ML18151A574
| ML18151A574 | |
| Person / Time | |
|---|---|
| Site: | Surry, North Anna, 05000000 |
| Issue date: | 03/31/1988 |
| From: | Stewart W VIRGINIA POWER (VIRGINIA ELECTRIC & POWER CO.) |
| To: | NRC OFFICE OF ADMINISTRATION & RESOURCES MANAGEMENT (ARM) |
| References | |
| 88-147, NUDOCS 8804120382 | |
| Download: ML18151A574 (63) | |
Text
VIRGINIA ELECTRIC AND POWER COMPANY RICHMOND, VIRGINIA 23261 W. L. STEWART VICE PRESIDENT NUCLEAR OPERATIONS March 31, 1988 U.S. 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.
NO/DAS:vlh Docket Nos.
License Nos.88-147 Rl 50-280 50-281 50-338 50-339 DPR-32 DPR-37 NPF-4 NPF-7 Pursuant to 10 CFR 140.21 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 1987.
- 2.
Comparative Statement of Income for the three months ended December 31, 1987 and 1986.
- 3.
Internal cash flow projection for calendar year 1988 with certifi-cation by officer of the Company.
- 4.
Statement ensuring availability of funds for payment of retrospec-tive premiums without curtailment of construction expenditures.
'.In accordance with 10 CFR 140.7 we submitted a check to the NRC for $1,000 on November 5, 1987, which is the minimum required premium for the period November 15, 1987 through November 14, 1988.
Very truly yours, Enclosures
(--- 0004120302. 000331 r i
e 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
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, 1987 Commission file number 1-2255 Virginia Electric and Power Company (Exact name of registrant as specified in its charter)
( 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 12fg) of the Act:
None (Tiile 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 29, 1988 was zero.
As of February 29, 1988, there were issued and outstanding 140,788 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
Item Number VIRGINIA ELECTRIC AND POWER COMPANY PART I Page Number
- 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 Federal Energy Regulatory Commission........................................... ;.................
4 Federal Government Installations......................................................................
4
. County and Municipal Customers......................................................................
4 Generating Units...............................................................................................
5 Sources of Energy Used and Fuel Costs................................................................
5 Nuclear Fuel Supply....................................................................................
5 Coal Supply................................................................................................
6 Coal Conversions........................................................................................
6 Purchases and Sales of Power........................................................................
6 Interconnections................................................................................................
6 Future Sources of Power....................................................................................
6 Competition......................................................................................................
7
- 2. Properties............................................................................................................
8
- 3. Legal Proceedings.................................................................................................
8 Regulation-General..........................................................................................
8 Water Quality Control........................................................................................
8 Air Quality Control............................................................................................
9 Nuclear Operations............................................................................................
9
- 4. Submission of Matters to a Vote of Security Holders..................................................
10 PART II
- 5. Market for the Registrant's Common Equity and Related Stockholder Matters................
10
- 6. Selected Financial Data..........................................................................................
10
- 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
11
- 8. Financial Statements and Supplementary Data...........................................................
15
- 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
45 PART III
- 10. Directors and Executive Officers of the Registrant......................................................
45
- 11. Executive Compensation........................................................................................
48
- 12. Security Ownership of Certain Beneficial Owners and Management...............................
50
- 13. Certain Relationships and Related Transactions..........................................................
51 PARTIV
- 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..............................
52
., ** PART l 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 corppration.
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 customers 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 terms "Virginia Power" and the "-Company'.' shall be deemed to refer to the entirety of Virginia Electric and Power Company, including,. without limitation, its Virginia and North Carolina operations.
On March 1, 1987, the Company sold its West Virginia retail electric distribution facilities and service territory to UtiliCorp United Inc. for $22.3 million and sold a related transmission line located within the West Virginia service territory to Appalachian Power Company for $700,000.
The Company has non-exclusive 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.
The Company owns its principal properties in fee (except as indicated below), subje_ct to defects and encumbrances that do not interfere materially with their use. Substantially all of its property is subject to the lien of its mortgage. Right-of-way grants from the apparent owners of real estate have been obtained for most electric lines but underlying titles have not been examin!'!d, except for transmission _lines of 69,000 v_olts 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 the 500,000 volt transmission line from the Company's coal-fired station at Mt. Storm, West Virginia, cross national parks and forests under short-term permits entitling the federal government to use, at specified charges, surplus electricity in the line if any exists.
The Company leases combustion turbines and certain buildings and equipment. See Note F 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 A to FINANCIAL STATEMENTS.
The Company strives to operate its generating facilities in accordance with pr~dent 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 otherwise to comply with regulatory requirements. Such outages may involve significant expenditures not previously budgeted, including replacement energy costs. See RATES and LEGAL PROCEEDINGS.
The Company had 13,438 full-time employees on December 31, 1987.
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 1988-1990, total $2.4 billion. It has adopted a 1988 budget for construction and nuclear fuel expenditures as set forth below:
New Generating Facilities:
Estimated 1988 Expenditures (Millions)
Chesterfield 7..............................................................
$ 37 Future Unit.................................................... _............
1 Existing Generating Facilities:
Regulatory Required......................................................
17 Life Extension/Upgrade Projects........................................
69 Plant Support Facilities...................................................
31 Other Production..........................................................
61 General Support Facilities..................................................
-89 Transmission............................................................."....
62 Distribution..................................................................
294 Nuclear Fuel.................................................................
79 Total Construction Requirements and Nuclear Fuel....................
740 AFC..........................................................................
11 Total Expenditures........................................................
$751 Financing Program In 1987, Virginia Power obtained $685 million from the sale of securities. Its long-term financings included $200 million of First and Refunding Mortgage Bonds, $175 million of Preferred Stock, $122 million of unsecured notes having maturities ranging from 2 to 10 years, $108 million of tax-exempt pollution control financings and $80 million of Common Stock sold to Dominion Resources. From_ the proceeds of the 1987 securities sales, the Company retired $57 million of securities through mandatory debt maturities and sinking fund requirements and retired an additional $207 million of debt financing through optional redemptions and sinking fund payments. See Liquidity and Capital Resources under_
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF 0PERATIQNS.
Virginia Power's 1988 capital requirements, exclusive of AFC and refundings, are estimated to be
$740 million, as detailed above. Of this amount, it is expected that approximately $576 million will be obtained from internal sources. The remaining $164 million of capital requirements, as well as the $151 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. See Liquidity and Capital Resources under MANAGEMENT'S DiscussION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
2
e RATES The Company was subject to electric rate regulation in 1987 as follows:
Virginia retail:
Non-Governmental customers..... Virginia Commission Governmental customers.......... Not regulated (negotiated agreements)
North Carolina retail................. North Carolina Commission Wholesale............................. Federal Energy Regulatory Commission (FERC)
% of Electric Revenues 77 12 5
6 100%
1987 (*)
% of Kwh Sales 75 13 4
8 100%
(*) Excludes the Company's West Virginia retail service territory, which was sold effective March 1, 1987.
Approximately 99% of the Company's electric sales are subject to recovery of changes in fuel costs either through fuel adjustment factors or through 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 1987 were as follows:
Virginia On March 6, 1987, the Virginia Commission instituted a proceeding inquiring into Virginia Power's allowed rate of return and the effect of the Tax Reform Act of 1986 on its base rates. On June 1, 1987, the Company filed testimony and exhibits for the hearing in that case. No net increase in base rates was requested. On September 14, 1987, the Virginia Commission placed Virginia Power's existing rates in an interim status, subject to refund, pending a final decision in the case. As a result, Virginia Power began reserving revenues which should be sufficient to cover refunds subsequently ordered. A hearing before a Hearing Examiner was concluded on October 29, 1987, and briefs were filed on November 25, 1987. The Virginia Commission's Staff, the Office of Attorney General, and other parties argued that the rates should be reduced by an amount in the range of $111 million to $143 million, while the Company's evidence supported an increased revenue requirement of $26.5 million using a return on equity of 14%.
The Hearing Examiner's report was issued on February 26, 1988, and recommended a base rate reduction of approximately $98.9 million and a reduction of the allowed rate of return on equity from 14.5% to 13.25% effective September 14, 1987, with an adjustment of the rate reduction to $91.3 million effective January 1, 1988. The Company will file exceptions to the Hearing Examiner's Report, after which the Virginia Commission will issue a final order.
On March 27, 1987, Virginia Power filed with the Virginia Commission an application for a fuel factor increase of approximately $67.5 million. On June 30, 1987, the Virginia Commission approved the requested increase effective with the July 1987 billing cycle.
On July 6, 1987, the Company filed with the Virginia Commission testimony and exhibits to support the updated level of rates to be paid to co-generators and small power producers. A hearing was held on October 20, 1987, at which a revised schedule was proposed and acceptable to all parties. On October 30, 1987, the Virginia Commission approved that revised schedule.
Governmental base rates for the Commonwealth of Virginia, which are unregulated but follow the methodology approved by the Virginia Commission for jurisdictional base rates, did not increase in 1987.
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North Carolina On October 20, 1987, the North Carolina Commission issued an Order directing the Company to file tariffs reflecting tax rate reductions under the Tax Reform Act of 1986. Such tariffs were filed on November 23, 1987 and became effective January 1, 1988. These tariffs reflect a reduction of approximately $8 million in annual revenues. By an Order issued on November 17, 1987, the North Carolina Commission required the filing by February 15, 1988, with an effective date beginning not later than April 1, 1988, of a plan for refunding the 1987 tax expense overcollections. The Company has established a reserve including related interest, totaling $3. 7 million at December 31, 1987 to cover such refunds.
Federal Energy Regulatory Commission On May 4, 1987, FERC approved a settlement in a rate proceeding filed on March 29, 1985. The settlement resulted in a refund by the Company of $0.6 million to customers, in addition to $1.4 million previously refunded.
On May 4, 1987, FERC also approved a settlement relating to a rate proceeding filed on March 27, 1986. The settlement reduced the amount of the effective rate increase from $16.4 million to $4.0 million on an annual basis, and phased out the entire increase by January 1, 1988.
Federal Government Installations In connection with a revenue increase of $3. 9 million for federal government installations requested by Virginia Power on March 27, 1986, a settlement in principle has been reached that reduced the amount of the increase to $1.2 million, effective December 6, 1986. Under the terms of the settlement agreement, this increase was phased out effective January 1, 1988. Base rate revenue increases for federal government installations follow the methodology approved by FERC for wholesale municipal customers and did not increase in 1987.
County and Municipal Customers Virginia Power has a three-year contract governing rates for county and municipal customers, which continues through June 30, 1988. Pursuant to this contract, an annual increase of $10.4 million became effective on January 1, 1986, a second annual increase in the amount of $5.4 million became effective on July 1, 1986, and a third annual increase of $6.6 million became effective on July 1, 1987.
4
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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-1990's.
See Nuclear Operations under LEGAL PROCEEDINGS for information relating to (i) litigation involving DOE enrichment services for foreign source uranium and (ii) spent fuel storage and disposal and the effect thereof on continued operations.
Coal Supply In 1987, the Company consumed approximately 9.9 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 price levels will be available at least into the early 1990's.
Coal Conversions Since 1975, twelve of Virginia Power's generating units (aggregating 2,324 Mw) have been converted from oil to coal. The most recent conversions were Units 1 & 2 at the Chesapeake Energy Center, which began operation as coal units on July 1, 1987 and April 1, 1987, respectively. These two conversions cost a total of $118.5 million (excluding AFC). Virginia Power presently has only two operating oil-fired generating units (Yorktown Unit 3 and Possum Point Unit 5, aggregating 1,604 Mw).
Two other oil-fired units, Possum Point Units 1 and 2 (aggregating 143 Mw), are in reserve shutdown status.
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 (AEP). In December 1987, the Company committed to short-term power purchases from AEP of 250 Mw from June 6, 1988 through September 4, 1988 with weekly options for an additional 150 Mw and from South Carolina Electric and Gas Company of200 Mw from June 5, 1988 through October 1, 1988 (see Note N to FINANCIAL STATEMENTS).
Virginia Power and ODEC have 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 will receive compensation from ODEC over a period of one year aggregating 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 that the Company considers adequate for coordinated planning, operation, emergency assistance and exchanges of capacity and energy.
FUTURE SOURCES OF POWER The Company presently anticipates that system load growth will require it to provide 1,500 M w of additional energy resources by 1990. In anticipation of this need; it filed a petition with the Virginia 6
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(b)
Oil & Gas Oil & Gas Conventional Conventional Conventional Pumped Storage Summer Capability Mw 1,562 l,830(a) 3,392 227 1,250 1,574 595 322 336 929 818 6,051 439 225
- 102 2
l,260(c) 1,589 11,471 (a) Includes an undivided 11.6% (212 Mw) interest in the North Anna Power Station owned by Old Dominion Electric Cooperative (ODEC) (see Note G to FINANCIAL STATEMENTS).
(b) For information as to conversion of certain units to coal and placement of others in reserve shutdown status, see Coal Conversions under SOURCES OF ENERGY USED AND FUEL CosTs.
(c) Includes only Virginia Power's 60% undivided interest in the 2,100 Mw Bath County Pumped Storage Station, which was placed in commercial operation in December 1985. A 40% undivided interest in that facility is owned by Allegheny Generating Compa,ny (AGC), a subsidiary of Allegheny Power System, Inc. (see Note G to FINANCIAL STATEMENTS).
The Company's highest one-hour integrated service area winter peak demand was 10,787 Mw established on January 7, 1988, and the highest one-hour integrated summer peak demand was 11,529 Mw established on July 21, 1987. The Company has an aggregate winter capability of 12,851 Mw and an aggregate summer capability of 12,621 Mw, in each case including firm purchases and cogeneration.
For financial data as 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 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Nuclear Fuel Supply The Company'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 5
based on the recommendations of a co-generation task force established by the Virginia Commission, on which Virginia Power was represented. A hearing has been scheduled for September 6, 1988.
ITEM 2. PROPERTIES See GENERATING UNITS under Item I and Schedule V of the FINANCIAL STATEMENTS Schedules.
See Item 1, BUSINESS-THE COMPANY, for information relating to sale of the Company's West Virginia service territory and related transmission facilities.
ITEM 3. LEGAL PROCEEDINGS Regulation-General The Company is presently subject to regulation by the utility commissions of Virginia and North Carolina, DOE, the Environmental Protection Agency (EPA),. FERC, the Nuclear Regulatory Com-mission (NRC), the Army Corps of Engineers and other federal, state and local authorities.
Virginia Power may not construct, or incur financial commitments for construction of, any substantial generating facilities or large capacity transmission lines without the prior approval of state and federal governmental agencies having jurisdiction over various aspects of its business. Such approvals relate to, among other things, the environmental impact of such activities, the relationship of such activities to the need for providing adequate utility service, and the design and operation of proposed facilities.
Operating licenses issued by NRC are subject to revocation, suspension 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 of the 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 minor violations of state or federal environmental regulations that the Company believes are not material and for which its aggregate liability for fines or penalties will not exceed $100,000. There are no material agency enforcement actions or citizens' suits pending or, to the Company's present knowledge, threatened against the Company, except as otherwise described in this report.
Water Quality Control From 1957 through 1974, fly ash from Virginia Power's Yorktown Power Station was deposited at sites near Chisman Creek, York County, Virginia, by an independent contractor. Pollutants from these sites may be leaching into local groundwater and into Chisman Creek. Pursuant to the Superfund Act, Virginia Power and EPA entered into a consent decree on September 25, 1987, under which the Company agreed to conduct remedial actions for three pits at the site and to pay EPA's costs related to the site. The U.S. Fish and Wildlife Service has completed a remedial investigation, and the Company is conducting a feasibility study on the surface waters at the site. Virginia Power is continuing to work with EPA and the U.S. Fish and Wildlife Service on remedial actions for the pits and surface water areas at the site. The Company estimates that the costs of all remedial actions at the site would be approximately $9.6 million. A liability for this amount was recorded in December 1986.
From time to time, the Company has been, and in the future 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 cannot be determined at the present time, but which could ultimately prove to be significant.
8
Commission on September 9, 1986, seeking approval to construct two 210 Mw combined cycle generating units (Chesterfield Units 7 and 8) at its Chesterfield Power Station. During the hearing on the petition, Virginia Power withdrew its request for the approval of Unit 8. On July 17, 1987, the Virginia Commission approved the construction of Unit 7. In connection with such petition, the Company filed a fuel use application for Chesterfield Units 7 and 8 with the Department of Energy (DOE). DOE granted a permanent exemption effective July 13, 1987 from the limitations on gas usage imposed by the Powerplant and Industrial Fuel Use Act of 1978. The Company is in the process of obtaining the necessary permits for Chesterfield Unit 7 and expects to bring this unit into service in 1990.
In June 1987, the Company entered into agreements with six co-generators for the purchase of 1,178 Mw of power. The agreements call for such power to become available not later than 1990. However, none of the generating facilities that will produce this power has been constructed, and there is no certainty that any will be completed on schedule. Each agreement for purchase of this power contains 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.
The Company expects to enter into competitively bid contracts in 1988 for a minimum of 1,750 Mw of additional power for delivery not later than 1994.
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 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 to meet their energy needs by means other than the purchase of electricity from the Company. Likewise, the Company now has, and in the future will have, increased opportunities to obtain power from sources other than its own generating facilities. In particular, the Public Utility Regulatory Policies Act of 1978 (PURPA) has encouraged non-utilities to enter the business of producing electricity, which utilities may be required to purchase.
These changes in the utility industry will require the Company to remain competitive in order to retain its customer base. Any material loss of customers would potentially increase electric rates to remaining customers. To forestall such an eventuality, the Company is committed to provide high standards of service at competitive rates to all classes of customers. It supports a competitive system for determining sources for the power that it must purchase to meet future energy demands.
In October 1987, the Virginia Commission initiated a proceeding to consider new procedures, including competitive bidding, for the acquisition by utilities of new generating capacity from third parties. 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 the Virginia Commission's Order regarding competitive bidding, it has required Virginia Power to engage in arbitration proceedings with third parties concerning approximately 16 existing or planned qualifying facilities (as defined in PURPA) aggregating approximately 775 Mw of generating capacity. The issue in these proceedings is whether the Company may be required to purchase energy and capacity from qualifying facilities under circumstances where the Company believes that the costs therefor are not competitive. The Company takes the position that it should not be required to purchase energy or capacity at prices determined other than by the competitive system endorsed in the above-mentioned Order of the Virginia Commission.
On October 16, 1987, the Virginia Commission initiated a proceeding to consider and implement methodologies for calculating the avoided costs to be paid to co-generators and small power producers.
7
e In 1986, EPA completed an investigation of violations by the Company of regulations governing the storage and disposal of PCB contaminated materials. EPA referred the matter to the U.S. Department of Justice, recommending prosecution. The Company investigated the matter and concluded that the acts constituting the violations were carried out by certain employees in disregard of Company policy.
Under the Toxic Substances Control Act, such violations are subject to both.civil and criminal penalties, in each case in a maximum amount of $25,000 per violation per day. Additional fines may be imposed under the Criminal Fine Enforcement Act of 1984. The improper disposition of the materials was corrected, but as many as 22 violations, continuing for about 10 days, may have been involved. The Company cannot predict what enforcement action may *result.
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 Virginia Power has entered into administrative consent orders with the Virginia State Air Pollution Control Board affecting the Bremo Power Station and the Chesapeake Energy Center. One such order requires the Company to effect repairs to the electrostatic precipitator on Bremo Unit 4. The second obligates the Company to install overtire air systems on Chesapeake Energy Center Units 1 and 2 to reduce emissions of nitrogen oxides. The total cost of capital additions necessary to comply with these orders is not expected to exceed $1.4 million.
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 reduce the impact of emissions on ambient air quality, the Company 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 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 kilowatt-hour of net nuclear generation 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 million annually).
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, in a suit brought by uranium producers, the United States District Court for the District 9f Colorado held the new DOE contract void on the ground that DOE was required by law, due to the non-viable conditions of the U.S.
uranium industry, to cease the enrichment of foreign source uranium. The U.S. Court of Appeals for the Tenth Circuit affirmed the District Court's ruling. The U.S. Supreme Court has issued a stay that permits DOE to continue to enrich foreign uranium and has granted.an appeal of the case. A date for argument has not yet been set. If the District Court decision requiring DOE to cease enrichment of foreign source uranium is upheld, the Company could be required to depend more heavily on higher-cost U.S. source uranium or to obtain foreign enrichment services for foreign source uranium.
In either event, the costs of fuel for the Company's nuclear units could increase significantly.
NRC has adopted stringent requirements in the areas of emergency planning, training requirements for all personnel, procedures and facilities for following the course of 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 9
changes in the design and operation of nuclear reactors, this could result in substantial increases 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 N to FINANCIAL STATEMENTS.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS All of the Company's Common Stock is owned by Dominion Resources.
During 1986 and 1987, the Company paid quarterly cash dividends on its Common Stock as follows:
1986........................
1987........................
1st 2nd 3rd (Millions)
$66.6
$67.0
$63.5(b) $67.5
$65.2
$69.6 4th
$31.9(a)
$71.6 (a) In addition to the $31.9 million cash dividend, the Company transferred by dividend to Dominion Resources, preferred stock of Occidental Petroleum Corporation valued at $36 million (see Note A to FINANCIAL STATEMENTS).
(b) 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 A to FINANCIAL STATEMENTS).
ITEM 6. SELECTED FINANCIAL DATA Operating revenues............... '......
Operating income (a)....................
Balance available for Common
,Stock (a)...............................
Cash dividends paid per share of Common Stock (b)...................
Total assets (a)..........................
Total net utility plant...................
Long-term debt, noncurrent capital lease obligations and preferred stock subject to mandatory redemption (a)........................
1987
$3,078 737 407 1,974 9,256 7,639 4,052 1986 1985 1984 (Millions, except per share amounts)
$2,960
$2,712
$ 2,605 693 600 563 380 340 311 1,721 1,915 1,802 8,750 8,295 7,990 7,228 6,805 6,524 3,978 3,426 3,642 1983
$2,612 551 287 1,680 7,562 6,133 3,305 (a) Amounts for the years 1983-1986 have been restated to reflect the effect on prior years of the new method of accounting for terminated construction project costs (see Note D to FINANCIAL STATEMENTS) and the capitalization of leases (see Note F to FINANCIAL STATEMENTS).
(b) Dividends paid per share of Common Stock prior to 1987 have been restated to reflect a reverse stock split in 1986 (see Note J to FINANCIAL STATEMENTS).
10
e e
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Restatement of Financial Statements The financial statements for 1985 and 1986 have been restated to reflect the change in accounting for terminated construction project costs as discussed in Note D to FINANCIAL STATEMENTS and the capitalization of leases as discussed in Note F to FINANCIAL STATEMENTS.
In October 1987, the Financial Accounting Standards Board (F ASB) issued Statement of Financial Accounting Standards (SF AS) No. 95, Statement of Cash Flows, which requires a statement of cash flows as part of a full set of financial statements in place of a statement of changes in financial position.
Although SFAS No. 95 is effective for annual financial statements for fiscal years ending after July 15, 1988, Virginia Power has elected to apply its provisions in 1987. Accordingly, the financial statements for 1987 include a statement of cash flows. The financial statements for 1985 and 1986 have been restated to reflect the implementation of SFAS No. 95.
Recently Issued Accounting Standards In December 1987, the FASB issued SFAS No. 96, "Accounting for Income Taxes". The new standard must be adopted no later than fiscal year 1989. 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.
SFAS No. 96 includes special provisions for the income taxes related to events subject to regulation. The Company has not yet determined the impact that adoption of the standard will have on its financial statements (see Note B to FINANCIAL STATEMENTS, Significant Accounting Policies, Federal Income Taxes).
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 working capital and cash requirements for the retirement of maturing debt and sinking fund obligations. Its construction program, related expenditures and financing requirements can continue to change as a result of additional regulatory and environmental costs and other factors.
The 1988 construction requirements (excluding AFC) include $661 million of construction expen-ditures and $79 million for nuclear fuel expenditures. The $117.5 million of securities due within one year, plus an additional $33.2 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 78% of its 1988 construction requirements, including nuclear fuel expenditures, will be met by internal cash generation and that the balance will be financed.
At December 31, 1987, the Company's borrowings from Dominion Resources under the inter-company credit agreement were $27 million.
During 1987, financial market conditions made it advantageous for Virginia Power to replace certain high-cost tax-exempt debt with lower cost securities. The Company redeemed all of its First and Refunding Mortgage Bonds, Pollution Control Series D and Series E, in the aggregate principal amount of $90 million, which bore interest at the rate of 8.75% and 8.5% per annum, respectively., In addition, the Company filed a notice of redemption for holders of its First and Refunding Mortgage Bonds, Pollution Control Series A which bore an interest rate of 8.5%. The bonds were redeemed on January 11, 1988, at a price of 102% of par plus accrued interest, with proceeds from the sale of Money Market Municipal Pollution Control Bonds issued in December 1987.
11
In November 1987, the Company issued $100 million of First and Refunding Mortgage Bonds, Series 1987 B, the proceeds of which were used to reduce borrowings under the Virginia Power Financing Trust, thereby reducing the Company's exposure in variable rate debt securities.
From 1985 through 1987, the Company's major sources of funds from financings were as follows:
1987 1986 1985 (Thousands)
Common stock..............................................
$ 79,990
$ 57,498
$ 54,852 Preferred stock.. *............................................
175,000 60,000 Mortgage bonds.... :........................................
- 200,000 250,000 Medium term notes.........................................
121,850 180,015 142,885 Pollution control financings (including refunding).........
108,000 18,600
- 202,000 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, 1987, was $103.6 million, of which $42.3 million was classified as short-term debt, representing the Company's estimated cost of the nuclear fuel to be consumed by the Company during 1988.
Results of Operations The balance available for.Common Stock increased $26.5.million, or 7.0%, from 1986 to 1987, and increased $40.4*million or 11.9% from 1985 to 1986.
Electric revenues were $188.9 million higher in 1987 as a result, in part, 'of increased kilowatt-hour sales resulting from weather conditions and continuing. high* level' of new. customer* coimections.
Revenues in 1986 were higher as a result of increased sales resulting from the record number of new customer connections and a refinement in the methodology used to calculate unbilled revenues. The effect of these items, among others, on electric revenues is shown in the following table.
Kwh sales:..........-................. :.*:'.......
Base and fuel rates............................
Other, net.*........................ *.:............
Total.........................................
Increase (Decrease) From Prior
. Y~ars (Millions).
1987
$161.2 24.7 3.0
$188.9 1986
$307.4 (39.0) 34.6
$303.o**
1985
$152.6 (18.9)
(24.6)
$109.1 On July 1, 1986, Virginia Power transferred its gas division to Virginia Natural Gas, Inc. (VNG),
- a. wholly-owned subsidiary of Dominion Resources (see Note A 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 as a result of higher customer demands in 1987 that were supplied in part through increased purchases, pilrchases of replacement power necessitated by nuclear plant outages, and an increase beginning in January 1987 in the level of power purchases under an existing long-term contract with AEP. Purchased and interchanged power and fuel used in current generation increased in 1986 primarily as a result of increased generation and a ch.;trige in energy supply which utilized less nuclear generation. While average unit fuel costs were lower in 1986, those savings were more than. offset-by increased generation requirements and the change in. energy supply necessitated by nuclear plant outages.
12
e The average fuel cost of energy supply is shown below (a):
Mills Per Kilowatt-hour 1987 Nuclear...............................
6.05 Coal...................................
15.22 Oil.....................................
32.81 Purchased and interchanged.........
43.35 Gas..........,.;.......................
27.84 Combustion turbines.................
65.40 Average fuel costs......,............
17.83 Energy supply mix is shown below (a):
Estimated 1988 Nuclear......................................
Coal..........................................
Oil............................................
Purchased and interchanged................
Other.........................................
39%(b) 46 1
13 1
100%
1986 1985 5.70 5.89 16.45 18.19 33.18 55.23 38.77 40.88 92.89 44.01 87.75 96.41 15.93 15.97 Actual 1987 1986 34%(b) 41%(b) 45 44 5
5 15 9
1 1
100%
100%
1985 47%(b) 41 1
9 2
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 energy stored in the upper reservoir may be 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) Includes ODEC's 1L6% ownership interest in the North Anna Power Station (see Note G to FINANCIAL STATEMENTS).
Deferred fuel expenses increased in 1987 and 1986 because actual fuel expenses were higher than the level included in rates. In addition, the Company began deferring capacity charges, not included in the fuel factor, in excess of the level of such charges included in base rates on January 1, 1987 (see Note B to FINANCIAL STATEMENTS, Significant Accounting Policies, Deferred Fuel).
Other operation expenses in 1986 include a reduction in expenses due to the adoption of SPAS No.
87, "Employers' Accounting for Pensions" (see Note M to FINANCIAL STATEMENTS).
Maintenance expenses increased in 1986 as a result of an additional refueling outage. During the scheduled outages in 1986, additional routine and corrective maintenance exceeded the 1985 level.
Depreciation expense increased in 1986 as a result of a change in depreciable plant in service, primarily the placing of the Bath County Pumped Storage Station into service in December 1985.
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 C and E to FINANCIAL STATEMENTS.
The Company's management believes that the Tax Reform Act of 1986 will provide near-term benefits to the Company and its ratepayers as a result of lower corporate income tax rates. In the longer term, however, other effects of the Tax Reform Act, such as the elimination of the investment tax credit and the reduction of tax depreciation rates, are expected to more than offset the benefits of lower tax rates.
13
e Other income-miscellaneous, net and associated taxes in 1986 reflect the gain on the disposition of Laurel Run Mining Company (see Note A to FINANCIAL STATEMENTS).
Allowance for other funds used during construction and allowance for borrowed funds used during const,:u9tion decreased in 1986 as a result of the placing of the Bath County Pumped Storage Station into commercial operation.
/
14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page No.
Report of Independent Certified Public Accountants.........................
Statements of Income for the three years ended December 31, 1987........
Balance Sheets at December 31, 1987 and 1986...............................
Statements of Earnings Reinvested in Business for the three years ended December 31, 1987............................................................
Statements of Cash Flows for the three years ended December 31, 1987...
Statements of Capitalization at December 31, 1987 and 1986................
Notes to Financial Statements..................................................
Financial Statements Schedules:
IV-Indebtedness of and to Related Parties-Not Current for the years ended December 31, 1987, 1986 and 1985...........
V-Property, Plant and Equipment for the years ended December 31, 1987, 1986 and 1985.........................
VI-Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment for the years ended December 31, 1987, 1986 and 1985.........................
VIII-Valuation and Qualifying Accounts and Reserves for the years ended December 31, 1987, 1986 and 1985...........
Schedules other than those listed above have been omitted since they are not required, are inapplicable or the required information is presented in the financial statements or notes thereto.
15 16 17 18 20 21 23 25 39 40 43 44
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 listed in the index on page 15 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 considered necessary in the circumstances.
In our opinion, the financial statements referred to above present fairly the financial position of Virginia Electric and Power Company as of December 31, 1987 and 1986, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1987, 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 D 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 16 COOPERS & LYBRAND
Operating revenues:
e VIRGINIA ELECTRIC AND POWER COMPANY STATEMENTS OF INCOME For The Years Ended December 31, 1987 1986 1985 (Thousands)
Electric........................................................... $3,078,180 $2,889,310 $2,586,288 Gas................................................................
70,782 125,818 Total...........................................................
3,078,180 2,960,092 2,712,106 Operating expenses:
Operation:
Fuel used in current generation............... :... :...... *:..
578,458 582,809 527,048 Purchased and interchanged power, net............. ;. :....
412,647 242,405' 233,362 Deferred fuel expenses, net....... '.............. :... '........
(128,440)
. (88,569)
(1,731)
Other........................................ *.............-.~....
430,827 456,951 453,007 Maintenance.....................................................
275,047 265,076 220,461 Depreciation.....................................................
293,612 268,991 231,483 Amortization of terminated construction project costs......
57,349 57,363 55,873 Taxes-Federal income........................................
243,272 311,919 238,305
-Other...................................................
177,963 169,716 154,246 Total.........................................................
2,340,735 2,266,661 2,112,054 Operating income..................................................
737,445 693,431 600,052 Other income:
Allowance for other funds used during construction..................................................
1,966 1,290 35,964 Miscellaneous, net..............................................
35,930 52,358 35,368 Income taxes associated with miscellaneous, net............
(12,093)
(18,281)
(12,674)
Total.........................................................
25,803 35,367 58,658 Income before interest charges...................................
763,248 728,798 658,710 Interest charges:
Interest on long-term debt......................................
301,022 285,528 278,672 Other.............................................................
12,853 17,996 22,042 Allowance for borrowed funds used during construction..................................................
(6,482)
(2,479)
(32,536)
Total.........................................................
307,393 301,045 268,178 Net income.........................................................
455,855 427,753 390,532 Preferred dividends...............................................
49,195 47,592 50,803 Balance available for common stock............................. $ 406,660 $ 380,161
$ 339,729 The accompanying notes are an integral part of the financial statements.
17
VIRGINIA ELECTRIC AND POWER COMPANY BALANCE SHEETS Assets At December 31, 1987 1986 (Thousands)
UTILITY PLANT:
Electric (includes $488,674 plant under construction [1986-$766,350])..
$9,695,002 Less accumulated depreciation.....................................
2,350,065 7,344,937 Nuclear fuel (less accumulated amortization of $426,721 [1986-
$366, 153]).....................................................
294,031 Total net utility plant..........................................
7,638,968 PLANT AND PROPERTY UNDER CAPITAL LEASES:
Nuclear fuel (less accumulated amortization in 1986 of $87,516)........
Other (less accumulated amortization of $33,854 [1986-$27,262])......
54,128 Total plant and property under capital leases....................
54,128 INVESTMENTS:
Non-utility property (less accumulated depreciation of $239
[1986-$1,057]).................................................
6,070 Notes receivable..................................................
35,564 Other............................................................
3,278 Total net investments.........................................
44,912 CURRENT ASSETS:
Cash..................... *.......................................
10,499 Temporary cash investments.......................................
Accounts receivable:
Customers.....................................................
$256,132
$227,137 Other......................... *.................................
22,701 24,181 278,833 251,318 Less allowance for doubtful accounts...........................
2,225 276,608 2,340 Accrued unbilled revenues.........................................
121,686 Materials and supplies at average cost or less:
Plant and general...............................................
179,089 156,390 Fossil 'fuel.....................................................
156,633 335,722 110,463 Prepayments.....................................................
16,577 Other...... :.....................................................
15 Total current assets..................................-.........
761,107 DEFERRED DEBITS AND OTHER ASSETS:
Terminated construction project costs (less accumulated amortization of $295,578 [1986-$237,013])....................................
311,476 Deferred fuel expenses............................................
173,808 Deferred interest..................................................
25,432 Pollution control project funds.....................................
121,675 Nuclear fuel progress payments....................................
Unamortized expense on debt.:....................................
13,987 Other............................................................
110,597 Total deferred debits and other assets...........................
756,975 Total assets......'........... *.................................
$9,256,090 The accompanying notes are an integral part of the financial statements.
18
$9,134,896 2,085,648 7,049,248 179,192 7,228,440 110,909 61,920 172,829 6,943 40,378 3,446 50,767 13,110 3,000 248,978 121,253 266,853 13,807 293 667,294 339,350 45,462 25,357 131,183 1,553 13,928 73,530 630,363
$8,749,693
VIRGINIA ELECTRIC AND POWER COMPANY BALANCE SHEETS Capitalization and Liabilities At December 31, 1987 1986 (Thousands)
CAPITALIZATION:
Preferred stock subject 'to mandatory redemption................
$ 371,027
$ 337,310 Preferred stock not subject to mandatory redemption............
319,014 194,014 Common stockholder's equity:
Common stock-no par...........................................
2,060,841 1,980,015 Other paid-in capital..............................................
19,501 20,337 Earnings reinvested in business..................................
795,107 668,966 Total common stockholder's equity...........................
2,875,449 2,669,318 Long-term debt (see Statements of Capitalization)................
3,631,263 3,505,345 Total Capitalization.............................................
7,196,753 6,705,987 OBLIGATIONS UNDER CAPITAL LEASES........................
49,516 135,712 CURRENT LIABILITIES:
Securities due within one year (see Statements of Capitalization).....................................................
150,663 56,866 Short-term debt......................................................
42,304 500 Obligations under capital leases....................................
6,144 44,459 Accounts payable, trade............................................
155,041 174,237 Cash due to banks...................................................
59,986 78,191 Customer deposits...................................................
36,650 33,665 Payrolls accrued.....................................................
38,015 34,169 Taxes accrued.......................................................
19,431 73,584 Interest accrued.....................................................
88,227 81,474 Other.................................................................
86,792 66,232 Total current liabilities.........................................
683,253 643,377 DEFERRED CREDITS AND OTHER LIABILITIES:
Uranium settlement.................................................
50,442 64,118 Accumulated deferred income taxes:
Liberalized depreciation..........................................
567,276 489,163 Terminated construction project costs...........................
68,517 73,435 Other...............................................................
191,506 163,349 Deferred investment tax credits....................................
419,919 417,926 Other.................................................................
28,908 56,626 Total deferred credits and other liabilities....................
1,326,568 1,264,617 COMMITMENTS AND CONTINGENCIES:
Total capitalization and liabilities.............................
$9,256,090
$8,749!693 The accompanying notes are an integral part of the financiai statements.
19
VIRGINIA ELECTRIC AND POWER COMPANY STATEMENTS OF EARNINGS REINVESTED IN BUSINESS For the Years Ended December 31, Balance at beginning of year, as previously reported Cumulative effect on prior years of applying retroactively the new method of accounting for terminated construction project costs.....................................................
Balance at beginning of year, as restated........................
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).............
Common Stock..................................................
Other dividends to Dominion Resources:
Common Stock of VNG........................................
Common Stock of Dominion Exploration, Inc...............
Preferred Stock received on sale of Laurel Run Mining Company......................................................
Total dividends.............................................
Other deductions, net.............................................
Balance at end of year:...........................................
1987
$668,966 668,966 455,855 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 4,000 325,752 3,962 795,107 1986 (Thousands)
$584,904 584,904 427,753 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 36,000 342,848 843
$ 668,966 The accompanying notes are an integral part of the financial statements.
20 1985
$519,844 (26,988) 492,856 390,532 883,388 4,775 4,367 6,527 2,680 2,952 2,382 1,515 2,563 533 52 62 134 351 2,702 3,094 2,980 3,240 3,860 5,850 247,865 298,484
$584,904
.--------------------------------------------------*~-*-------
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 oper-ating activities:
Depreciation.................................................
Amortization of nuclear fuel...................................
Amortization of terminated construction project costs............
Amortization of property under capital leases...................
Allowance for other funds used during construction..............
Allowance for borrowed funds used during construction..........
Deferred income taxes........................................
Deferred investment tax credits, net............................
Loss on sale of West Virginia territory-pre-tax.................
Pre-tax gain on sale of Laurel Run Mining Company.............
Non-cash return on terminated construction project costs-pre-tax....................................................
Deferred fuel expenses........................................
Uranium settlement..........................................
Change in accounts receivable.................................
Change in accrued unbilled revenues...........................
Change in materials and supplies...............................
Change in accounts payable, trade.............................
Change in accrued expenses...................................
Increase in other (*)..........................................
Net Cash Flow From Operating Activities..........................
Cash Flow From Financing Activities:
Common stock...............................................
Preferred stock..............................................
Long-term debt..............................................
Short-term debt..............................................
Inter-company credit agreement...............................
Repayment of long-term debt and preferred stock................
Dividend payments...........................................
Principal payments of capital lease obligations...................
Other.......................................................
Net Cash Flow From Financing Activities..........................
Cash Flow From Investing Activities:
Utility plant expenditures (excluding AFC)......................
Nuclear fuel (excluding AFC)..................................
Pollution control project funds.................................
Nuclear fuel progress payments................................
Sales of nuclear fuel to lessor..................................
Notes receivable.............................................
Sale of West Virginia service territory..........................
Sale of Laurel Run Mining Company...........................
Sale of a portion of Bath County Pumped Storage Station........
Other.......................................................
Net Cash Flow From Investing Activities...........................
Increase (Decrease) in cash & cash equivalents......................
Cash and cash equivalents at beginning of year......................
Cash and cash equivalents at end of year...........................
1987 1986 1985
$455,855 293,612 47,930 57,349 29,740 (1,966)
(6,482) 106,216 1,993 3,784 (30,726)
(128,346)
(13,676)
(32,253)
(433)
(68,869)
(19,196)
(43,554) 17,771 668,749 79,990 175,000 491,170 41,804 (22,600)
(264,295)
(321,752)
(37,083)
(4,805) 137,429 (671,057)
(158,201) 9,508 (28,997) 25,982 4,814 23,013 623 731 (793,584) 12,594 (62,081)
(49,487)
(Thousands)
$427,753 268,991 56,282 57,363 49,682 (1,290)
(2,479) 135,689 (9,476)
(18,204)
(33,167)
(84,939)
(19,579) 2,826 (50,194) 55,659 22,643 41,252 (5,018) 893,794 57,482 60,000 848,615 (10,700)
(116,475)
(655,670)
(278,438)
(52,580) 38,822 (108,944)
(786,685)
(45,367) 8,979 (27,963) 62,120 4,815 5,000 (34,016)
(813,117)
(28,267)
(33,814)
$ (62,081)
$390,532 231,483 66,853 55,873 63,070 (35,964)
(32,536) 126,043 129,083 (35,445) 395 (27,064) 16,511 (19,575)
(5,685)
(17,898)
(92,758)
(85,194) 727,724 54,852 344,885 10,700 85,525 (309,375)
(298,484)
(55,155)
(434)
(167,486)
(616,934)
(62,414)
(37,726)
(36,536) 9,008 (1,936) 156,016 10,397 (580,125)
(19,887)
(13,927)
(33,814)
(*) Does not include reclassification as current liabilities of maturing long-term debt and cash sinking fund obligations of debt and preferred stock as follows: 1987-$150,663; 1986--$56,866; and 1985-$390,788.
(Continued) 21
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 obligations..
Retirements of capital leases 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:
1987
$314,028 202,029 26,299 106,385 623 4,000 4,000 1986 (Thousands)
$320,010 143,107 64,185 5,611 45,623 5,000 4,623 36,000 71,340 28,202 6,118 37,020 26,344 28,202 208 36,000 1985
$275,478 123,774 11,940 7,905 21,644 For purposes of 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.
22
VIRGINIA ELECTRIC AND POWER COMPANY STATEMENTS OF CAPITALIZATION Common stockholder's equity.....................................................
Preferred stock..................................................................
Less amounts due within one year-sinking fund obligations.........................
Total preferred stock...........................................................
Long-term debt:
First and refunding mortgage bonds (1):
Series N, 4.5%, due 1987.....................................................
P.C. Series A, 8.5%, due 1988................................................
Series 0, 3.875%, due 1988...................................................
1983 Series A, 10.5%, due 1988...............................................
Series P, 4.625%, due 1990...................................................
- Series Q, 4.875%, due 1991...................................................
1984 Series D, 11.5%, due 1991...............................................
Various series, 4.375%-15.75%, due 1993-1997..................................
Various series, 7.125%-12.5%, due 1998-2002...................................
Various series, 6.75%-12.85%, due 2003-2007...................................
Various series, 9.625%-10.25%, due 2008-2012..................................
Various series, 8.5%-9.875%, due 2013-2017....................................
Total first and refunding mortgage bonds.....................................
Other Jong-term debt:
Bank Joans, notes and term Joans:
Fixed interest rate, 6.85%-12.375%, due 1987-1997............................
Variable interest rate, due 1988 (2)...........................................
Pollution control financings:
Fixed interest rate, 5.625%, due 2002........................................
Money Market Municipals, due 2008-2017 (3).................................
Virginia Power Financing Trust (4)............................................
Inter-Company Credit Agreement (5)...........................................
Nuclear fuel financing (6).....................................................
Total other long-term debt..................................................
Less amounts due within one year:
First and refunding mortgage bonds............................................
Bank Joans, notes and term Joans..............................................
Sinking fund obligations (7)...................................................
Total amount due within one year...........................................
Less unamortized discount, net of premium......................................
Total long-term debt.......................................................
Total capitalization...............................................................
(Continued) 23 At December 31, 1987 1986 (Thousands)
$2,875,449 703,124 13,083 690,041 17,000 25,000 25,000 25,000 30,000 20,000 491,125 664,200 604,750 229,797 350,000 2,481,872 446,799 50,000 22,000 388,600 300,000 27,000 61,320 1,295,719 3,777,591 67,000 50,500 20,080 137,580 8,748 3,631,263
$7,196,753
$2,669,318 544,407 13,083 531,324 20,000 17,500 25,000 25,000 25,000 30,000 20,000 394,125 694,450 611,500 311,401 250,000 2,423,976 330,857 50,000 22,000 280,600 400,000 49,600 1,133,057 3,557,033 20,000 5,000 18,783 43,783 7,905 3,505,345
$6,705,987
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 are based 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 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 are limited to $400 million and have a maximum life of up to 5 years. The weighted average interest rate for 1987, including fees for supporting letters and lines of credit, for borrowings made through the Trust, amounted to 7.23%.
(5) Effective January l, 1985, the Company entered into an inter-company credit agreement with Dominion Resources. Under the terms of this agreement, which was amended and restated Septem-ber 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, 1989. Borrowings under the agreement are limited to $300 million. The weighted average interest rate for 1987 was 6.61%.
(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 and 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 1987, including bank facility fees, was 7.7%.
(7) $8,633,250 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 1988.
Maturities (including cash sinking fund obligations) through 1992 are as follows: 1988-
$150,663,400; 1989-$115,226,400; 1990-$157,776,400; 1991-$471,441,400; and 1992-$98,991,400.
The accompanying notes are an integral part of the financial statements.
24
NOTES TO FINANCIAL STATEMENTS A.
Corporate Restructuring:
The Company is a wholly-owned subsidiary of Dominion Resources, a Virginia corporation.
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 $6.1 million and a long-term note in the principal amount of $37.0 million were issued to the Company. The resulting 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 Domfoion 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 million 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. The financial statements include the accounts of the Company and VP Fuel, with all significant inter-company transactions and accounts being eliminated in consolidation.
B.
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 over it.
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 cost which includes labor, materials, services, appropriate allowance for funds used during construction 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 25
e retired and the cost of removal, less salvage, are charged to accumulated depreciation. The provision for depreciation is based on mean depreciable plant using the following rates:
Electric.........................
Gas..............................
1987 3.3%
Years 1986 3.3%
1985 3.4%
3.3 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 additions and replacements is charged to maintenance expense.
Based on the most recent decommissioning cost study completed in 1986, the present value of the future decommissioning costs for the Company's four nuclear units is approximately $665 million.
Through the end of 1987, the Company has collected and placed in trust approximately $42.7 million for future decommissioning costs. Funds collected in 1984-1987 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 additional funding of decommissioning obligations. Additional funds needed for decommis-sioning will be collected as approved by the jurisdictional regulatory commissions. Decommissioning collections Tecorded in 1987 amounted to approximately $15.9 million.
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 1983, the Company entered into a contract with DOE to dispose of fuel consumed prior to April 1983, as well as fuel consumed after that date based on an ongoing fee equivalent to 1.0 mill per kilowatt-hour of generation. This fee is presently being recovered from customers through existing rates. In June 1985, the Company made a one-time payment of $112.5 million to DOE for the fee assessed on fuel burned prior to April 1983.
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 are estimated to at least equal the value of contracts litigated had they been fully performed by Westinghouse. Settlement proceeds are applied to reduce fuel expenses to the extent that fuel expenses reflect higher costs as a result of the breached contracts.
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 aforementioned benefit 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 26
differences (with the exception of FERC jurisdictional operations) because they are not allowed for ratemaking purposes. As of December 31, 1987, the cumulative net amount of such timing differences was approximately $632 million. The tax effect of this amount is not being recorded currently, but such costs are expected to be reflected in rates when the timing differences reverse.
Accumulated 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, FASB issued SPAS No. 96. The new standard must be adopted by the Company no later than fiscal year 1989. Implementation of the standard may be accomplished by restating financial statements for prior periods and adjusting retained earnings at the beginning of the earliest year presented for the cumulative effect of the change. If financial statements for prior periods are not restated, the cumulative effect of the change would be reported in income of the current year. The objective of the new standard is to recognize the amount of current and deferred taxes payable and refundable for all events that have bee.n recognized in the financial statements based on enacted tax laws at the date of the financial statements.
SPAS No. 96 includes special provisions for the income taxes related to events subject to regulation. Those special provisions provide, in part, that certain adjustments to deferred income tax balances required by implementation of the standard will not impact income or retained. earnings in the case of regulated operations, but instead will result in the establishment of an account receivable from customers or an account payable due to customers. The Company has not yet determined 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 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. In accordance therewith, for 1987, 1986 and 1985 aggregate rates of 8.26%, 8.44% and 8.56%, respectively, were used for the accrual of AFC.
Substantially all of the Company's construction work in progress is now included in rate base, and a current cash return is collected thereon. Accordingly, the percent of non-cash AFC earnings to net income has declined significantly from 17.5% in 1985 to 1.9% in 1987.
Deferred Fuel:
Approximately 89% 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 future fuel-related revenues.
Beginning January 1, 1987, the Company began deferring capacity charges, not included in the fuel factor, in excess of the level of such charges included in base rates. In the current Virginia rate proceeding, the Company requested recovery of the deferred amount over a two-year period in base rates. Accordingly, effective September 14, 1987, the Company discontinued the deferral of capacity charges and began amortizing the balance over a two-year period on a straight-line method for accounting purposes. In the Hearing Examiner's Report issued on February 26; 1988*, it was recom-mended that a decision on the recovery of deferred capacity charges be postponed until a future time when 1987 operating data will be available to the Virginia Commission. A final decision frqm the Virginia Commission is pending.
Deferred Interest:
The Company charges to operations an interest cost associated with variable interest rate loans based on the interest rate ceiling stated in the loan agreements. Amounts paid 'in excess of the amounts charged to operations are deferred pending refund from the applicable lending institutions.
27
e Pollution Control Project Funds:
Pollution control project funds represent proceeds from the sale, for the benefit of the Company, of pollution control notes. These funds are placed in a trust until the Company requisitions from the trustee monies for the reimbursement of qualified project expenditures. Any interest income generated from the unused portion of such funds is capitalized as a credit against the recorded cost of such projects, during the construction phase of the project. Otherwise, the investment earnings are recorded as interest income.
Retirement Plan:
The Company participates in Dominion Resources' retirement plan (the Plan), a defined benefit plan. Effective January 1, 1986, the Company adopted SFAS No. 87 (see NOTE M TO FINANCIAL STATEMENTS).
Leases:
In 1987, the Company implemented certain provisions of SFAS No. 71, Accounting for the Effects of Certain Types of Regulation l' which require capitalization of certain leases whose inception was prior to January 1, 1983, in accordance with SFAS No. 13, "Accounting for Leases".
Reclassification:
Certain amounts in the 1986 and 1985 financial statements have been reclassified to conform to the 1987 presentation.
- . 28
e e
C.
Federal Income Taxes:
Details of federal income taxes are as follows:
Years 1987 1986 1985 (Thousands)
Current.....................................................
$132,609
$190,876
$ 57,948 Tax effects of timing differences:
Liberalized depreciation................................
80,649 84,956 63,912 Terminated construction project costs.................
(19,067)
(18,798)
(12,169)
Fuel related items:
Deferred fuel adjustment.............................
50,844 39,274 (261)
Nuclear fuel disposal costs...........................
179 1,010 Fuel expense-nuclear plant testing.................
295 321 321 Nuclear fuel-owned.................................
(362)
(264) 4,145 Virginia gross receipts taxes............................
(2,625)
(1,245)
(1,827)
Nuclear decommissioning costs........................
(4,563)
(592)
Indirect construction costs.............................
288 3,795 4,303 Cost of removal-property retirements................
3,120 5,079 6,539 Customer accounts reserve.............................
(11,932) 14/,735 (13,877)
Other.....................................................
8,431 (2,698)
(1,869) 105,257 125,573 49,217 Deferred investment tax credits:
Gross.....................................................
30,483 18,951 156,229 Amortization.............................................
(25,077)
(23,481)
(25,089)
Net deferred investment tax credits......................
5,406 (4,530) 131,140 Federal income tax expense-operating income........
243,272 311,919 238,305 Federal income tax expense-non-operating income-current.........................................
9,124 2,643 2,696
-deferred.......................................
2,969 15,638(*)
9,978 12,093 18,281 12,674 Total federal income tax expenses.......................
$255,365
$330,200
$250,979
(*) Includes primarily the deferred income taxes associated with the new method of accounting for terminated construction project costs (see Note D to FINANCIAL STATEMENTS) and the deferred income taxes on gains and losses on sales of property.
29
Total federal income tax expense differs from the amount computed by applying the statutory federal income tax rate to income for the following reasons:
Years 1987 1986 1985
% of
% of
% of Pre-tax Pre-tax Pre-tax Amount Income Amount.
Income Amount Income (Thousands, except percentages)
Computed federal ta:X expense at statutory rate on income (*).......... $284,132 39.9% $348,658 46.0% $295,095 46.0%
Increases (decreases) resulting from:
AFC....................................
(3,375)
(0.5)
(1,734)
(0.2)
(31,510)
(4.9)
Investment tax credits, amortization (26,590)
(3.7)
(23,481)
(3.1)
(25,089)
(3.9)
Other, net................................
1,198 0.2 6,757 0.9 12,483 1.9 (28,767)
(4.0)
(18,458)
(2.4)
(44,116)
(6.9)
Total federal income tax expense...... $255,365 35.9% $330,200 43.6% $250,979 39.1%
(*) Net income plus federal income taxes.
1986 and 1985 have been restated to reflect the effect on prior years of the new method of accounting for terminated construction project costs (see Note D to FINANCIAL STATEMENTS).
D.
Terminated Construction Project Costs:
Costs, net of taxes, incurred in connection with terminated construction projects are summarized as follows:
Unamortized Balance At Period of Net Costs December 31, Amortization Nuclear Unit Date Construction Terminated Incurred 1987 in Rates
. (Thousands) -
North Anna 3 November 1982
$387,583
$207,877
(*)
North Anna 4 November 1980 85,641 28,029 10 years Surry 3 & 4 March 1977 54,611 7,053 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 SFAS No. 90, "Regulated Enterprises-Accounting for Abandonments and Disallowances of Plant Costs" and restated prior years. SFAS No.
90, which 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 recognized as a loss. Accordingly, because no juri~diction has permitted a cash return to be earned on the unamortized balance of terminated construction project costs, these costs have been restated to their discounted value using incremental debt rates and financial results are lower in the years plants were cancelled. Balance available for Common Stock is higher in subsequent years 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 non-cash return on s.uch costs using the rate at which the expected revenues were discounted. The adoption of SFAS No. 90 had the effect of increasing balance available for Common Stock for the twelve months ended December 31, 1986 and 1985 by $14.0 million and $9.6 million, net of associated taxes of $12.0 million and $8.2 million, respectively.
30
e In 1987, FASB issued FASB Technical Bulletin No. 87-2, "Computation of a Loss on an Abandonment" which changed the method of computing the present value of future revenues authorized by regulators to recover the cost of terminated 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 $21.3 million in associated taxes) resulted in a decrease in earnings reinvested in business of $27.0 million on January 1, 1985. These changes increased balance available for Common Stock for the 12 month period ended December 31, 1987, 1986 and 1985 by $3.8 million, $5.4 million and $11.5 million, net of associated taxes of $2.6 million, $4.3 million and $9.0 million, respectively.
E.
Supplementary Income Statement Information:
The amounts of royalties and advertising costs were not significant. Taxes other than federal income taxes charged to expenses were as follows:
.\\
Real estate and property....................................
State and local gross receipts..............................
Payroll related...............................................
Other.........................................................
Total.........................................................
F.
Leases:
1987
$ 51,746 87,410 24,756 14,051
$177,963 Years 1986 (Thousands)
$ 49,292 84,553 22,281 13,590
$169,716 1985
$ 40,370 79,798 19,998 14,080
$154,246 The Company has leases for certain property and equipment that meet the criteria for capitalization under the provisions of SFAS No. 13, 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. Under those provisions, leases effective prior to 1983 were accounted for as operating leases through 1986 in accordance with the ratemaking procedures then in effect. All such leases, however, have been retroactively classified in accordance with SFAS No. 13, as amended. The recording of capital leases did not have any effect on the Company's net income or stockholder's equity.
Plant and property under capital leases at December 31, 1987 and December 31, 1986 included the following:
Nuclear fuel (1)..............................................................
Combustion turbines........................................................
Office buildings (2)..........................................................
Data processing equipment.................................................
Total plant and property under capital leases...........................
Less accumulated amortization.............................................
Net plant and property under capital leases...............................
1987 1986 (Thousands)
$42,601 40,827 4,554 87,982 33,854
$54,128
$198,425 42,601 42,027 4,554 287,607 114,778
$172,829 (1) In October 1987, the Company terminated several heat supply contracts for nuclear fuel used at its Surry Power Station that qualified as capital leases. The assets and liabilities associated with those contracts are reported on the restated balance sheet as of December 31, 1986. Upon 'termination of these heat supply contracts, the nuclear fuel subject to the contracts was acquired by VP Fuel (see Note A to FINANCIAL STATEMENTS).
31
e (2) 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 $30.5 million and $31.1 million at December 31, 1987 and 1986, respectively. Rental payments for such lease for the twelve months ended December 31, 1987, 1986 and 1985 were $3.0 million for each of the three years.
The Company is responsible for expenses in connection with the nuclear fuel, 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, 1987, are as follows:
1988.....................................................................
1989......................... * * * * *. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
- 1990. ************................................................ ********
1991.................................................................. * *
- 1992........ ******....... *********........................................
After 1992..............................................................
Total future minimum lease payments................................
Less interest element included above................................
Present value of future minimum lease payments...................
Capital Leases Operating Leases (Thousands)
$10,453
$ 6;125 10,183 3,604 10,048 2,345 10,048 1,013 3,603 463 47,867 5,926 92,202
$19,476 36,542
$55,660 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:
Interest on capital lease obligations...............
Amortization of property under capital leases....
Rental expense relating to capital leases..........
Rental expense relating to operating leases.......
Less: sublease rentals..............................
Total.................................................
G.
Jointly Owned Plants:
1987
$ 9,949 40,183 50,132 11,218 52
$61,298 1986 (Thousands)
$11,544 51,376 62,920 8,087 319
$70,688 1985
$15,049 54,139 69,188 7,105 1,159
$75,134 The following information relates to the Company's proportionate share of jointly owned plants at December 31, 1987:
Ownership interest........................................
Utility plant in service....................................
Accumulated depreciation................................
Construction work in progress...........................
Bath County Pumped Storage Station 60.0%
(Thousands)
North Anna Power Station 88.4%
$1,061,917
$1,952,189 43,834 726,412 7,063 142,934 In 1983, the Company sold to ODEC an 11.6% ownership interest in its North Anna Power Station, including nuclear fuel, common facilities at that station, and a portion of spare parts, inventory and other support facilities.
32
e In 1982, the Company sold to AGC approximately a 20% undivided interest in the Bath County Pumped Storage Station. In 1984, AGC exercised its option to increase its ownership interest from the initial 20% to 40%.
ODEC and AGC 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.
H.
Preferred Stock Subject to Mandatory Redemption:
Preferred Stock Subject to Mandatory Redemption, $100 liquidation preference, at December 31, 1987, was represented by the following:
Entitled Per Share Upon Voluntary Liquidation Redemption Authorized and Outstanding Dividend Shares Amount Through
$ 7.30 500,000
$107.30 4/15/93 7.325 588,000 103.00 3/31/88 7.58 600,000 107.58 6/19/92 8.40 672,000 104.76 3/31/88 8.20 450,000 104.10 9/20/88 8.60 276,100 105.00 12/19/92 8.625 277,500 105.40 6/20/88 8.925 227,500 106.55 9/20/88 10.25
- 250,000 104.00 4/20/89 3,84L}OO Less shares due within one year 130,834 Total 3,710,266 (a) 15,000 shares annually commencing in June 1992.
(b) 120,000 shares annually commencing in June 1992.
And thereafter To Amounts Declining In Steps To
$100.00 after 4/15/02 101.00 thereafter 100.00 after 6/19/93 100.00 after 3/31/04 100.41 after 9/20/96 100.00 after 12/19/97 100.00 after 6/20/02 100.00 after 9/20/09 IO I. 00 after 4/20/90 Annual Sinking Fund Requirements at $100 per share Shares (a) 28,000 (b) 32,000 30,000 11,834 18,500 10,500 (c)
(c) 50,000, 150,000 and 50,000 shares in April of 1989, 1990 and 1991, respectively.
Maturities through 1992 are as follows: 1988-$13,083,400; 1989-$18,083,400; 1990-$28,083,400; 1991-$18,083,400; and 1992-$26,583,400.
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.
In 1986, 600,000 shares of$7.58 Dividend Preferred Stock were issued, 160,000 shares of the $9.125 Dividend Preferred Stock were redeemed and the Company made optional sinking fund redemptions 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 a $100 per share plus accrued dividends. Dividends are cumulative.
33
e I.
Preferred Stock Not Subject to Mandatory Redemption:
Preferred Stock Not Subject to Mandatory Redemption, $100 liquidation preference, at Decem-ber 31, 1987, was represented by the following:
Authorized and Outstanding Dividend Shares
$5.00 106,677 4.04 12,926 4.20 14,797 4.12 32,534 4.80 73,206 7.72 350,000 7.45 400,000 7.20 450,000 7.72 (1972 Series) 500,000 Money Market Preferred (Jan. 1987 Series) (*)
500,000 Money Market Preferred (June 1987 Series) (*)
750,000 Total 3,190,140 Entitled Per Share Upon Voluntary Liquidation Redemption Amount
$112.50 102.27 102.50 103.73 101.00 101.50 101.00 101.00 101.00 102.00 103.00 Through 1/21/89 6/22/88 And Thereafter To Amounts Declining In Steps To
$100.00 after 1/21/90 100. 00 after 6/22/90
(*) Dividend rates are variable and are set every 49 days via an auction process. The combined weighted average rate for these series in 1987, including fees for broker/dealer agreements, was 5.5%.
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, respectively.
J.
Common Stock:
Common Stock was represented by 140,788 shares outstanding at December 31, 1987 (150,000 shares authorized). An amendment to the Company's Articles of Incorporation 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 for one thousand basis and amounts representing fractional shares were paid in cash.
- During the years 1985 through 1987, the following changes in Common Stock occurred:
Years 1987 1986 1985 Shares Shares Shares Outstanding Amount Outstanding Amount Outstanding Amount Balance at January I.....
136,885
$1,980,015,405 132,779,136
$1,895,353,469 128,948,469
$1,818,021,690 Conversion of Debentures..........
1,254,483 26,344,143 1,030,667 21,644,007 Transfer from Other Paid-in Capital.......
835,772 835,772 835,772 Reverse Stock Split (I for 1000)..........
(133,899,586)
Cash for Fractional Shares..............
(16,352)
Issuance to Dominion Resources...........
3,903 79,990,229 2,852 57,498,373 2,800,000 54,852,000 Balance at December 31..
140,788
$2,060,841,406 136,885
$1,980,015,405 132,779,136
$1,895,353,469 34
K.
Short-Term Debt:
1987 Nuclear fuel financing........
Pollution control notes.......
Total......................
1986 Pollution control notes.......
Total..............,........
1985 Pollution control notes.......
Total......................
(a) Weighted average.
(b) Maximum 270 days.
Year End Interest Maturity
- Amount, Rate(a) e Daily Average Outstanding Amount Interest Rate(a)
(Thousands, except percentages)
(b)
(d)
(d)
(d)
$42,304
$42,304 500 500
$11,200
$11,200 7.50%
(c)
$ 661 5.25%
$8,767 5.51%
$2,996 (c) 4.61%
5.00%
5.14%
Maximum Outstanding (c)
$ 1,000
$11,700
$14,750 (c) The total amount of commercial paper outstanding under this arrangement at December 31, 1987 was $103.6 million, including $61.3 million classified as other long-term debt in the financial statements (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 1988.
(d) Maximum 364 days.
L.
Effect of Rate Changes on Operating Revenues:
During 1987, the Company obtained rate relief of approximately $68.2 million on an annualized basis from the applicable state commissions, PERC and non-jurisdictional customers.
Rate changes, exclusive offuel cost recovery, which became effective for portions of 1986 and 1985 increased operating revenues, net of the revenue refund reserve, by $9.3 million and $15.4 million, respectively. On September 14, 1987, the Virginia Commission placed the Coinpany's existing rates in an interim status, subject to refund pending a final decision in the case. As a result, the Company began reserving revenues which should be sufficient to cover refunds subsequently ordered (see Item 1, BUSINESS-RATES).
M.
Retirement Plan and Post Retirement Benefits:
The Plan covers virtually all employees of the Company. 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 SPAS No. 87. Adoption of SPAS 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 accordance with the provisions of SPAS No. 87, prior year amounts have not been restated. Costs under the Plan for 1985 were $18.7 million.
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. Health insurance, 35 I
/
I I
benefits are provided through an insurance company with annual premiums based on benefits paid during the year. The Company recognizes the cost of providing health insurance benefits by expensing the annual insurance premium. Premiums attributable to the approximately 1,900 retirees amounted to $2. 7 million in 1987. Life insurance benefits for retirees are also provided through an insurance company.
N.
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 $740 million (excluding AFC) for 1988. Additional financing is contemplated in connection with this program.
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 AEP for the purchase of 500 Mw of electricity during 1987-99. The AEP agreement also provides for the transmission of the power purchased from Hoosier. In December 1987, the Company committed to power purchases from the Allegheny Power System covering the period January 1, 1988 through December 31, 1989, with a minimum purchase of 200 Mw and weekly options to purchase an additional 200 Mw. The Company also has contracts with 35 qualifying facilities, as defined under PURPA, for 335 Mw of electricity from generating facilities that are either operational or under construction. The duration of such contracts varies, with the last one expiring in 2027. Under the terms of all of the above-mentioned contracts, the Company is committed to certain payments, and has the option to purchase additional energy, in the amounts estimated below:
Year 1988...............................................
1989...............................................
1990.........,.....................................
1991...............................................
1992...............................................
Commitment
$316.8 352.7 363.3 376.6 387.8 (Millions)
Optional
$ 94.3 102.1 76.4 81.7 86.4 Payments for which the Company is committed under the above contracts subsequent to 1992 are estimated to total $3. 7 billion, subject to adjustment under the terms of such contracts. Payments under these contracts for the years 1987, 1986 and 1985 were $300.1 million, $205.3 million and $186.8 million, respectively.
In 1987, the Company signed agreements for the purchase of 1,178 Mw of additional capacity from six qualifying facilities as defined under PURPA. The Company's commitments under the agreements, however, are conditioned upon the accomplishment of certain milestones by the suppliers, including obtaining required financing and construction of the generating facilities. Accordingly, no amounts related to these agreements are included in the table above.
Coal and Uranium Purchases:
The Company has unconditional purchase obligations to procure coal and uranium for system generation as follows (millions): 1988-$207.7; 1989-$177.4; 1990---$143.5; 1991-$84.7; and 1992-
$88.7.
Nuclear Insurance:
The 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 $720 million as of December 31, 1987. The Company has purchased the maximum private insurance available of $160 million per nuclear plant site and the balance is provided by a system of retrospective assessments on licensees. In the event of a nuclear incident at any nuclear plant in the United States, each licensee, including the Company, would be subject to a one-time assessment of up to $5 million per incident for each licensed reactor it owns, with a maximum 36
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assessment of $10 million per reactor in any one year. The Price-Anderson Act expired on August 1, 1987. The Company's public liability in the case ofa nuclear incident will continue to be determined by the provisions of the Price-Anderson Act as in effect prior to its expiration until Congress enacts successor legislation. Proposed legislation passed by the U.S. House of Representatives, but not yet acted upon by the Senate, would renew the Price-Anderson Act and significantly raise the limits of liability imposed by it. Under the proposed law, the limit for public liability incurred by an owner of a nuclear plant for a single nuclear incident at such plant would increase from $720 million to approximately $7 billion and the aggregate retrospective assessment that could be imposed upon the Company, as a licensee of four nuclear plants, would increase from $20 million to $40 million per year for up to 6.3 years.
Effective January 1, 1988, the nuclear liability insurers amended their policies to exclude claims by nuclear workers first employed after January I, 1988. Claims by these workers are now covered under a new policy in effect from January I, 1988 through December 31, 1992 and including a discovery period for claims through December 31, 1997. The new policy has a limit of coverage for the nuclear industry of $160 million and is subject to one automatic reinstatement of $160 million, making a total of $320 million available to the nuclear industry. Under the new policy, the Company is subject to a potential retrospective premium assessment of up to $2.6 million for each nuclear reactor itlowns.
The Company carries additional insurance with Nuclear Electric Insurance Ltd. (NEIL), a company established to insure the United States nuclear utility industry, to cover the cost of replacement power during prolonged outages of a nuclear unit due to direct physical damage of that unit.
The Company is contingently liable for a retrospective premium assessment of up to 5 times the current annualized premium for any policy year in which claims paid by NEIL exceed its accumulated funds for this type of coverage. The premium for the policy year ending September 15, 1988 is $2.6 million.
The Company carried approximately $1.4 billion in property insurance at December 31, 1987, the maximum available. This coverage is provided by various underwriters through several different policies. Under one of the policies underwritten by Nuclear Mutual Limited (NML), a company established to insure the United States nuclear utility industry, which provides $500 million per site primary coverage, the Company is contingently liable for a retrospective premium assessment of up to 10 times the current annualized premium for any policy year in which claims paid by NML exceed its accumulated funds for this type of coverage. The premium for the policy year ending April I, 1988 is
$4.5 million.
Under another of the policies underwritten by NEIL, which provides $775 million excess property coverage at December 31, 1987, the Company is contingently liable for a retrospective premium assessment of up to 7.5 times the current annualized premium for coverage of $500 million for any policy in which claims paid by NEIL exceed its accumulated funds for this type of coverage. The premium for coverage of $500 million for the policy year ending November 15, 1988 is $2.3 million. The $775 million NEIL excess property coverage requires that the proceeds be used for decontamination prior to their use for property coverage.
For any property losses in excess of the $1.4 billion property coverage, the Company assumes the financial responsibility for the losses. In addition, to the extent that funds would be unavailable for property coverage because they must be used for decontamination as required by the NEIL excess property insurance policy, the Company would assume the financial responsibility for the losses.
A new NRC rule 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 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. Although the Company currently maintains more than the required property insurance, it is examining, along with other similarly situated utilities and their insurers, the alternatives for implementing the stabilization, decontamination and special trust provisions, which must be incorporated into insurance policies by October 4, 1988. Regardless of the reasons by which this new NRC rule is implemented, the effect of the rule will be to prevent the use of 37
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insurance proceeds for the rebuilding of damaged 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.
As part owner of the North Anna Power Station, ODEC is responsible for its proportionate share (11.6%) of the insurance premiums applicable to that station, including any retrospective premium assessments.
Chisman Creek Superfund Cleanup:
See Item 3, LEGAL PROCEEDINGS-Water Quality Control.
- 0. Quarterly Financial Data (Unaudited):
The following amounts (not.examined by independent certified public accountants) reflect all adjustments, consisting of only normal recurring accruals, necessary in the opinion of the management for a fair statement of the results for the interim periods.
Operating Operating Balance Available for Quarter Revenues Income Common Stock 1987 (Thousands) 1st........ =.............
$770,726
$196,406
$118,412 2nd..........................
713,545 158,355 75,832 3rd..........................
882,761 226,867 142,455 4th**************************
711,148 155,817 69,961 1986 1st........ =.............
$751,336
$176,762
$ 93,710 2nd..........................
673,292 149,977 65,772 3rd..... *.....................
782,365 194,842 127,820 4th..........................
753,099 171,850 92,859 Results for interim periods may fluctuate as a result of weather conditions, rate relief and other factors.
In the fourth quarter of 1987, the Company adopted the provisions of FASB Technical Bulletin No.
87-2. Operating income in the first, second and fourth quarter of 1987 increased by $0.1 million, $0.8 million and $0.1 million, respectively. Operating income in the third quarter decreased by $0.9 million and in 1986, operating income iri the first, second, third and fourth quarters. increased by$0.4 million,
$0.4 million, $0.3 million and $0.4 million, respectively. Balance available for Common Stock in the first, second, third and fourth quarters of 1987 increased by $0.9 million, $1.7 million, $0.2 million and
$1.0 million, respectively and in 1986, balance available for Common Stock was increased by $1.5 million, $1.4 million, $1.2 million and $1.3 million in the first, second, third and fourth quarters, respectively (see Note D to FINANCIAL STATEMENTS).
In the fourth quarter of 1986, the Company adopted the provisions of SPAS No. 87, which was applied as of January 1, 1986 (see Note M to FINANCIAL STATEMENTS). As a result, operating income and balance available for Common Stock in the first, second, third and fourth quarters of 1986 increased by $1.9 million, $1.9 million, $1.8 million and $1.7 million, respectively.
In the fourth quarter of 1986, the Company adopted the provisions of SPAS No. 90 (see Note D to FINANCIAL STATEMENTS). As a result of the adoption, balance available for Common Stock increased by $3.5 million in each quarter of 1986.
In September 1986, the Company's wholly-owned subsidiary, Laurel Run Mining Company, was acquired by a wholly-owned subsidiary of Occidental Petroleum Corporation, which resulted in an increase in balance available for Common Stock of $11.9 million.
In December 1986, the Company refined the methodology used to calculate unbilled revenues which resulted in an increase in balance available for Common Stock of $24.1 million.
38
Col. A e
VIRGINIA ELECTRIC AND POWER COMPANY SCHEDULE IV-INDEBTEDNESS OF AND TO RELATED PARTIES-NOT CURRENT For the years ended December 31, 1987, 1986 and 1985 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 R~sources:
1987............ *,*..
1986................
1985................
Balance at Beginning Additions Deductions Balance Balance at at End Beginning (Thousands)
$ 49,600
$166,075
$ 80,550 See Note (5) to the Statements of Capitalization included herein.
39 Balance Additions Deductions at End
$1,096,000
$1,118,600
$ 27,000
$1,310,700
$1,427,175
$ 49,600
$1,205,378
$1,119,853
$166,075
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SCHEDULE V VIRGINIA ELECTRIC AND POWER COMPANY SCHEDULE V-PROPERTY, PLANT AND EQUIPMENT' For the year ended December 31, 1987 Col. A Col. B Col. C Col. D Col. E Other Balance at Changes Beginning Additions Retirements Add Classification of Period at Cost or Sales (Deduct)
(Thousands)
Utility plant:
Electric plant:
In service:
Intangible......................
18,661 18,263 698 Production......................
4,962,922 450,380 33,953 319 Transmission...................
905,481 19,305 5,070 387 Distribution.....................
2,158,666 309,129 62,413 (496)
General........................
279,892 152,490 13,779 14 Total electric plant in service...
8,325,622 949,567 115,913
- 224 Construction work in progress......
766,350 671,891 (949,567)(a)
Held for future use................
861 3,189 Electric plant acquisition adjustment......................
42,063 715 Total electric plant............
9,134,896 1,624,647 115,913 (948,628)
Nuclear fuel........................
545,344 44,099 131,309 (b)
Total utility plant..............
$9,680,240
$1,668,746
$115,913
$ (817,319)
Non-utility property...................
7,999
$ (1,690)
Capital leases:
Nuclear fuel........................
$ 198,425 26,299
$224, 724(b)
Other..............................
89,182 I,200(c)
Total capital leases............
$ 287,607 26,299
$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 I 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 suppI°y 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 A to FINANCIAL STATEMENTS).
(c) The Herndon District office building was repurchased on June 30, 1987.
40
e VIRGINIA ELECTRIC AND POWER COMPANY SCHEDULE V-PROPERTY, PLANT AND EQUIPMENT For the year ended December 31, 1986 Col. A Col. B Col. C Col. D Col. E Other Balance at Changes Beginning Additions Retirements Add Classification of Period at Cost or Sales (Deduct)
(Thousands)
Utility plant:
Electric plant:
In service:
Intangible......................
18,113 8,908
$ 8,360 Production......................
4,907,273 72,120 10,335
$ (6,136)
Transmission...................
876,008 31,682 2,623 414 Distribution.....................
1,928,777 219,469 23,294 33,714 General........................
250,470 39,672 10,176 (74)
Total electric plant in service...
7,980,641 371,851 54,788 27,918 SCHEDULE V Col. F Balance at End of Period 18,661 4,962,922 905,481 2,158,666 279,892 8,325,622 Construction work in progress......
444,905 693,296 (371,851)(a) 766,350 Held for future use................
1,342 (481) 861 Electric plant acquisition adjustment......................
(2,731) 44,794 42,063 Total electric plant............
8,424,157 1,065,147 54,788 (299,620) 9,134,896 Gas plant:(b)
In service:
Production......................
7,267 (7,267)
Distribution.....................
84,923 6,886 (88)
(91,897)
General........................
12,998 626 65 (13,559)
Total gas plant in service.......
105,188 7,512 (23)
(112,723)
Construction work in progress......
4,760 7,871 (12,631)
Total gas plant................
109,948 15,383 (23)
(125,354)
Nuclear fuel........................
499,978 48,974 3,616 8
545,344 Total utility plant..............
$9,034,083
$1,129,504
$58,381
$(424,966)
- $9,680,240 Non-utility property...................
10,300
$ (2,301) 7,999 Capital leases:
Nuclear fuel........................
$ 195,996 64,185
$61,756
$ 198,425 Other....................... *.......
97,737 8,555 89,182 Total capital leases............
$ 293,733 64,185
$70,311
$ 287,607 (a) Includes $219.5 million of distribution projects primarily resulting from new customer connections in 1986.
(b) The gas division was transferred to a new corporation, VNG, on July I, 1986 (see Note A to FINANCIAL STATEMENTS).
41
SCHEDULE V VIRGINIA ELECTRIC AND POWER COMPANY SCHEDULE V-PROPERTY, PLANT AND EQUIPMENT For the year ended December 31, 1985 Col. A Col. B Balance at Beginning Classification of Period Utility plant:
Electric plant:
In service:
Intangible......................
15,853 Production......................
3,675,179 Transmission...................
747,217 Distribution.....................
1,756,968 General........................
170,780 Total electric plant in service...
6,365,997 Construction work in progress......
1,545,940 Held for future use................
13,397 Capital leases.....................
1,694 Purchased or sold.................
26 Electric plant acquisition Adjustment.....................
Total electric plant............
7,927,054 Gas plant:
In service:
Production......................
5,239 Distribution.....................
74,901 General........................
11,839 Total gas plant in service.......
91,979 Construction work in progress......
5,863 Total gas plant................
97,842 Common utility plant:
In service:
Intangible......................
545 General........................
27,713 Total common utility plant in service.....................
28,258 Construction work in progress......
4,361 Total common utility plant.....
32,619 Nuclear fuel........................
437,139 Total utility plant..............
$8,494,654 Non-utility property...................
10,919 Capital leases:
Nuclear fuel........................
$ 220,995 Other..............................
97,737 Total capital leases............
$ 318,732 Col. C Additions at Cost 2,353 1,249,040 128,091 188,940 52,863 1,621,287 520,550 2,509 2,144,346 2,028 10,758 1,267 14,053 12,950 27,003 351 2,440 2,791 639 3,430 62,839
$2,237,618 3,828 11,940 11,940 Col. D Retirements or Sales (Thousands) 352 16,076 890 17,431 2,897 37,646 37,646 736 108 844 844 332 332 332
$38,822 II
$36,939
$36,939 (a) The Bath County Pumped Storage Station was placed into service in December 1985.
(b) Amount reclassified to electric plant.
42 Col. E Other Changes Add (Deduct) 259 (870) 1,590 300 29,724 31,003 (1,621,585)(a)
(14,564)
(1,694)
(26)
(2,731)
(1,609,597)
(14,053).
(14,053)
(896)
(29,821)
(30,717)
(5,000)
(35,717)(b)
$( 1,659,367)
(4,436)
Col. F Balance at End 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
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, 1987, 1986 and 1985 Col. A Description 1987 Accumulated depreciation and amortization of electric plant...
Accumulated amortization of capital leases:
Nuclear fuel................
Other......................
Total....................
Accumulated amortization of nuclear fuel..................
1986 Accumulated depreciation and amortization of utility plant:
Electric plant...............
Gas plant(a)................
Total....................
Accumulated amortization of nuclear fuel..................
Accumulated amortization of capital leases:
Nuclear fuel................
Other......................
Total....................
1985 Accumulated depreciation and amortization of utility plant:
Electric plant...............
Gas plant..................
Common utility plant........
Total....................
Accumulated amortization of nuclear fuel..................
Accumulated amortization of capital leases:
Nuclear fuel................
Other......................
Total....................
Col. B Balance at Beginning of Period
$2,085,648 87,516 27,262
$ 114,778
$ 366,153
$1,888,440 30,827
$1,919,267
$ 309,871 96,634 30,265
$ 126,899
$1,695,546 28,182 4,054
$1,727,782
$ 243,019 77,153 23,625
$ 100,778 Col. C Additions Charged to Costs and Expenses
$345,642
$ 31,497 5,586
$ 37,083
$ 43,392
$265,014 2,061
$267,075
$ 56,282
$ 47,028 5,552
$ 52,580
$224,090 3,297 1,666
$229,053
$ 66,852
$ 48,514 6,640
$ 55,154 Col. D Retirements (Thousands)
$119,013 526
$119,539
$46,175 (23)
$46,152
$56,146 8,555
$64,701
$37,252 845 332
$38,429
$29,033
$29,033 Col. E Other Changes Add (Deduct)
$ 33,623
$ 1,532
$ 1,532
$17,176
$(21,631)
(32,911)
$(54,542)
$ 6,056 193 (5,388)(b)
$861 (a) The gas division was transferred to VNG on July I, 1986 (see Note A to FINANCIAL STATEMENTS).
(b) Amount reclassified to electric plant.
Note:
Col. F Balance at End of Period
$2,350,065 33,854 33,854
$ 426,721
$2,085,648
$2,085,648
$ 366,153 87,516 27,262
$ 114,778
$1,888,440 30,827
$1,919,267
$ 309,871 96,634 30,265
$ 126,899 Provision for depreciation of automobiles and trucks is charged to transportation expense clearing account and redistributed to operation expense, utility plant and other accounts.
43
SCHEDULE VIII VIRGINIA ELECTRIC AND POWER COMPANY SCHEDULE VIII-VALUATION AND QUALIFYING ACCOUNTS AND RESERVES For the years ended December 31, 1987, 1986 and 1985 Col. A Description Reserves deducted from assets to which they apply:
1987 Doubtful accounts........
Non-utility property......
1986 Doubtful accounts........
Non-utility property......
1985 Doubtful accounts........
Non-utility property......
Col. B Balance at Beginning of Period Col. C Additions Charged to Charged to Costs and Other Expenses Accounts (Thousands)
(a) Uncollectible accounts written-off, less recoveries.
Col. D Deductions
$3,083(a)
$ 818(b)
$ 632(a)
$2,136(a)
$3,732(c)
Col. E Balance at End of Period (b) Represents transfer of accumulated depreciation relating to the sale of the Twelveth Street Substation to Dominion Lands, Inc., a wholly-owned subsidiary of Dominion Resources.
(c) Represents accumulated depreciation relating to the Reeves Avenue Power Station retired in July 1985.
44
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The Board of Directors has designated new independent certified public accountants to audit the financial statements of the Company for 1988. See the Company's Form 10-Q for the quarter ended September 30, 1987, Certifying Accounts and Exhibit 16 thereto, incorporated herein by reference.
PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) Information concerning directors of Virginia Electric and Power Company is as follows:
Name and Age William W. Berry (55)
Jack H. Ferguson (56)
John B. Adams, Jr. (43)
Anna Ruth Inskeep (62)
Dr. Allix B. James (65)
Shirley S. Pierce (64)
William G. Thomas ( 48)
Principal Occupation for Last 5 Years, Directorships in Public Corporations Chairman of the Board of Directors* of Virginia Elec-tric 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; from January I, 1983 to May I, 1985, President and Chief Executive Officer of Do-minion Resources and Virginia Electric and Power Company; prior to January I, 1983 President and Chief Operating Officer of Virginia Electric and Power Company). He is a Director of Dominion Re-sources, Sovran Financial Corporation, l;_thyl Cor-poration and Universal Corporation.
President and Chief Executive Officer of Virginia Electric and Power Company (from May 1, 1985 to July I, 1986, President and Chief Operating Officer of Dominion Resources and Virginia Electric and Power Company; prior*'to May 1, 1985, Executive Vice President and Chief Operating Officer of Vir-ginia Electric and Power Company). He is a Direc-tor of Central Fidelity Banks, Inc. and Dominion Resources.
Vice President and Director of A. Smith Bowman Distillery, Inc., Fredericksburg, Virginia, a manu-facturer and bottler of alcoholic beverages.
Battle Park Farms, Rapidan, Virginia, a dairy farm and milk hauling business. She is involved in nu-merous civic activities.
Chancellor of Virginia Union University, Richmond, Virginia, January 1, 1986 to date (prior to Janu-ary 1, 1986 President Emeritus and Henderson-Griffith Professor of Pastoral Theology). He is a Director of Consolidated Bank & Trust Company.
Chairman of the Board and President of The Ahoskie Fertilizer Company, Inc., Ahoskie, North Caro-lina, a manufacturer and distributor of fertilizer and agricultural products. He is a Director of Planters National Bank and Trust Company.
President of Hazel, Thomas, Fiske, Beckhorn &
Hanes, P.C., Alexandria, Virginia, a law firm. He is a Director of Perpetual Savings Bank, F.S.B.
45 Year First Elected a Director 1980 1985 1987 1987 1971 1972 1'987
\\
Each Director holds office until the next Annual Meeting of Shareholders or until his successor is duly elected.
(b) Information concerning the executive officers of Virginia Electric and Power Company is as follows:
Name and Age Business Experience Past Five Years William W. Berry (55)
Chairman of the Board of Directors, July 1, 1986 to date; Chairman of tbe Board of Directors and Chief Executive Officer, May 1, 1985 to July 1, 1986; President and Chief Executive Officer prior to May 1, 1985.
Jack H. Ferguson (56)
President and Chief Executive Officer, July 1, 1986 to date; Presi-dent and Chief Operating Officer, May 1, 1985 to July 1, 1986; Executive Vice President and Chief Operating Officer prior to May 1, 1985.
John I. Oatts (58)
Executive Vice President-Staff, January 1, 1986 to date; Execu-tive Vice President-Operations, May 1, 1985 to January 1, 1986; Senior Vice President-Power Operations prior to May 1, 1985.
Robert F. Hill (52)
Senior Vice President-Commercial Operations, April 1, 1984 to date; Vice President-Personnel prior to April 1, 1984.
Ronald H. Leasburg (54)
Senior Vice President-Engineering and Construction and Power Operations, January 1, 1988 to date; Senior Vice President-En-gineering and Construction, July 1, 1983 to January 1, 1988; Vice President-Power Station Construction prior to July 1, 1983.
James T. Rhodes (46)
Senior Vice President-Finance, January 1, 1988 to date; Senior Vice President-Power Operations, May l, 1985 to January 1, 1988; Vice President-Personnel, April 1, 1984 to May 1, 1985; Vice President-Administrative Services prior to April 1, 1984.
John A. Ahladas (45)
- Vice President-Engineering, April 1, 1985 to date; Manager, Maintenance and Performance Services prior to April 1, 1985.
Tyndall L. Baucom (46)
Vice President-Procurement, March 1, 1986 to date; Vice Presi-dent-Fossil and Hydro Operations prior to March 1, 1986.
William H. Blackwell, Jr. (58)
Vice President-Eastern Division.
William R. Cartwright (45)
Vice President-Fossil and Hydro, March 1, 1986 to date; Manager Maintenance and Performance Services, June 1, 1985 to March 1, 1986; Manager Nuclear Operations Support, March 19, 1983 to June 1, 1985; Station Manager Nuclear prior to March 19, 1983.
James T. Earwood, Jr. (44)
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.
Paul G. Edwards (49)
Vice President-Public Affairs.
James R. Frazier, Jr. (46)
Vice President-Southern Division, July 1, 1985 to date; Manager Community and Government Affairs, June 1, 1983 to July 1, 1985; Manager, Public and Employee Information prior to June 1, 1983.
46
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Name and Age Business Experience Past Five Years Donald T. Herrick, Jr. (44)
Vice President-Information Systems, April 1, 1985 to date; Exec-utive Manager, Management Information Services, September 1, 1983 to April 1, 1985; Manager, Corporate Compensation Ser-vices prior to September l, 1983.
Charles M. Jarvis (59)
Vice President-Regulation.
B. D. Johnson (55)
Vice President and Controller.
Horace A. Keever, Jr. (56)
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.
Randolph D. Mciver (57)
Vice President-Northern Division, April 1, 1984 to date; Vice President-Southern Division prior to April 1, 1984.
Irene M. Moszer (44)
Vice President-Administrative Services, April 1, 1984 to date; Manager-Corporate Compensation Services, September 1, 1983 to April 1, 1984; District Manager-East Richmond prior to Sep-tember 1, 1983.
Thomas J. O'Neil (45)
Vice President-Western Division, May l, 1985 to date; District Manager-Peninsula, September l, 1983 to May 1, 1985; Execu-tive Manager, Management Information Services prior to Sep-tember 1, 1983.
Linwood R. Robertson (48)
Vice President, Treasurer and Corporate Secretary, June 1, 1985 to date; Corporate Secretary prior to June 1, 1985.
William W. Slayton (54)
Vice President-Central Division, September 1, 1986 to date; Vice President-Human Resources, May 1, 1985 to September 1, 1986; Vice President-Western Division, October 1, 1983 to May 1, 1985; Division Staff Manager, August l, 1983 to October 1, 1983; Manager-Human Resources Planning and Development prior to August 1, 1983.
William L. Stewart (44)
Vice President-Nuclear Operations.
There is no family relationship between any of the persons named in response to Item 10.
47
e ITEM 11. EXECUTIVE COMPENSATION Executive compensation during 1987 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.....................................................
Ronald H. Leasburg-Senior Vice President..............................................
Executive officers of the Company as a group-24 persons (including those named above)................................
Cash Compensation
$ 416,359 342,817 240,037 201,908 194,372 3,953,422 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 1987 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' 1987 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 1987 were paid in March 1988 and are included in the table above. Amounts earned for the year 1986 under the Management Incentive Plan were paid in March 1987 and reported in the 1986 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 kmg-term goals and strategies that are approved by the Organization and Compensation Committee (the Committee) of the Board of Directors of the Company. 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 Plans for periods of 1985-87 and 1986-88 include the Chairman of the Board, the President and all Vice Presidents of the Company. Participants in the Performance Plan for the period of 1987-89 include the President and all Vice Presidents of the Company. 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 will determine the level of achievement of the goals for that performance period and the Board of Directors will approve each participant's award.
- Awards for the 1985-87 performance period were made in early March 1988 and were based on (1) the performance of Dominion Resources' return on equity over the three-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 under the 1985-87 performance period:
William W. Berry: 3,053 shares; Jack H. Ferguson: 2,234 shares; John I. Oatts: 1,362 shares; Robert F.
Hill: 854 shares; and Ronald H. Leasburg: 854 shares, and 16,543 shares for the 24 executive officers as a group.
Awards for the 1986-88 and the 1987-89 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 48
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or made under the 1986-88 and the 1987-89 performance periods of the Performance Plans until March 1989 and 1990, respectively.
An Employee Savings Plan (the Savings Plan) has been in effect since 1963 and was revised effective July 1, 1987 to incorporate a salary reduction provision under Section 401(k) of the Internal Revenue 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 their employer. (In accordance with Section 40l(k) of the Internal Revenue Code, the Savings Plan provides participants with the option to reduce their gross income for federal income tax purposes to the extent of their contributions.) Participants' contributions and deferrals under Section 401(k) are subject to certain limitations prescribed in the Internal Revenue Code. The compensation table above includes amounts deferred pursuant to Section 40l(k). The employees may direct that their contributions be allocated between an interest bearing fund which invests in U.S. Government securities or in a stock fund that invests in Dominion Resources Common Stock. All of the Company's contributions to the Savings Plan are invested in Dominion Resources Common Stock. Participants do not have a vested interest in the Company contributions unless they are employed by the Company in each of three successive Plan Years following the Plan Year in which those contributions are made or they have attained age 55. Accordingly, amounts shown in the Cash Compensation table above do not include any Company contributions. The following Company contributions vested under the Savings Plan during 1987: William W. Berry: 1,790 shares; Jack H. Ferguson: 179 shares; John I. Oatts: 130 shares; Robert F. Hill: 474 shares; Ronald H. Leasburg: 387 shares; and 6,636 shares to the 24 executive officers as a group.
Effective January 1, 1977, an Employee Stock Ownership Plan (ESOP) was established which permits Dominion Resources and its subsidiaries that have adopted ESOP to claim certain additional investment and payroll-based tax credits, provided that the amount of the tax credit is contributed to ESOP. All salaried employees and hourly employees who completed six months of service by Jan-uary 1, 1987 automatically became participants in ESOP. Contributions of one-half of 1 % of the eligible payroll for ESOP participants are allocated pro rata to a participant's account based on the participant's compensation, excluding amounts over $IOO,OOO. Contributions are made either in Dominion Resources Common Stock or in cash which is used to purchase Dominion Resources Common Stock. Common Stock held for a participant in ESOP is IOO% 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. During 1987, approximately IO shares accrued to the ESOP accounts for each of William W. Berry, Jack H. Ferguson, John I. Oatts, Robert F. Hill and Ronald H. Leasburg, and 256 shares accrued to the accounts of all executive officers as a group under ESOP. Due to changes in federal tax laws, it is expected that ESOP will be terminated.
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. 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. Certain officers have additional contractual retirement arrangements the effect of which is to 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 and such additional arrangements (excluding contingent years) for the individuals named are as follows: William W. Berry-30, Jack H. Ferguson-16, John I. Oatts-30; Robert F.
Hill-16, and Ronald H. Leasburg-6. 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 IO years following retirement would be as follows:
49
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Estimated Annual Benefits Payable Upon Retirement*
Credited Years of Service Remuneration at Retirement 15 20 25 30
$ 75,000
$ 35,139
$ 40,601
$ 46,063
$ 51,525 100,000 47,857 55,475 63,093 70,712 125,000 60,575 70,349 80,124 89,898 150,000 73,293 85,224 97,154 109,084 175,000 86,011 100,098 114,184 128,271 200,000 98,730 114,972 131,215 147,457 250,000 124,166 144,721 165,275 185,830 300,000 149,602 174,469 197,336 224,203 350,000 175,039 204,218 233,396 262,575 400,000 200,475 233,966 267,457 300,948 450,000 225,911 263,715 301,518 339,321 500,000 251,344 293,458 335,572 377,686
- Based on normal retirement at age 65 or at least age 60 with 30 years of service.
The Company has entered into employment agreements (the Agreements) with key executives, including the officers named above. If, following a change in control of the Company (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 the equivalent of continued compensation for three years equalling the total compensation (including benefits) for the thirty-six month period preceding the change in control. In addition, the terminating executive will continue to be entitled to any benefits due under any stock or benefit plan. 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 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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The table below sets forth as of Dece~ber 31, 1987, the number of shares of Common Stock of Dominion Resources owned by directors of Virginia Electric and Power Company.
Name*
William W. Berry...........................
Jack H. Ferguson...........................
John B. Adams, Jr..........................
Anna Ruth Inskeep.........................
Allix B. James..............................
Shirley S. Pierce............................
William G. Thomas.........................
Shares of Common Stock Beneficially Owned 8,421(*)
7,778 78 1,568 2,752 500 0
(*) A member of Mr. Berry's family is a beneficiary of a trust that owns an additional 827 shares of Common Stock.
50
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All current Directors and officers as a group (29 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 Sovran Bank, N.A. has a contingent obligation to the Company to purchase up to $24 million in pollution control securities. In addition, Sovran Bank, N.A. has provided a line of credit of $16 million to Dominion Resources as a back-up for short-term financing, a portion of the proceeds of which is indirectly available to be borrowed by the Company under the inter-company credit agreement.
Mr. John B. Bernhardt a Director of Dominion Resources is Vice Chairman of the Board and a Director of Sovran Bank, N.A. and Sovran Financial Corporation and President and Chief Executive Officer of Sovran Services. He abstains from voting on transactions involving his companies and Dominion Resources and the Company in accordance with Dominion Resources' policy.
Hunton & Williams provided legal services to Dominion Resources and its subsidiaries, including the Company, during 1987 for which fees totalling $3,946,000 were paid. Mr. T. Justin Moore, Jr., a director of Dominion Resources, is counsel to the firm of Hunton & Williams.
51
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 15.
- 2. Financial Statement Schedules See Index on page 15.
- 3. Exhibits 3(i)
-Restated Articles oflncorporation, as amended, as in effect on June 18, 1987 and the date hereof (Exhibit 3(i) Form 10-K for the fiscal year ended December 31, 1986, File No. 1-2255, incorporated by reference; Exhibit 4, Form 8-K, dated April 8, 1987, File No. 1-2255, incorporated by reference; Exhibit 4(iii), Amend-ment No. 1 to Form S-3, Registration Statement, dated June 17, 1987, File No.
33-14680, incorporated by reference).
3(ii)
-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).
4(i)
-See Exhibit (3(i)) above.
4(ii)
-Indenture of Mortgage of Company, dated November 1, 1935, as supplemented and modified by sixty-two Supplemental Indentures (Exhibit 4(ii), Form 10-K for the fiscal year ended December 31, 1985, File No. 1-2255, incorporated by reference; Exhibit 4(ii), Form 10-Q for the quarter ended March 31, 1986, File No. 1-2255, incorporated by reference; Exhibit 4(ii), Form 10-Q for the* quarter ended September 30, 1986, File No. 1-2255, incorporated by reference; Exhibit 4(ii), Form 10-Q for the quarter ended June 30, 1987, File No. 1-2255, incorpo-rated by reference; Exhibit 4(i), Form 8-K, dated November 3, 1987, File No.
1-2255, incorporated by reference).
4(iii)
-Indenture, dated April I, 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 I, 1986, between Virginia Electric and Power Company and Chemical Bank (Exhibit 4(i), File No. 33-5763, incorporated by reference).
4(v)
-Virginia Electric and Power Company agrees to furnish 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 Generafing Company (Exhibit IO(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).
52
lO(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 lO(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 lO(x), Form 10-K for the fiscal year ended December 31, 1983, File No. 1-2255, incorporated by reference).
lO(v)
-Heat Supply Contract, dated as of October 14, 1987, between Virginia Electric and Power Company and Virginia Power Fuel Corporation (filed herewith).
lO(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 (filed herewith).
lO(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 the Banks named therein (filed herewith).
lO(viii)
-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 (filed herewith).
lO(ix)
-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).
lO(x)
-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 reference).
lO(xi)
-Unit Power Sales Agreement, dated as of March 12, 1984, between Virginia Electric and Power Company and Hoosier Energy Rural Electric Cooperative, Inc.; Agreement, dated as of March 13, 1984, between Virginia Electric and Power Company and Hoosier Energy Rural Electric Cooperative, Inc.; Amend-ment No. 1 to Unit Power Sales Agreement between Virginia Electric and Power Company and Hoosier Energy Rural Electric Cooperative, Inc.,.dated as of September 27, 1984; and Letter, dated January 3, 1985, from Hoosier Energy Rural Electric Cooperative, Inc. to Virginia Electric and Power Company (Exhibit lO(xvi), Form 10-K for the fiscal year ended December 31, 1984, File No. 1-2255, incorporated by reference).
lO(xii)
-Agreement, dated October 1, 1984, among AEP Generating Company, Appala-chian Power Company, Indiana & Michigan Electric Company and Virginia Electric and Power Company, and Letter, dated December 31, 1984, from American Electric Power Service Corporation to Virginia Electric and Power Company (Exhibit lO(xvii), Form 10-K for the fiscal year ended December 31, 1984, File No. 1-2255, incorporated by reference).
lO(xiii)
-Transmission Agreement for Unit Power and Energy, dated as of August 31, 1984, between Virginia Electric and Power Company and Public Service Com-pany of Indiana, Inc., (Exhibit lO(xviii), Form 10-K for the fiscal year ended December 31, 1984, File No. 1-2255, incorporated by refer~nce).
lO(xiv)
-Credit Agreement, dated December 1, 1985, between Virginia Electric and Power Company and Old Dominion Electric Cooperative (Exhibit lO(xix), Form 10-K 53
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for the fiscal year ended December 31, 1985, File No. 1-2255, incorporated by reference).
lO(xv)
-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).
lO(xvi)
-Dominion Resources, Inc., Deferred Compensation Plan for Outside Directors, effective January 1, 1986 (Exhibit lO(xxiii), Form 10-K for the fiscal year ended December 31, 1985, File No. 1-2255, incorporated by reference).
lO(xvii)
-Dominion Resources, Inc., Performance Achievement Plan, effective January 1, 1986 (Exhibit lO(xxiv), Form 10-K for the fiscal year ended December 31, 1985, File No. 1-2255, incorporated by reference).
lO(xviii) -Dominion Resources, Inc., Management Incentive Plan, effective January 1, 1986 (Exhibit lO(xxv), Form 10-K for the fiscal year ended December 31, 1985, File No. 1-2255, incorporated by reference).
lO(xix)
-Dominion Resources, Inc., Executive Supplemental Retirement Plan, effective October 21, 1983 (Exhibit lO(xxvi), Form 10-K for the fiscal year ended December 31, 1985, File No. 1-2255, incorporated by reference).
lO(xx)
-Description of arrangements with certain officers regarding additional credited years of service for retirement purposes (filed herewith).
lO(xxi)
-Form of Employment Continuity Agreement for elected officers (Exhibit lO(xxvii), Form 10-K for the fiscal year ended December 31, 1986, File No.
1-2255, incorporated by reference).
22
-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).
24(i)
-Consent of Hunton & Williams (filed herewith).
24(ii)
__:_consent of Jackson & Kelly (filed herewith).
24(iii)
-Consent of Coopers & Lybrand (filed herewith).
(b) Report on Form 8-K None 54
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 14, 1988 VIRGINIA ELECTRIC AND POWER COMPANY B
WILLIAM w. BERRY y _________________ _
(William W. Berry, Chairman 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 WILLIAM W. BERRY William W. Berry JACK H. FERGUSON Jack H. Ferguson JOHN B. ADAMS, JR.
John B. Adams, Jr.
ANNA RUTH INSKEEP Anna Ruth Inskeep ALLIX B. JAMES Allix B. James SHIRLEY s. PIERCE Shirley S. Pierce WILLIAM G. THOMAS William G. Thomas L. R. ROBERTSON L. R. Robertson B. D. JOHNSON B. D. Johnson Title Chairman of Board of Directors and Director President (Chief Executive Of-ficer) and Director Director Director Director Director Director Vice President and Treasurer (Chief Financial Officer)
Vice President and Controller (Principal Accounting Officer) 55 Date March 14, 1988 March 14, 1988 March 14, 1988 March 14, 1988 March 14, 1988 March 14, 1988 March 14, 1988 March 14, 1988 March 14, 1988
l-~
VIRGINIA ELECTRIC AND POWER COMPANY STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended December 31, Operating Revenues:
. Electric Gas Total 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 Operating Income:
Allowance for Other Funds Used During Construction Miscellaneous, Net Income Taxes Associated with Miscellaneous, Net 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 1987
$711,148 711,148 133,995 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 1 69,961 (OOO's) 1986(a)
$753,099
( b) 753,099 133,652 64,508 104,737 82,106 65,131 13,910 73,626 43,578 581,248 1712851 318 7,888 (22101) 6,105 177,956 72,186 2,795 (609) 74,372 103,584 10,725 192,859 (a)
Restated to reflect the change in accounting for terminated construction project costs and the capitalization of leases.
(b)
On July 1, 1986, the gas division was established as a new corporation, Virginia Natural Gas, Inc., a wholly-owned subsidiary of Dominion Resources.
Cash Receipts Less:
Cash for Operations Taxes paid Interest paid Dividends paid
- Preferred Stock
- Common Stock Decommissioning Trust Changes in working capital Internal cash flow Plus:
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VIRGINIA ELECTRIC AND POWER COMPANY 1988 ESTIMATED INTERNAL CASH FLOW (Millions of Dollars)
January April July through through through October through March June September December
$831. 7
$712.6
$867.0
$782.1 379.7 352.7 416.2 407.6 22.4 175.0 83.8 118. 2 40.6 89.9 64.3 96.3 12.8 14.0 14.2 14.4 71.0 71.0 71.0 74.0 5.2 5.2 5.2 5.3 34.1 36.0 4A (67.1}
$265.9
$(31.2)
$207.9
$133.4 Proceeds from sale of 11.6% of North Anna to Old Dominion Electric Coop 1.2 1.2 1.2 1.2 Total Cash Flow
$267.1
${30.0}
$209.1
$134.6 057ml42wbt635 l
Estimated 1988 Total
$3,193.4 1,556.2 399.4 291.1 55.4 287.0 20.9 7.4
$ 576.0 4.8
$ 580.8
VIRGINIA ELECTRIC AND POWER COMPANY CERT! FI CATE I, the undersigned B.
D. Johnson, do hereby certify, pursuant to the guarantee requirements set forth in the Commission 1 s letter dated June 15, 1977, that the cash flow projection for 1988, provided herewith, is based on the best available information and is a reasonably accurate projection of the Company 1s 1988 cash flow.
Sworn to and subscribed before me this.3 O 71' day of.~/Jlfell 1988 Notary Public My commission expires: ~.//f.-v.~ cs; /990 NOTARIAL SEAL Johnson Vice Presi ent-Controller
VIRGINIA ELECTRIC AND POWER COMPANY STATEMENT The Company currently* estimates 1988 construction and nuclear fuel expenditures to be $740 million.
In addition, the Company must provide $151 million for debt maturities and mandatory sinking fund payments.
The Company expects to raise about $308 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 of $40 million ($10 million aggregate per operating reactor) currently in force.
057m142wbt635