ended December 31, 1987, File No. 1-2255, incorporated by reference).
IO(vi)
-Credit Agreement, dated as of October 14, 1987, among Virginia Power Fuel Corporation, Algemene Bank Nederland N.V., New York Branch, as Facility Agent, and the Banks named therein (Exhibit IO(vi), Form 10-K for the fiscal year ended December 31, 1987, File No. 1-2255, incorporated by reference).
IO(vii)
-Guarantee, dated as of October 14, 1987, by Virginia Electric and Power Company in favor of Algemene Bank Nederland N.V., as Facility Agency, and 56
lO(viii) lO(ix) lO(x) lO(xi) lO(xii) 22 24(i) 24(ii) 24(iii) 24(iv) the Banks named therein (Exhibit lO(vii), Form 10-K for the fiscal year ended December 31, 1987, File No. 1-2255, incorporated by reference).
-Inter-Company Credit Agreement, dated July 1, 1986, as amended and restated as of September 1, 1987 between Dominion Resources and Virginia Electric and Power Company (Exhibit lO(viii), Form 10-K for the fiscal year ended December 31, 1987, File No. 1-2255, incorporated by reference).
-Facility Agreement, dated as of April 29, 1986, among Virginia Power Financing Trust, Virginia Electric and Power Company, the Letter of Credit Banks and the Revolving Credit Banks parties thereto, Morgan Stanley International and Union Bank of Switzerland (Exhibit lO(xiii), Form 10-K for the fiscal year ended December 31, 1986, File No. 1-2255, incorporated by reference).
-Trust Agreement, dated April 29, 1986, between Virginia Electric and Power Company and Crestar Bank (formerly United Virginia Bank), as Trustee, establishing Virginia Power Financing Trust (Exhibit lO(xiv), Form 10-K for the fiscal year ended December 31, 1986, File No. 1-2255, incorporated by refer-ence).
-Credit Agreement, dated December 1, 1985, between Virginia Electric and Power Company and Old Dominion Electric Cooperative (Exhibit lO(xix), Form 10-K for the fiscal year ended December 31, 1985, File No. 1-2255, incorporated by reference).
-Agreement for Northern Virginia Services, dated as of November 1, 1985, between Potomac Electric Power Company and Virginia Electric and Power Company (Exhibit lO(xxi), Form 10-K for the fiscal year ended December 31, 1985, File No. 1-2255, incorporated by reference).
-Subsidiaries of Virginia Electric and Power Company (not included because Virginia Electric and Power Company's subsidiaries, considered in the aggregate as a single subsidiary, would not constitute a "significant subsidiary" under Rule 1-02(v) of Regulation S-X as of the end of the year covered by this report).
-Consent of Hunton & Williams (filed herewith).
-Consent of Jackson & Kelly (filed herewith).
- _Consent of Coopers & Lybrand (filed herewith).
-Consent of Deloitte Haskins & Sells (filed herewith).
(b) Report on Form 8-K On November 21, 1988, the Company filed a report on Form 8-K relating to Orders issued by the Virginia Commission regarding rates, capacity costs associated with power purchases, construction of combustion turbines and the Company's solicitation of peaking generation. Subsequent to the reporting period, the Company filed two reports on Form 8-K, one dated January 12, 1989, relating to the Final Order issued by the Virginia Commission and the second dated February 8, 1989, relating to the sale of its First and Refunding Mortgage Bonds of 1989, Series A.
57
r SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be. signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 15, 1989 VIRGINIA ELECTRIC AND POWER COMPANY By:
WILLIAM W. BERRY (William W. Berry, Chairmaµ of Board of Directors)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Signature Title Date WILLIAM W. BERRY Chairman of Board of Directors March 15, 1989.
William W. Berry and Director JACK H. FERGUSON President (Chief Executive Officer)
March 15, 1989 Jack H. Ferguson.
and Director JOHN B. ADAMS, JR.
Director March 15, 1989 John B. Adams, Jr.
ANNA RUTH INSKEEP Director March 15, 1989 Anna.Ruth Inskeep
- ALLIX B. JAMES Director March 15, 1989 Allix B. James SHIRLEY S. PIERCE Director March 15, 1989 Shirley S. Pierce WILLIAM G. THOMAS Director March 15, 1989 William G. Thomas L. R. ROBERTSON Vice President and Treasurer March 15, 1989 L. R. Robertson (Chief Financial Officer)
B. D.-JOHNSON Vice President and Controller March 15, 1989 B. D. Johnson (Principal Accounting Officer) 58