SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-2255
VIRGINIA ELECTRIC AND POWER COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
VIRGINIA
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
ONE JAMES RIVER PLAZA
RICHMOND, VIRGINIA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
54-0418825
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
23219-3932
(ZIP CODE)
(804) 771-3000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE
ON WHICH REGISTERED
Preferred Stock (cumulative) New York Stock Exchange
$100 liquidation value:
$5.00 dividend
Trust Preferred Securities New York Stock Exchange
$25 liquidation value:
8.05% dividend
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of February 29, 1996 was zero.
As of February 29, 1996, there were issued and outstanding 171,484 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
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
<TABLE>
<CAPTION>
PAGE
ITEM NUMBER NUMBER
<S> <C>
PART I
1. Business......................................................................................................... 1
The Company..................................................................................................... 1
Regulation...................................................................................................... 1
General....................................................................................................... 1
FERC.......................................................................................................... 2
Environmental................................................................................................. 2
Nuclear....................................................................................................... 3
Capital Requirements and Financing Program...................................................................... 4
Construction and Nuclear Fuel Expenditures.................................................................... 4
Financing Program............................................................................................. 4
Rates........................................................................................................... 4
Virginia...................................................................................................... 5
North Carolina................................................................................................ 5
Sources of Power................................................................................................ 6
Company Generating Units...................................................................................... 6
Net Utility Purchases......................................................................................... 6
Non-Utility Generation........................................................................................ 6
Sources of Energy Used and Fuel Costs........................................................................... 7
Nuclear Operations and Fuel Supply............................................................................ 7
Fossil Operations and Fuel Supply............................................................................. 7
Purchases and Sales of Power.................................................................................. 7
Interconnections................................................................................................ 8
Future Sources of Power......................................................................................... 8
Company Owned Generation...................................................................................... 8
Non-Utility Generation........................................................................................ 9
Competition and Strategic Initiatives........................................................................... 9
Wholesale Competition......................................................................................... 9
Retail Competition............................................................................................ 9
Corporate Re-engineering...................................................................................... 10
Regulatory/Legislative Strategy............................................................................... 10
Conservation and Load Management................................................................................ 10
2. Properties....................................................................................................... 10
3. Legal Proceedings................................................................................................ 11
4. Submission of Matters to a Vote of Security Holders.............................................................. 11
PART II
5. Market for the Registrant's Common Equity and Related Stockholder Matters........................................ 12
6. Selected Financial Data.......................................................................................... 12
7. Management's Discussion and Analysis of Financial Condition and Results of Operations............................ 13
Liquidity and Capital Resources................................................................................. 13
Capital Requirements............................................................................................ 14
Results of Operations........................................................................................... 14
Future Issues................................................................................................... 17
8. Financial Statements and Supplementary Data...................................................................... 21
9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure............................. 44
PART III
10. Directors and Executive Officers of the Registrant.............................................................. 45
11. Executive Compensation.......................................................................................... 47
12. Security Ownership of Certain Beneficial Owners and Management.................................................. 51
13. Certain Relationships and Related Transactions.................................................................. 51
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K........................................................................................................ 52
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
THE COMPANY
Virginia Electric and Power Company was incorporated in Virginia in 1909
and has its principal office at One James River Plaza, Richmond, Virginia
23219-3932, telephone (804) 771-3000. It is a wholly-owned subsidiary of
Dominion Resources, Inc. (Dominion Resources), a Virginia corporation.
Virginia Electric and Power Company is a regulated public utility engaged
in the generation, transmission, distribution and sale of electric energy within
a 30,000 square mile area in Virginia and northeastern North Carolina. It
transacts business under the name VIRGINIA POWER in Virginia and under the name
NORTH CAROLINA POWER in North Carolina. It sells electricity to retail customers
(including governmental agencies) and to wholesale customers such as rural
electric cooperatives and municipalities. The Virginia service area comprises
about 65 percent of Virginia's total land area, but accounts for over 80 percent
of its population. As used herein, the terms "Virginia Power" and the "Company"
shall refer to the entirety of Virginia Electric and Power Company, including,
without limitation, its Virginia and North Carolina operations, and all of its
subsidiaries.
The Company has 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 Virginia.
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 North Carolina.
The Company strives to operate its generating facilities in accordance with
prudent utility industry practices 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.
The Company had 10,344 full-time employees on December 31, 1995. A total of
3,746 of the Company's employees are represented by the International
Brotherhood of Electrical Workers under a contract extending to March 31, 1998.
For additional information on significant corporate issues relating to the
utility business, see COMPETITION AND STRATEGIC INITIATIVES below.
Except for the historical information contained herein, the matters
discussed in this annual report on Form 10-K are forward-looking statements
which involve risks and uncertainties, including but not limited to regulatory,
economic, competitive, governmental and technological factors affecting the
Company's operations, rates, markets, products, services and prices, and other
factors discussed herein and in the Company's other filings with the Securities
and Exchange Commission.
REGULATION
GENERAL
In a wide variety of matters in addition to rates, Virginia Power is
presently subject to regulation by the Virginia Commission and the North
Carolina Commission, the Environmental Protection Agency (EPA), Department of
Energy (DOE), Nuclear Regulatory Commission (NRC), the Federal Energy Regulatory
Commission (FERC), the Army Corps of Engineers, and other federal, state and
local authorities. Compliance with numerous laws and regulations increases the
Company's operating and capital costs by requiring, among other things, changes
in the design and operation of existing facilities and changes or delays in the
location, design, construction and operation of new facilities. The commissions
regulating the Company's rates have historically permitted recovery of such
costs.
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.
<PAGE>
On January 11, 1996, the Virginia Commission granted interim approval for
limited affiliate services between Virginia Power and a subsidiary, A&C Enercom,
Inc., in connection with the purchase by the subsidiary of certain assets of two
energy services businesses. On March 12, 1996, Virginia Power filed an amendment
to its application seeking approval of additional services and asset transfers
between it and the subsidiary.
The City of Falls Church, Virginia has indicated that it intends to pursue
the establishment of a municipal electric system, and it sent the Company a
formal Request for Transmission Service pursuant to Sections 211 and 213 of the
Federal Power Act on January 11, 1995. Virginia Power has approximately 4,100
customers in the City. Mwh sales by customer class in Falls Church are:
Residential - 36,000; Commercial - 67,000; Industrial - 0; and Other - 5,000.
The Company denied the request and filed a Petition for Declaratory Judgment
against the City with the Virginia Commission. The Commission has ruled that
Falls Church must seek approval from the Commission prior to implementing plans
to condemn Company facilities within the City. Revenues from retail sales within
the City of Falls Church account for less than .2% of the company's total
revenues. As a result, Virginia Power will not experience a material loss of
revenues or net income should a municipal electric system be created. No other
municipality has communicated to Virginia Power any interest in forming a
municipal electric system.
On September 18, 1995, the Virginia Commission established a proceeding to
review and consider its policy regarding restructuring of, and competition in,
the electric utility industry. The Commission directed its Staff to investigate
the emerging issues in the industry and prepare a report of its findings and
recommendations on or before March 29, 1996. All interested parties may file
written comments and requests for oral argument in response to the Staff Report
on or before May 30, 1996.
Various provisions of the Energy Policy Act of 1992 (Energy Act) that could
affect the Company include those provisions encouraging the development of
non-utility generation, giving FERC authority to order transmission access for
wholesale transactions, requiring higher energy efficiency and alternative fuels
use, restructuring of nuclear plant licensing procedures and requiring state
regulatory authorities to give full rate treatment for the effects of
conservation and demand management programs, including the effects of reduced
sales. While the full impact of the Energy Act on the Company cannot at this
time be quantified, it is likely, over time, to be significant.
FERC
On March 29, 1995, FERC issued a Notice of Proposed Rulemaking that would
require all FERC jurisdictional utilities to provide open access to the
interstate transmission system. Crucial elements of the Commission's proposal
included the following: all jurisdictional utilities must file
non-discriminatory open access transmission tariffs; utilities must take service
under the open access tariffs for their own wholesale sales and purchases of
electric energy; and utilities will be allowed the opportunity to recover
stranded costs. The Company filed its comments on August 7, 1995 and supported
the Commission's objective of promoting comparable open-access transmission
service. However, the Company urged the Commission to reconsider its proposal to
draft generic tariffs for the electric industry. The Company also challenged
FERC's authority to impose tariffs of general applicability and urged the
adoption of principles of comparability that it will apply to evaluate terms and
conditions of tariffs filed by utilities. The Company urged that any pro forma
tariffs included in the final rule should provide for comparable service at
rates that permit the utility to recover all its costs of service.
See COMPETITION AND STRATEGIC INITIATIVES under BUSINESS and COMPETITION
under MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
ENVIRONMENTAL
From time to time, the Company may be identified as a potentially
responsible party (PRP) 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,
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 and seek reimbursement from their
insurance companies. As a result of the Superfund Act or other laws or
regulations regarding the remediation of waste, the Company may be required to
expend amounts on remedial investigations and actions. Although the Company is
not currently aware of any sites or events, including those sites currently
identified likely to result in significant liabilities, such amounts, in the
future, could be significant.
Permits under the Clean Water Act and state laws have been issued for all
of the Company's steam generating stations now in operation. Such permits are
subject to reissuance and continuing review.
<PAGE>
The Company is subject to the Clean Air Act (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 significant additional
expenditures in constructing new facilities or in modifying existing facilities.
The Company has completed its compliance plan for Phase II of the Clean Air Act,
with the exception of some additional studies concerning Phase II nitrogen oxide
(NOx) controls. The plan will involve switching to lower sulfur coal, purchase
of emission allowances and additional NOx and sulfur dioxide (SO2) controls.
Maximum flexibility and least-cost compliance will be maintained through annual
studies. Capital expenditures on Clean Air Act compliance over the next 5 years
are projected to be approximately $61 million. Changes in the regulatory
environment, availability of allowances, and emission control technology could
substantially impact the timing and magnitude of compliance expenditures.
The Company continues to work with the West Virginia Office of Air Quality
concerning opacity requirements applicable to the Mt. Storm Power Station.
For additional information on Environmental Matters, see Note Q to
CONSOLIDATED FINANCIAL STATEMENTS and ITEM 3. LEGAL PROCEEDINGS below.
NUCLEAR
All aspects of the operation and maintenance of the Company's nuclear power
stations are regulated by the NRC. Operating licenses issued by the NRC are
subject to revocation, suspension or modification, and operation of a nuclear
unit may be suspended if the NRC determines that the public interest, health or
safety so requires.
From time to time, the NRC adopts new requirements for the operation and
maintenance of nuclear facilities. In many cases, these new regulations require
changes in the design, operation and maintenance of existing nuclear facilities.
If the NRC adopts such requirements in the future, it could result in
substantial increases in the cost of operating and maintaining the Company's
nuclear generating units.
On July 18, 1995, the Virginia Commission instituted an investigation
regarding spent nuclear fuel disposal. It directed interested parties to provide
comments on legal and public policy issues related to spent nuclear fuel storage
and disposal, including, but not limited to, whether to allow utilities to
recover from ratepayers some or all money paid to the Nuclear Waste Fund
established by the Nuclear Policy Act of 1982, whether to establish an escrow
account for spent nuclear fuel storage and/or disposal, and whether utilities
should develop their own plans for storage and disposal of spent nuclear fuel.
The Commission's Order Establishing Investigation recites that Virginia Power
has paid $343.6 million to the Nuclear Waste Fund through 1994, including $44.8
million in 1994, and that future payments could exceed $400 million assuming its
North Anna and Surry reactors continue to operate through the end of their
existing operating licenses. Virginia Power and others filed comments on October
31, 1995. On February 27, 1996, the Commission Staff filed its Report
recommending that adoption of a definitive policy on the spent nuclear fuel
disposal fee be delayed until (1) a ruling is forthcoming on pending litigation
which seeks to impose an obligation on the federal government to begin
acceptance of spent nuclear fuel no later than January 31, 1998, (2) the outcome
of proposed legislation which would amend the Nuclear Waste Policy Act to
require the development of a centralized interim storage facility has been
determined, and (3) a vision of the likely outcome of the electric utility
industry's restructuring efforts has been more fully conceptualized.
<PAGE>
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 1996-1998, total $1.6 billion. It has adopted a 1996 budget for
construction and nuclear fuel expenditures as set forth below:
<TABLE>
<CAPTION>
ESTIMATED 1996
EXPENDITURES
(MILLIONS)
<S> <C>
New Generating Facilities:
Clover Unit 2....................................................................... $ 14
Other Production:
Clean Air Act....................................................................... 19
Other............................................................................... 60
General Support Facilities............................................................ 88
Transmission.......................................................................... 42
Distribution.......................................................................... 262
Nuclear Fuel.......................................................................... 84
Total Construction Requirements and Nuclear Fuel.................................... 569
AFC.............................................................................. 5
Total Expenditures.................................................................. $574
</TABLE>
FINANCING PROGRAM
In 1995, Virginia Power obtained $375 million from the sale of securities.
With the proceeds of the 1995 securities sales, supplemented by internally
generated funds, the Company retired $312.3 million of securities through
mandatory debt maturities and retired an additional $126.7 million of securities
through optional redemptions. The Company's long-term financings included $200
million of First and Refunding Mortgage Bonds, $40 million of unsecured
Medium-Term Notes, and $135 million of Preferred Securities issued by a
subsidiary trust.
Effective September 1, 1995, a $300 million revolving credit facility was
established to support the Company's commercial paper program, replacing the
Inter-Company Credit Agreement with Dominion Resources. At December 31, 1995,
$169 million of commercial paper was outstanding.
Virginia Power's 1996 construction and nuclear fuel requirements, exclusive
of AFC, are estimated to be $569 million. Debt maturities in 1996 will total
$259.6 million. It is expected that approximately $601 million will be obtained
from cash flow from operations. The remaining $227.6 million of capital
requirements will be obtained by a combination of sales of securities and
short-term borrowings.
RATES
The Company was subject to rate regulation in 1995 as follows:
<TABLE>
<CAPTION>
1995
PERCENT PERCENT
OF OF
REVENUES KWH SALES
<S> <C> <C> <C>
Virginia retail:
Non-Governmental customers.................... Virginia Commission 78% 73%
Governmental customers........................ Negotiated Agreements 10 12
North Carolina retail........................... North Carolina Commission 5 4
Wholesale:
Requirements -- Sales for Resale.............. FERC 5 7
Non-Requirements -- Sales for Resale.......... FERC 2 4
100% 100%
</TABLE>
Substantially all of the Company's electric sales are subject to recovery
of changes in fuel costs either through fuel adjustment factors or periodic
adjustments to base rates, each of which requires prior regulatory approval.
<PAGE>
Each of these jurisdictions has the authority to disallow recovery of costs
it determines to be excessive or imprudently incurred. Various cost items may be
reviewed on occasion, including costs of constructing or modifying facilities,
on-going purchases of capacity or providing replacement power during generating
unit outages.
The principal rate proceedings in which the Company was involved in 1995
are described below by jurisdiction. Rate relief obtained by the Company is
frequently less than requested.
VIRGINIA
On January 13, 1995, the Supreme Court of Virginia affirmed a decision of
the Virginia Commission in Virginia Power's 1992 rate case that disallowed rate
recovery of the gross receipts tax component of certain purchased power costs.
On March 3, 1995, the Court denied the motions of Virginia Power and certain
industrial cogenerators for a rehearing, and on October 2, 1995, the United
States Supreme Court denied the Writ of Certiorari sought by those cogenerators.
On April 20, 1995, the Virginia Commission declined to approve Virginia
Power's proposed Schedule DEF -- Dispersed Energy Facility, a rate schedule that
would have allowed the Company to respond to the request of an industrial or
commercial customer to build and operate a generating facility at its business
location and to sell to that customer all of the electricity and associated
steam from that facility under a long-term contract. The Commission stated that
the scope of the proposal was not an appropriate experiment under Virginia law,
and that, without a specific construction proposal before it, the Commission
could not approve the concept. The Commission stated, however, that upon a
proper record it would consider the public interest of allowing a DEF-type
facility to be constructed. Virginia Power subsequently negotiated a specific
DEF arrangement with Chesapeake Paper Products Company, and on December 18,
1995, it applied to the Virginia Commission for the approvals required for that
arrangement. (See COMPETITION AND STRATEGIC INITIATIVES below).
The Staff of the Virginia Commission has, in Virginia Power's Annual
Informational Filing proceeding for 1994, recommended that there be imputed to
Virginia Power for ratemaking purposes income reflecting (a) the estimated value
of credit support that Dominion Resources' nonutility subsidiaries allegedly
receive from Virginia Power and (b) the income earned by Dominion Resources on
the invested proceeds of its unallocated equity for which Virginia Power
provides the funds for payment of dividends. Virginia Power filed a response
opposing these recommendations. The Staff's reply agreed with Virginia Power
that no decision on these issues is required in the pending proceeding. On
February 23, 1996, the Commission issued its Order, finding that the Company did
not earn outside of its authorized range for the calendar year 1994, and
indicating that it will investigate the described issues further in a subsequent
proceeding. The Commission Order also approved higher collection levels for
decommissioning of nuclear plants.
On April 20, 1995, the Virginia Commission authorized Virginia Power to
implement a pilot program providing a real time pricing (RTP) option for its
industrial customers with loads in excess of 10 MW. Under this option, all or a
portion of an industrial customer's load growth would be supplied at projected
incremental hourly production costs, adjusted for line losses and taxes, plus a
margin of 0.6 cents per Kwh. Additionally, a marginal cost-based Generation
Capacity Adder and a Transmission Capacity Adder would be applicable during
those hours when the Virginia Power system is approaching its forecasted annual
peak demand. Up to 20% of an industrial customer's existing load could be served
on an RTP basis if the customer executes a five-year contract for such service.
On September 19, 1995, Virginia Power filed an application to revise its
annual fuel factor. The Company proposed that the present fuel factor be
decreased by $97.1 million. The Staff of the Virginia Commission proposed
certain adjustments, which Virginia Power did not oppose, resulting in a
recommended reduction of $107.3 million. On October 31, 1995, the Virginia
Commission approved the reduction of $107.3 million, effective November 1, 1995.
NORTH CAROLINA
On February 13, 1995, the Supreme Court of North Carolina denied Virginia
Power's motion for rehearing of the appeal of its 1992 North Carolina rate case,
which disallowed recovery of certain capacity costs paid to a cogenerator and a
portion of the compensation of certain Company officers. On May 15, 1995,
Virginia Power filed with the United States Supreme Court a Petition for a Writ
of Certiorari asking the Court to reverse the North Carolina Court's decision as
to the recovery of capacity costs. On January 22, 1996, the United States
Supreme Court denied the Writ of Certiorari sought by the Company.
On June 27, 1995, the North Carolina Commission approved a Self-Generation
Deferral Rate that is a part of an Energy Agreement between the Company and
Weyerhaeuser. The agreement involves the use of a negotiated pricing structure
which will result in the deferral of the installation of additional
self-generation facilities by Weyerhaeuser. The rate to be charged
<PAGE>
must be prefiled each year, and the Company is prohibited from recovering from
other customers the difference between the new rate and the rate that
Weyerhaeuser would otherwise have been charged.
On September 15, 1995, Virginia Power filed an application with the North
Carolina Commission for approval of a $1.3 million annual increase in fuel
rates. On December 8, 1995, the Commission approved an increase of $.8 million
reflecting a disallowance of $.5 million by reason of resolution of issues
surrounding the renegotiation of a coal transportation contract with CSX
Transportation, Inc.
SOURCES OF POWER
COMPANY GENERATING UNITS
<TABLE>
<CAPTION>
TYPE SUMMER
YEARS OF CAPABILITY
NAME OF STATION, UNITS AND LOCATION INSTALLED FUEL MW
<S> <C> <C> <C>
Nuclear:
Surry Units 1 & 2, Surry, Va..................................................... 1972-73 Nuclear 1,602
North Anna Units 1 & 2, Mineral, Va.............................................. 1978-80 Nuclear 1,790(a)
Total nuclear stations........................................................ 3,392
Fossil Fuel:
Steam:
Bremo Units 3 & 4, Bremo Bluff, Va. .......................................... 1950-58 Coal 227
Chesterfield Units 3-6, Chester, Va. ......................................... 1952-69 Coal 1,250
Clover Unit 1, Clover, Va. ................................................... 1995 Coal 416(b)
Mt. Storm Units 1-3, Mt. Storm, W. Va. ....................................... 1965-73 Coal 1,587
Chesapeake Units 1-4, Chesapeake, Va. ........................................ 1953-62 Coal 595
Possum Point Units 3 & 4, Dumfries, Va. ...................................... 1955-62 Coal 322
Yorktown Units 1 & 2, Yorktown, Va. .......................................... 1957-59 Coal 326
Possum Point Units 1, 2, & 5, Dumfries, Va. .................................. 1948-75 Oil 929
Yorktown Unit 3, Yorktown, Va. ............................................... 1974 Oil & Gas 818
North Branch Unit 1, Bayard, W. Va. .......................................... 1994 Waste Coal 74(c)
Combustion Turbines:
35 units (8 locations)........................................................... 1967-90 Oil & Gas 1,019
Combined Cycle:
Chesterfield Units 7 & 8, Chester, Va. .......................................... 1990-92 Oil & Gas 397
Total fossil stations......................................................... 7,960
Hydroelectric:
Gaston Units 1-4, Roanoke Rapids, N.C. .......................................... 1963 Conventional 225
Roanoke Rapids Units 1-4, Roanoke Rapids, N.C. .................................. 1955 Conventional 96
Other............................................................................ 1930-87 Conventional 3
Bath County Units 1-6, Warm Springs, Va. ........................................ 1985 Pumped Storage 1,260(d)
Total hydro stations.......................................................... 1,584
Total Company generating unit capability...................................... 12,936
NET UTILITY PURCHASES.............................................................. 1,030
NON-UTILITY GENERATION............................................................. 3,295
Total Capability.............................................................. 17,261
</TABLE>
(a) Includes an undivided interest of 11.6 percent (208 Mw) owned by Old
Dominion Electric Cooperative (ODEC).
(b) Includes an undivided interest of 50 percent (208 Mw) owned by ODEC.
(c) Effective January 25, 1996, this unit was placed in a cold reserve status.
(d) Reflects the Company's 60 percent undivided ownership interest in the 2,100
Mw station. A 40 percent undivided interest in the facility is owned by
Allegheny Generating Company, a subsidiary of Allegheny Power System, Inc.
(APS).
The Company's highest one-hour integrated service area summer peak demand
was 14,003 Mw on August 2, 1995, and a new all-time high one-hour integrated
winter peak demand of 14,910 Mw was reached on February 5, 1996.
<PAGE>
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 OPERATIONS AND FUEL SUPPLY
In 1995, the Company's four nuclear units achieved a combined capacity
factor of 85.4 percent.
The North Anna Unit 2 steam generator replacement project was completed in
1995 at a total Company cost of $96 million.
The Company utilizes both long-term contracts and spot purchases to support
its needs for nuclear fuel. Virginia Power's nuclear fuel supply and related
services are expected to be adequate to support current and planned nuclear
generation requirements. The Company continually evaluates worldwide market
conditions in order to obtain an adequate nuclear fuel supply. Current
agreements, inventories and market availability should support planned fuel
cycles throughout the remainder of the 1990s.
On-site spent nuclear fuel storage at the Surry Power Station is adequate
for the Company's needs through 1998 when, in accordance with the Nuclear Waste
Policy Act, the DOE is to begin acceptance of spent fuel for disposal. Should
acceptance be delayed, incremental dry storage facilities will be added under
the existing storage license. North Anna Power Station will require an interim
spent fuel storage facility in the late 1990's. The Company submitted a license
application to the NRC in May 1995 for such a facility at North Anna.
For details regarding nuclear insurance and certain related contingent
liabilities as well as a NRC rule that requires proceeds from certain insurance
policies to be used first to pay stabilization and decontamination expenses, see
Note C to CONSOLIDATED FINANCIAL STATEMENTS.
FOSSIL OPERATIONS AND FUEL SUPPLY
The commercial operation of Clover Power Station Unit 1 commenced on
October 7, 1995. The summer capability of Unit 1 has been determined to be 416
Mw.
The Company's fossil fuel mix consists of coal, oil and natural gas. In
1995, Virginia Power consumed approximately 11.0 million tons of coal. As with
nuclear fuel, the Company utilizes both long-term contracts and spot purchases
to support its needs. The Company presently anticipates that sufficient coal
supplies at reasonable prices will be available for the remainder of the 1990s.
Current projections for an adequate supply of oil remain favorable, barring
unusual international events or extreme weather conditions which could affect
both price and supply.
The Company uses natural gas as needed throughout the year for two combined
cycle units and at several combustion turbine units. For winter usage at the
combined cycle sites, gas is purchased and stored during the summer and fall and
consumed during the colder months when gas supplies are not available at
favorable prices. The Company has firm transportation contracts for the delivery
of gas to the combined cycle units. Current projections indicate gas supplies
will be available for the next several years.
PURCHASES AND SALES OF POWER
Virginia Power relies on purchases of power to meet a portion of its
capacity requirements. The Company also makes economy purchases of power from
other utility systems when it is available at a cost lower than the Company's
own generation costs.
Under contracts effective January 1, 1985, Virginia Power agreed to
purchase 400 Mw of electricity annually through 1999 from Hoosier Energy Rural
Electric Cooperative, Inc. (Hoosier), and agreed to purchase 500 Mw of
electricity annually during 1987-99 from certain operating units of American
Electric Power Company, Inc. (AEP).
On November 26, 1991, the Company and ODEC signed an agreement whereby the
Company will provide 100 Mw of firm capacity and associated energy until the
commercial operation of Clover Unit 2 (currently scheduled for April 1996) or
December 31, 1996, whichever occurs first.
The Company has a diversity exchange agreement with APS under which APS
delivers 200 Mw to Virginia Power in the summer and Virginia Power delivers 200
Mw to APS in the winter.
<PAGE>
Virginia Power also has 67 non-utility power purchase contracts with a
combined dependable summer capacity of 3,493 Mw. Of this amount, 3,295 Mw were
operational at the end of 1995 with the balance scheduled to come on-line
through 1998 (see Non-Utility Generation under FUTURE SOURCES OF POWER and Note
Q to CONSOLIDATED FINANCIAL STATEMENTS).
Early in 1995, a wholesale power group was formed within the Company. Its
sole focus is the purchase and sale of wholesale electric power in the open
market. The wholesale power group has expanded the Company's trading range
beyond the geographic limits of the Virginia Power service territory, and has
recently developed trading relationships with utilities in Illinois, Missouri,
Indiana, Kentucky, Ohio, Vermont, Michigan, and Tennessee in addition to most
states in the Mid-Atlantic area.
INTERCONNECTIONS
The Company maintains major interconnections with Carolina Power and Light
Company, AEP, APS and the utilities in the Pennsylvania-New Jersey-Maryland
Power Pool. Through this major transmission network, the Company has
arrangements with these utilities for coordinated planning, operation, emergency
assistance and exchanges of capacity and energy.
The Company and Appalachian Power Company (Apco) (an operating unit of AEP)
have each sought approval from the Virginia Commission to construct
interconnecting transmission facilities. Apco proposes to construct 116 miles of
765 Kv line to connect with Virginia Power's proposed 102 miles of 500 Kv line.
Virginia Power does not intend to build its facility unless the Apco facility,
which requires approval in West Virginia as well as Virginia, is also approved
and built. Approval of both facilities has been recommended by a Virginia
Commission Hearing Examiner. On December 13, 1995, the Virginia Commission
issued an Interim Order in the Apco case in which it found that additional
transmission capacity is needed but directed Apco to provide further information
as to routing, mitigation of visual impact, and uses of the line.
FUTURE SOURCES OF POWER
As reported earlier, both the Hoosier 400 MW long-term purchase and the AEP
500 MW long-term purchase will expire on December 31, 1999. With the scheduled
termination of 900 MW of long-term purchases and continued system load growth,
the Company presently anticipates adding 1,400 MW of short-term (three-year)
purchases through the year 2000. The Company has and will pursue capacity
acquisition plans to provide that capacity and maintain a high degree of service
reliability. This capacity may be owned and operated by others and sold to the
Company or may be built by the Company if it determines it can build capacity at
a lower overall cost. The Company also pursues conservation and demand-side
management (see CONSERVATION AND LOAD MANAGEMENT below and CAPITAL REQUIREMENTS
under MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS).
In May 1990, the Company entered into an agreement with ODEC, under which
the Company purchased a 50 percent undivided ownership interest in a 832 Mw
coal-fired power station to be constructed near Clover, Virginia in Halifax
County. Construction of Unit 1 is complete and it achieved commercial operation
on October 7, 1995. The Company's 50 percent share of costs incurred through
December 31, 1995 amounted to $500.7 million. Construction of Unit 2 is on
schedule for completion in April 1996. The Company expects that completion costs
for Unit 2 will total $14 million.
In March 1995, the Virginia Supreme Court upheld the May 1994 approval by
the Virginia Commission for a 75 mile 500 Kv transmission line from the Clover
Power Station to the Carson Substation in Dinwiddie County, Virginia. The
transmission line is now under construction and is scheduled for completion in
April 1996.
The Company's continuing program to meet future capacity requirements is
summarized in the following table:
COMPANY OWNED GENERATION
<TABLE>
<CAPTION>
SUMMER
CAPABILITY EXPECTED
NAME OF UNITS MW IN-SERVICE DATE
<S> <C> <C>
Clover Power Station:
Unit 2 416* April 1996
</TABLE>
* Includes the 50 percent undivided ownership interest of ODEC.
<PAGE>
NON-UTILITY GENERATION
<TABLE>
<CAPTION>
NUMBER OF
PROJECTS MW
<S> <C> <C>
Projects Operational 66 3,295
Projects Financed 1 198
Unfinanced Projects 0 0
Total Contracts 67 3,493
</TABLE>
For additional information, see Note Q to CONSOLIDATED FINANCIAL
STATEMENTS.
COMPETITION AND STRATEGIC INITIATIVES
In light of existing and potential threats and opportunities brought about
by increased competition in the wholesale and retail markets for electricity,
the Company has undertaken cost-cutting measures to maintain its position as a
low-cost producer of electricity, engaged in re-engineering efforts of its core
business processes, and pursued a strategic planning initiative, called Vision
2000, to encourage innovative approaches to serving traditional markets and to
prepare appropriate methods by which to service future markets. In furtherance
of these initiatives, the Company has established separate business units for
its nuclear operations, fossil and hydroelectric operations, commercial
operations as well as its energy services business. It has gained regulatory
approval of innovative pricing proposals for industrial loads in Virginia and
North Carolina, entered into an energy partnership with a key industrial
customer, executed long term contracts with wholesale customers, increased its
presence in a broader geographic market for wholesale sales of electricity, and
acquired an existing energy services business to enhance its national
participation in that market. (See Note P to CONSOLIDATED FINANCIAL STATEMENTS)
WHOLESALE COMPETITION
The Company has established long-term contractual service arrangements with
all of its major wholesale cooperatives and municipalities. These contracts
contain multi-year notice provisions. To date, the Company has not experienced
any material loss of load revenue or net income due to competition for its
traditional wholesale customers. In 1995 a wholesale power group was formed
within the Company to engage in the purchase and sale of wholesale electric
power. The group has expanded the Company's trading range beyond the geographic
limits of the Company's service territory and has developed trading
relationships with utilities throughout the eastern United States.
RETAIL COMPETITION
At present, competition for retail customers is limited. It arises
primarily from the ability of certain business customers to relocate among
utility service territories, to substitute other energy sources for electric
power and to generate their own electricity. While the Energy Policy Act bans
federal orders of transmission service to ultimate customers, broader retail
competition that would allow customers to choose among electric suppliers is the
subject of intense debate in federal and state forums, both legislative and
regulatory.
A Retail Energy Services group was formed in July 1995 and has begun
developing non-traditional products and services to offer to customers both
inside and outside the service territory. These products and services include
fuel procurement and risk management services, electrical equipment maintenance,
power quality control, on-site turnkey industrial power plant construction, and
energy conservation systems. In December 1995, the Company launched the name
EVANTAGESM for the retail energy services division to establish a national brand
identity for the business.
In December 1995, the Company entered into an agreement with a key
industrial customer, Chesapeake Paper Products Company, to facilitate the
design, construction, and financing of a 38 Mw cogeneration plant, in order to
meet Chesapeake's energy requirements for its industrial processes and applied
to the Virginia Commission for the necessary approval of these arrangements. To
expand the offering of a range of energy services, the Company, in January 1996,
acquired two divisions of A&C Enercom of Atlanta, Georgia from Heartland
Development Corporation of Madison, Wisconsin. The Company has formed a
non-regulated subsidiary, A&C Enercom, Inc., which will provide marketing,
program planning and design, customer engineering and energy services consulting
to the utility industry. The new subsidiary has approximately 230 employees in
15 offices located in 13 states.
<PAGE>
In September 1995, the Virginia Commission launched an extensive
investigation into restructuring of and competition in the electric utility
industry. The scope of the investigation includes consideration of reliability,
continuity and stability of rates, fairness to all customers, fairness to
investors, and whether truly competitive markets that are in the public interest
can be developed. The outcome of the investigation could impact the extent to
which retail competition will exist within Virginia. In July 1995, the North
Carolina Utilities Commission declined to conduct an adversarial proceeding into
the question of whether retail competition should be allowed in North Carolina.
Instead, it is conducting an informal proceeding to gather information.
The Company has initiated new programs aimed at meeting retail customers'
needs for increased flexibility and control of their electric costs. The Company
has implemented a real time pricing rate experiment for a five year period. The
voluntary rate is available to industrial customers with loads in excess of 10
Mw and allows a customer to move up to 20% of its existing load, plus any load
growth, to the hourly pricing rate. In 1995 the Company also implemented a
self-generation deferral rate for a North Carolina industrial customer,
Weyerhauser. As a result of the rate being approved, the Company will serve
approximately 25-30 Mw of new load through at least May 1, 1999.
The Virginia Commission entered its Final Order on November 27, 1995 in the
Company's Petition for Declaratory Judgment against the City of Falls Church.
The Petition had been filed in light of Falls Church's municipalization proposal
and request for transmission service under Sections 211 and 213 of the Federal
Power Act. The Commission ruled that it has jurisdiction over the City and that
the City must seek approval from the Commission prior to implementing plans to
condemn Company facilities within the City. No other city has communicated to
the Company any interest in forming a municipal electric system.
CORPORATE RE-ENGINEERING
The Vision 2000 strategic planning initiative has generated efforts aimed
at improving shareholder value as competitive threats intensify. Re-engineering
and remissioning efforts have included reducing the number of operating
divisions, consolidating district offices and closing business offices as work
practices have been re-engineered to reduce costs and promote flexibility.
A review of Corporate Center functions has identified several activities
that were not core business functions and which were subsequently outsourced to
service providers. The Fossil and Hydroelectric Business Unit completed a
redesign effort in 1995. Re-engineering and restructuring efforts will continue
in the Corporate Center, Commercial Operations Business Unit, and Nuclear
Business Unit in an effort to improve the Company's competitive capabilities.
REGULATORY/LEGISLATIVE STRATEGY
Consistent with implementation of other Vision 2000 efforts, the Company
has developed a regulatory/legislative strategy intended to establish an orderly
transition to a more competitive environment. The regulatory/legislative
proposals are aimed at achieving greater flexibility on the part of the Company
and the Virginia Commission in setting overall rate levels as well as in setting
rates for individual customers.
For additional information, see COMPETITION under MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
CONSERVATION AND LOAD MANAGEMENT
The Company is committed to integrated resource planning and has developed
a detailed analysis procedure in which effective demand-side and supply-side
options are both considered in order to determine the least cost method to
satisfy the customers' needs. Demand-side programs are selected annually at
Virginia Power through an integrated resource planning process which directly
compares the stream of costs and benefits from supply-side and demand-side
options. This process ensures the ultimate selection of a demand-side package
which reduces the need for additional capacity while efficiently using the
Company's existing generation facilities.
ITEM 2. PROPERTIES
The Company owns its principal properties in fee (except as indicated
below), subject to defects and encumbrances that do not interfere materially
with their use. Substantially all of its property is subject to the lien of a
mortgage securing its First and Refunding Mortgage Bonds. Right-of-way grants
from the apparent owners of real estate have been obtained for most
<PAGE>
electric lines, but underlying titles have not been examined except for
transmission lines of 69 Kv 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 Company's transmission lines cross national
parks and forests under permits entitling the federal government to use, at
specified charges, surplus capacity in the line if any exists.
The Company leases certain buildings and equipment. See Note H to
CONSOLIDATED FINANCIAL STATEMENTS.
See COMPANY GENERATING UNITS under SOURCES OF POWER under Item 1. BUSINESS.
ITEM 3. LEGAL PROCEEDINGS
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 violations of state or federal
environmental regulations that the Company believes are not material with
respect to it and for which its aggregate liability for fines or penalties will
not exceed $100,000. There are no material agency enforcement actions or citizen
suits pending or, to the Company's present knowledge, threatened against the
Company.
Doswell Limited Partnership (Doswell) brought suit against Virginia Power
in the Circuit Court of the City of Richmond alleging breach of contract and
actual and constructive fraud and seeking damages of not less than $75 million
arising out of a disagreement on the calculation of a Fixed Fuel Transportation
Charge to be paid to Doswell under a purchased power contract. The issues of
actual and constructive fraud were dismissed with prejudice, and on March 6,
1995, the Court entered its opinion in favor of Virginia Power. Doswell has
appealed to the Supreme Court of Virginia, and briefs have been filed. Oral
argument was held on January 12, 1996. On March 1, 1996, the Supreme Court of
Virginia affirmed the decision of the Circuit Court. On March 8, 1996, Doswell
filed notice of its intent to seek a re-hearing.
On December 13, 1995, a civil action was instituted in the United States
District Court for the Eastern District of Virginia, Norfolk Division, against
the City of Norfolk and Virginia Power by a landowner who alleges that his
property has been contaminated by toxic pollutants originating on an adjacent
property now owned by the city and formerly owned by the Company. The plaintiff
seeks compensatory damages of $10 million and punitive damages of $5 million
from Virginia Power. Virginia Power and prior owners operated a gas
manufacturing plant on the property until 1968, when the plant was closed and
dismantled. Virginia Power sold the property to the city in 1970. The Company
filed its answer denying liability on January 10, 1996.
A dispute over corporate governance issues between Dominion Resources, Inc.
and Virginia Power arose in 1994, and the Virginia Commission instituted a
proceeding concerning the holding company structure and the relationship between
the two companies. This proceeding was continued generally and has been inactive
since August 1994, when a related proceeding of broader scope was initiated by
the Commission. On February 20, 1995, Dominion Resources, Virginia Power and the
Commission Staff consented to an order in this proceeding under which Dominion
Resources must obtain the Commission's approval before taking steps such as
acting in the place of Virginia Power's Board of Directors or officers, removing
Virginia Power's Board members or officers or changing Virginia Power's articles
of incorporation or bylaws. The Order remains effective until July 2, 1996. On
April 12, 1995 the Staff of the Commission and its consultants filed a Final
Report, which contains a summary of the proceedings and numerous recommendations
by the consultants pertaining to the relationship between the two companies,
including recommendations relating to corporate governance issues, operating
relationships, including overhead allocations and financial controls, affiliate
service arrangements and transactions, compensation to Virginia Power for credit
support perceived by the consultants to flow to Dominion Resources and its other
subsidiaries, and possible regulatory tools for the Commission. In September
1995 Dominion Resources and Virginia Power each filed responses to the matters
addressed in the Final Report. The Staff is scheduled to file its final response
by March 15, 1996.
At this time, Virginia Power is unable to predict the ultimate resolution
of these matters or their effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
<PAGE>
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 1995 and 1994, the Company paid quarterly cash dividends on its
Common Stock as follows:
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
<S> <C> <C> <C> <C>
(MILLIONS)
1995................................ $100.3 $96.0 $99.2 $ 98.8
1994................................ $ 97.7 $98.2 $99.0 $100.6
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
(MILLIONS, EXCEPT PERCENTAGES)
Operating revenues........................ $ 4,350.4 $ 4,170.8 $ 4,187.3 $ 3,679.6 $ 3,688.1
Operating income.......................... 746.5 731.4 813.4 761.6 816.8
Income before cumulative effect of a
change in accounting principle.......... 432.8 447.1 509.0 455.2 487.4
Cumulative effect of a change in
accounting principle.................... 14.3
Net income................................ $ 432.8 $ 447.1 $ 509.0 $ 469.5 $ 487.4
Balance available for Common Stock........ $ 388.7 $ 404.9 $ 466.9 $ 423.8 $ 435.9
Total assets.............................. 11,827.7 11,647.9 11,520.5 11,316.7 10,205.0
Total net utility plant................... 9,573.1 9,623.4 9,459.7 9,254.7 9,064.6
Long-term debt, noncurrent capital lease
obligations, preferred stock subject to
mandatory redemption and preferred
securities of subsidiary trust.......... 4,228.0 4,157.5 4,151.1 4,089.5 4,119.9
Utility plant expenditures (including
nuclear fuel)........................... 577.5 660.9 712.8 716.5 727.8
Capitalization ratios (percent):
Debt.................................... 47.2 46.7 46.4 46.3 47.4
Preferred stock......................... 7.5 9.0 9.2 9.7 9.0
Preferred securities.................... 1.5
Common equity........................... 43.8 44.3 44.4 44.0 43.6
Embedded cost (percent):
Long-term debt.......................... 7.73 7.65 7.67 7.86 8.43
Preferred stock......................... 5.29 5.47 4.88 5.38 6.54
Preferred securities.................... 8.72
Weighted average........................ 7.41 7.29 7.18 7.42 8.11
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operating activities has accounted for, on average, 72% of
the Company's cash requirements over the past three years.
With the near completion of the 832 Mw coal-fired power station near
Clover, Virginia, the Company has entered, in 1995, a period in which internal
cash generation will exceed construction expenditures. The internal generation
of cash in 1994 and 1993 provided 88% and 84%, respectively, of the funds
required for the Company's capital requirements.
Net cash provided by operating activities increased by $107.1 million in
1995 as compared to 1994, primarily as a result of increased sales, partially
offset by a number of other factors resulting from normal operations.
Net cash provided by operating activities decreased $4.6 million in 1994 as
compared to 1993, primarily as a result of a rate refund of $129.2 million in
1994, partially offset by a number of factors resulting from normal operations.
Cash from (to) financing activities was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
(MILLIONS)
Common stock................................................ $ 75.0 $ 50.0
Preferred stock............................................. 150.0
Mortgage bonds.............................................. $ 200.0 325.0 1,035.0
Medium-term notes........................................... 40.0 100.0
Pollution control securities................................ 39.0
Preferred securities of subsidiary trust.................... 135.0
Short-term debt............................................. 169.0
Repayment of long-term debt and preferred stock............. (439.0) (334.3) (1,072.1)
Dividends................................................... (438.6) (438.2) (421.1)
Preferred securities distribution........................... (3.6)
Other....................................................... (10.1) (50.8) (89.8)
Total..................................................... $ (347.3) $ (284.3) $ (348.0)
</TABLE>
The Company sold $200 million of First and Refunding Mortgage Bonds with an
annual stated interest rate of 8.25% in March 1995. The proceeds were used
primarily to pay a portion of mandatory debt maturities. The Company sold $40
million of Medium-Term Notes with an annual stated interest rate of 6.35% in
June 1995, the proceeds of which were used to meet a portion of the Company's
capital requirements. During the year the Company retired a total of $312.3
million of debt securities through mandatory maturities.
In 1995 the Company issued $135 million of Preferred Securities of a
subsidiary trust. The proceeds were used to redeem 450,000 shares of the
Company's $7.20 Dividend Preferred Stock, 417,319 shares of the $7.30 Dividend
Preferred Stock, and 400,000 shares of the $7.45 Dividend Preferred Stock (total
principal value of $126.7 million) and for other capital requirements.
In May and June 1995, the Company filed two shelf registration statements
with the Securities and Exchange Commission, one for $500 million of First and
Refunding Mortgage Bonds and the other for $200 million of Medium-Term Notes,
Series F, respectively, which combine to provide the Company with $700 million
in unused capital resources. In addition, the Company has a Preferred Stock
shelf, registered with the Securities and Exchange Commission, for $100 million
in aggregate principal amount, which has not been utilized. The Company intends
to issue securities from time to time to meet its capital requirements.
The Company has an established commercial paper program. Under the program
$300 million of commercial paper may be outstanding at any point in time. This
program is supported by a $300 million revolving credit facility which replaced
the Inter-Company Credit Agreement with Dominion Resources, Inc.. Proceeds from
the sale of commercial paper are primarily used to finance working capital for
operations. As of December 31, 1995, net borrowings under the commercial paper
program were $169 million.
<PAGE>
Cash from (used in) investing activities was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
(MILLIONS)
Utility plant expenditures.................................. $ (519.9) $ (580.9) $ (644.9)
Nuclear fuel................................................ (57.6) (80.0) (67.9)
Nuclear decommissioning contributions....................... (28.5) (24.5) (24.4)
Pollution control project funds............................. 8.4 6.9 32.7
Sale of accounts receivable, net............................ (160.0) (40.0)
Other....................................................... (19.5) (8.3) (13.9)
Total..................................................... $ (777.1) $ (726.8) $ (718.4)
</TABLE>
Investing activities in 1995 resulted in a net cash outflow of $777.1
million primarily due to $519.9 million of construction expenditures and $57.6
million of nuclear fuel expenditures. Of the construction expenditures,
approximately
$42.7 million was spent on new generating facilities, $141.7 million on other
production projects, and $286.8 million on transmission and distribution
projects.
CAPITAL REQUIREMENTS
The Company presently anticipates that kilowatt-hour sales will grow
approximately 2 percent a year through 2010. Capacity needed to support this
growth will be provided through a combination of Company-constructed generating
units, purchases from non-utility generators and other utility generators. Each
of these options plays an important role in the Company's overall plan to meet
capacity needs.
The Company's construction and nuclear fuel expenditures (excluding AFC),
during 1996, 1997 and 1998 are expected to aggregate $569.3 million, $530.3
million and $530.8 million, respectively.
Clover Unit 1 that is part of a two-unit facility jointly owned with ODEC,
began commercial operation in October 1995. The Company's fifty percent
ownership share was completed at a cost of $289.6 million. The Company's annual
depreciation and operations and maintenance expenses, for both units, are
estimated to be $15 million.
Construction continues on Clover Unit 2 with an expected in-service date of
April 1996. The Company's share of the cost of construction is approximately
$225.1 million of which $14 million remains to be spent. After 1996, no new base
load generation is expected to be needed until the end of the next decade. From
2000 until 2009, the Company will need to add peaking or intermediate units to
meet anticipated demand.
The Company will require $259.6 million to meet long-term debt maturities
in 1996. The Company presently estimates that, for 1996, all of its construction
expenditures, including nuclear fuel expenditures, will be met through cash flow
from operations. Other capital requirements will be met through a combination of
sales of securities and short-term borrowings.
RESULTS OF OPERATIONS
The following is a discussion of results of operations for the years ended
1995 as compared to 1994, and 1994 as compared to 1993.
1995 COMPARED TO 1994
Balance available for Common Stock decreased as compared to 1994, primarily
as a result of restructuring costs recognized during 1995. Without restructuring
costs, balance available for Common Stock in 1995 would have been higher by
$76.6 million.
<PAGE>
OPERATING REVENUES changed primarily due to the following:
<TABLE>
<CAPTION>
INCREASE
(DECREASE) FROM
PRIOR YEAR
1995 1994
<S> <C> <C>
(MILLIONS)
Customer growth..................... $ 76.2 $ 22.5
Weather............................. 81.6 (8.8)
Change in base revenues............. 6.3 (35.0)
Fuel cost recovery.................. (8.9) (7.9)
Other, net.......................... (6.0)
Total retail...................... 149.2 (29.2)
Sales for resale.................... 32.8 8.8
Other operating revenues............ (2.4) 3.9
Total revenues.................... $179.6 $ (16.5)
</TABLE>
As detailed in the chart above, the increase in revenues is primarily due
to the weather, I.E., increased heating and cooling degree days, experienced in
the last six months of 1995, increased customer growth and increased sales for
resale.
During 1995, the Company had 44,955 new connections to its system compared
to 46,741 and 43,014 in 1994 and 1993, respectively.
Kilowatt-hour sales changed as follows:
<TABLE>
<CAPTION>
INCREASE
(DECREASE) FROM
PRIOR YEAR
1995 1994
<S> <C> <C>
Residential......................... 4.1% (1.0)%
Commercial.......................... 3.6 0.8
Industrial.......................... 3.6 5.4
Public authorities.................. 4.0 (0.3)
Total retail sales.................. 3.8 0.7
Resale.............................. 13.4 4.1
Total sales......................... 4.9 1.1
</TABLE>
Cooling and heating degree days were as follows:
<TABLE>
<CAPTION>
1995 1994 NORMAL
<S> <C> <C> <C>
Cooling degree days................. 1,667 1,613 1,534
Percentage change
compared to prior year............ 3.3% (5.2)%
Heating degree days................. 3,790 3,515 3,662
Percentage change
compared to prior year............ 7.8% (8.3)%
</TABLE>
The increase in kilowatt-hour sales in 1995 as compared to 1994 reflects
increased customer growth and the weather experienced in the last six months of
1995, partially offset by the milder weather experienced in the first six months
of 1995. The increase in kilowatt-hour sales in 1994 as compared to 1993
reflects the extreme weather experienced in January 1994, partially offset by
lower sales during the second half of 1994 due to milder weather.
The increase in sales for resale in 1995, as compared to 1994, was
primarily due to weather experienced by other utilities in surrounding regions
during the last six months of 1995 and increased marketing efforts by the
Company.
<PAGE>
The average fuel cost of system energy output is shown below:
<TABLE>
<CAPTION>
MILLS PER KILOWATT-HOUR
1995 1994 1993
<S> <C> <C> <C>
Nuclear............................. 4.92 4.89 4.60
Coal................................ 14.44 14.61 14.69
Oil................................. 25.11 23.00 26.55
Purchased power, net................ 22.50 23.99 24.54
Other............................... 23.82 25.46 24.35
Average fuel cost................... 13.73 14.02 14.42
</TABLE>
System energy output is shown below:
<TABLE>
<CAPTION>
ESTIMATED ACTUAL
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Nuclear(*).......................... 33% 32 % 34 % 31 %
Coal(**)............................ 40 39 36 39
Oil................................. 1 1 3 3
Purchased power, net................ 23 25 23 23
Other............................... 3 3 4 4
100% 100 % 100 % 100 %
</TABLE>
(*) Excludes ODEC's 11.6 percent ownership interest in the North Anna Power
Station
(**) Excludes ODEC's 50 percent ownership interest in the Clover Power
Station
RESTRUCTURING - as part of the Vision 2000 program (see Note P to
CONSOLIDATED FINANCIAL STATEMENTS), the Company recorded $117.9 million of
restructuring charges in 1995. Restructuring charges included severance costs,
purchase power contract cancellation and negotiated settlement costs, capital
project cancellation costs and other costs. As of December 31, 1995, no material
savings have been realized due to recently implemented, 1995 involuntary
staffing reductions. However, the Company estimates that these staffing
reductions will result in annual savings, net of outsourcing costs, in the range
of $50 million to $60 million. The Company will incur additional restructuring
charges in 1996. However, the amount of restructuring charges yet to be incurred
is not known at this time. Furthermore, because the Company's review of its
operations has not been completed, the amount of savings ultimately to be
realized cannot be estimated at this time. When realized, the savings will be
reflected in lower construction expenditures as well as lower operation and
maintenance expenses.
OPERATION - OTHER AND MAINTENANCE decreased as compared to 1994. Expenses
during 1994 included payroll and voluntary separation costs for those employees
who elected to terminate service with the Company under the 1994 Early
Retirement and Voluntary Separation Programs, offset in part by recognition of
insurance policyholder distributions. Expenses in 1995 reflected a decrease in
payroll costs due to reduced staffing levels and weather-related overtime,
offset by 1995 salary increases and the impact of employees being reassigned
from capital to operation and maintenance activities. In addition, 1995 expenses
include expenses associated with the North Branch Power Station, increased
obsolete inventory costs, increased accruals for employee benefits, and
increased nuclear outage costs.
INTEREST CHARGES - INTEREST ON LONG-TERM DEBT increased as compared to 1994
primarily as a result of higher interest rates on First and Refunding Mortgage
Bonds and Pollution Control Notes.
INTEREST CHARGES - OTHER increased in 1995 primarily as a result of a
reduction of $10.6 million in the interest accrued for prior years on certain
tax obligations in 1994.
1994 COMPARED TO 1993
OPERATION EXPENSES-OTHER increased as compared to 1993 primarily as a
result of recognition of costs associated with the Early Retirement and
Voluntary Separation Programs offered by the Company in 1994.
INCOME TAXES-OPERATING decreased as compared to 1993 primarily as a result
of decreased pretax book income.
INTEREST CHARGES-OTHER decreased in 1994 primarily as a result of a
reduction of $10.6 million in the interest accrued for prior years on certain
tax obligations.
<PAGE>
FUTURE ISSUES
UTILITY RATE REGULATION
Regulatory policy continues to be of fundamental importance to the Company
and to its financial performance.
The cost of purchased capacity constitutes a large category of cost
incurred in the Company's operations. The Virginia Commission has authorized
rates providing for the current recovery of the ongoing level of capacity
payments. Moreover, the Virginia Commission has established and reaffirmed
deferral accounting that is intended to ensure dollar for dollar recovery of
reasonably incurred capacity costs.
ENVIRONMENTAL MATTERS
The Company is subject to rising costs resulting from a steadily increasing
number of federal, state and local laws and regulations designed to protect
human health and the environment. These laws and regulations affect future
planning and existing operations. They can result in increased capital,
operating and other costs as a result of compliance, remediation, containment
and monitoring obligations of the Company. These costs have been historically
recovered through the ratemaking process; however, should material costs be
incurred and not recovered through rates, the Company's results of operations
and financial condition could be adversely impacted.
ENVIRONMENTAL PROTECTION AND MONITORING EXPENDITURES
The Company incurred $68.3 million, $67.3 million and $72.2 million
(including depreciation) during 1995, 1994 and 1993, respectively, in connection
with the use of environmental protection facilities and expects these expenses
to be approximately $68.3 million in 1996. In addition, capital expenditures to
limit or monitor hazardous substances were $23.4 million, $47.3 million and
$94.4 million for 1995, 1994 and 1993, respectively. The amount estimated for
1996 for these expenditures is $24.5 million.
CLEAN AIR ACT COMPLIANCE
The Clean Air Act, as amended in 1990, requires the Company to reduce its
emissions of sulfur dioxide (SO2) and nitrogen oxides. Beginning in 1995, the
SO2 reduction program is based on the issuance of a limited number of SO2
emission allowances, each of which may be used as a permit to emit one ton of
SO2 into the atmosphere or may be sold to someone else. The program is
administered by the EPA.
The Company has installed SO2 control equipment on Unit 3 at Mt. Storm
Power Station. The SO2 control equipment began operation on October 31, 1994.
The cost of this and related equipment was $147 million. The Company has
completed its compliance plan for Phase II of the Clean Air Act, with the
exception of some additional studies concerning Phase II nitrogen oxide NOx
controls. The plan will involve switching to lower sulfur coal, purchase of
emission allowances and additional NOx and SO2 controls. Maximum flexibility and
least-cost compliance will be maintained through annual studies. Capital
expenditures on Clean Air Act compliance over the next 5 years are projected to
be approximately $61 million. Changes in the regulatory environment,
availability of allowances, and emission control technology could substantially
impact the timing and magnitude of compliance expenditures.
ELECTROMAGNETIC FIELDS
The possibility that exposure to electromagnetic fields emanating from
power lines, household appliances and other electric sources may result in
adverse health effects has been a subject of increased public, governmental and
media attention. A considerable amount of scientific research has been conducted
on this topic without definitive results. Research is continuing to resolve
scientific uncertainties. It is too soon to tell what, if any, impact these
actions may have on the Company's financial condition.
<PAGE>
NUCLEAR OPERATIONS
In 1995, the Company's four nuclear units operated at a combined capacity
factor of 85.4%, reflecting a world record 69 day refueling/steam generator
replacement outage at North Anna Unit 2, a 46 day refueling/10-year in-service
inspection outage at Surry Unit 2 and a 43 day refueling outage at Surry Unit 1.
Nuclear refueling outages typically occur every 18 months and last approximately
48 days. When nuclear units are refueled, the Company replaces the power from
nuclear generation with other more expensive sources. A reduction in the length
of an outage should result in increased availability of low-cost nuclear
generation, thereby lowering generation expenses. Three normal refueling outages
are currently scheduled in 1996. The Company's goal is to reduce future
refueling outages from an average of 48 days to 35 days.
The NRC revised the nuclear power plant license renewal rules issued in
1991. The Company intends to work with industry groups on license renewal
programs, and apply for renewal of the current 40-year licenses by 1999.
In addition to improving nuclear unit productivity and efficiency, the
Company has completed engineering analyses and evaluations to support uprating
the capability of the units. The plant modifications have been completed at both
North Anna and Surry. The upgraded core improvement at North Anna Power Station
has resulted in a 4.2% increase in the gross electrical output for each of the
units. A similar project for uprating Surry Units 1 and 2 was completed in 1995
and resulted in a 4.3% increase in the gross electrical output for each of the
units.
For information on nuclear decommissioning, see Note C to CONSOLIDATED
FINANCIAL STATEMENTS.
COMPETITION
In light of existing and potential threats and opportunities brought about
by increased competition in the wholesale and retail markets for electricity,
the Company has undertaken cost-cutting measures to maintain its position as a
low-cost producer of electricity, engaged in re-engineering efforts of its core
business processes, and pursued a strategic planning initiative, called Vision
2000, to encourage innovative approaches to serving traditional markets and to
prepare appropriate methods by which to service future markets. In furtherance
of these initiatives, the Company has established separate business units for
its nuclear operations, fossil and hydroelectric operations, commercial
operations as well as its energy services business. It has gained regulatory
approval of innovative pricing proposals for industrial loads in Virginia and
North Carolina, entered into an energy partnership with a key industrial
customer, and in January 1996, acquired two divisions of A&C Enercom of Atlanta,
Georgia from Heartland Development Corporation of Madison, Wisconsin. The
Company has formed a non-regulated subsidiary, A&C Enercom, Inc., which will
provide marketing, program planning and design, customer engineering and energy
consulting services.
As part of the Company's Vision 2000 initiatives, the Company developed a
regulatory/legislative strategy intended to establish an orderly transition to a
more competitive environment. The Company supported a number of legislative
proposals during the 1996 session of the Virginia General Assembly that are
aimed at achieving greater flexibility for the Virginia Commission and the
Company. All the proposals supported by the Company were passed in amended form
by both houses of the General Assembly. After passage, the Governor recommended
an amendment to one of the proposals, which was then considered and passed by
both houses. The remaining proposals await action by the Governor. The
legislation will:
(Bullet) allow the Virginia Commission to approve 1) alternative forms of
regulation (including, but not limited to, price regulation,
ranges of authorized returns, categories of services and price
indexing) that may serve as a transition to a more market-based
electric utility industry and 2) economic development rates and
packages of incentive rates and services customized to meet
individual customer needs;
(Bullet) facilitate a regulated utility's ability to enter into joint
ventures and partnerships;
(Bullet) bring federal customer accounts served in Virginia under limited
jurisdiction of the Virginia Commission, thus enabling the
Virginia Commission to address any "stranded investment" issues
that may arise due to changes in federal policy;
(Bullet) clarify that a local referendum must be held before
municipalization of utility services can occur for services
previously provided by a utility;
(Bullet) allow the Virginia Commission to establish for use in a
condemnation proceeding the amount of stranded investment
payment, if any, that is appropriate when a corporation
possessing the power of eminent domain seeks permission to
condemn the property of another corporation possessing the power
of eminent domain.
<PAGE>
The Company will continue to be affected by the developing competitive
market in wholesale power. Under the Energy Policy Act of 1992, any participant
in the wholesale market can obtain a FERC order to provide transmission
services, under certain conditions. In 1995 a wholesale power group was formed
within the Company to engage in the purchase and sale of wholesale electric
power. The group has already developed trading relationships beyond the
geographic limits of the Company's retail service territory.
In 1995, FERC issued a Notice of Proposed Rulemaking (NOPR) regarding
open-access transmission service and a NOPR regarding real-time information
networks and standards of conduct. The real-time information network would
provide transmission users data concerning the availability of transmission
service on a same-time basis. The Company filed comments in both proceedings
supporting FERC's objective to promote comparable open-access transmission
service, however, the Company urged FERC to rethink its suggestion of functional
unbundling to insure the continued reliability of the transmission system.
At present, competition for retail customers is limited. It arises
primarily from the ability of certain business customers to relocate among
utility service territories, to substitute other energy sources for electric
power and to generate their own electricity. While the Energy Policy Act bans
federal orders of transmission service to ultimate customers, broader retail
competition that would allow customers to choose among electric suppliers is the
subject of intense debate, both legislative and regulatory. If such competition
were to develop, it would have the potential to shift costs among customer
classes and to create significant transitional costs.
Potential competition also exists for the Company's sales to its wholesale
cooperative and municipal customers. However, nearly all of this service is
under contracts with multi-year notice provisions. To date, the Company has not
experienced any material loss of load, revenues or net income due to competition
for its customers. The Company believes it has a strong capability to meet
future competition.
The City of Falls Church, Virginia, has indicated that it intends to pursue
the establishment of a municipal electric system. In response to a Company
petition, the Commission has ruled that it has jurisdiction over the City and
that the City must seek approval from the Commission prior to implementing plans
to condemn Company facilities within the City. Revenues from retail sales within
the City of Falls Church account for less than .2% of the company's total
revenues. As a result, Virginia Power will not experience a material loss of
revenues or net income should a municipal electric system be created. No other
city has communicated to the Company any interest in forming a municipal
electric system.
In accordance with SFAS No. 71, "Accounting for the Effects of Certain
Types of Regulation", the Company's financial statements reflect assets and
costs based on current cost-based ratemaking regulations. Continued accounting
under SFAS 71 requires that the following criteria be met:
a) A utility's rates for regulated services provided to its customers
are established by, or are subject to approval by, an independent
third-party regulator;
b) The regulated rates are designed to recover specific costs of
providing the regulated services or products; and
c) In view of the demand for the regulated services and the level of
competition, direct and indirect, it is reasonable to assume that
rates set at levels that will recover a utility's costs can be
charged to and collected from customers. This criterion requires
consideration of anticipated changes in levels of demand or
competition during the recovery period for any capitalized costs.
A utility's operations or portion of operations can cease to meet these
criteria for various reasons, including a change in the method of regulation or
a change in the competitive environment for regulated services. A utility whose
operations or portion of operations cease to meet these criteria should
discontinue application of SFAS 71 and write-off any regulatory assets and
liabilities for those operations that no longer meet the requirements of SFAS
71. The Company's operations currently satisfy the SFAS 71 criteria. However, if
events or circumstances should change so that those criteria are no longer
satisfied, management believes that a material adverse effect on the Company's
results of operations and financial position may result.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which must be
adopted by the Company by January 1, 1996. This statement requires the Company
to review long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable and requires rate-regulated companies to write-off regulatory assets
against earnings whenever those assets no longer meet the criteria for
recognition of a regulatory asset as defined by SFAS 71.
The Company has operated and continues to operate in a regulated
environment. Under regulation, the Company's rates are intended to recover its
cost of providing service, including the opportunity to earn a return on
shareholder's investment.
<PAGE>
In this regulated environment, the Company's long-lived assets are generally
included in rate base and the depreciation thereof is included in cost of
service. As long as the Company continues to operate within cost-based
regulation and the Company's long-lived assets are provided for in the Company's
regulated rates, the Company would not experience impairment write-downs for
assets held and used in providing electric service.
If, however, the service potential of an asset used in utility operations
is impaired by an adverse event, the Company would evaluate the nature of the
event and whether to seek specific rate recovery for that amount. If specific
rate recovery is permitted by regulators, the Company would recognize a
regulatory asset instead of charging the impairment write-down to operations.
From time to time, the Company may decide to dispose of long-lived utility
assets previously used in operations but no longer needed. Under SFAS No. 121,
the Company will determine the fair value less the cost to sell such assets. To
the extent such amount is less than the carrying amount for that asset, the
Company would recognize a loss. If specific rate recovery is permitted by
regulators, the Company would recognize a regulatory asset instead of charging
the loss to operations.
Based on the Company's current operating environment, adoption of SFAS 121
is not expected to have a material impact. However, as discussed under
COMPETITION, the Virginia Commission has established a proceeding to examine the
issue of competition and the regulatory framework in Virginia. In addition, FERC
has initiated proceedings to address open-access transmission policy. If future
regulatory reform should provide for a departure from cost-based regulation,
regulators, electric utilities and other parties involved in the restructuring
of the electric industry would face significant issues. One such issue is
concerned with potential "stranded investment." Stranded investment represents
costs incurred or commitments made by utilities under traditional cost-based
regulation based on an obligation to serve supported by an implicit promise to
recover prudently incurred costs that may not be reasonably expected to be
recovered. Regulatory assets recognized under SFAS 71, unrecovered investment in
power plants and commitments such as long-term purchased power contracts are
items that may become stranded investment if prices for electric services are
based on market rather than the cost of providing that service.
The Company expects to continue to operate under regulation and to recover
its cost of providing traditional electric service. However, the form of
cost-based rate regulation, under which the Company operates, may evolve in the
future to accommodate changes in the industry and to address issues such as
recovery of potential stranded investment. At this time, Company management can
predict neither the ultimate outcome of the regulatory reform initiatives in the
electric utility industry nor the impact such changes would have on the Company.
OTHER
Except for the historical information contained herein, the matters
discussed in this annual report on Form 10-K are forward-looking statements
which involve risks and uncertainties, including but not limited to regulatory,
economic, competitive, governmental and technological factors affecting the
Company's operations, rates, markets, products, services and prices, and other
factors discussed herein and in the Company's other filings with the Securities
and Exchange Commission.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
<TABLE>
<CAPTION>
PAGE
NO.
<S> <C>
Report of Management........................................................................................ 22
Report of Independent Auditors.............................................................................. 23
Consolidated Statements of Income for the years ended December 31, 1995, 1994 and 1993...................... 24
Consolidated Balance Sheets at December 31, 1995 and 1994................................................... 25
Consolidated Statements of Earnings Reinvested in Business for the years ended December 31, 1995, 1994 and
1993...................................................................................................... 27
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993.................. 28
Notes to Consolidated Financial Statements.................................................................. 29
</TABLE>
<PAGE>
REPORT OF MANAGEMENT
The Company's management is responsible for all information and
representations contained in the Consolidated Financial Statements and other
sections of the Company's annual report on Form 10-K. The Consolidated Financial
Statements, which include amounts based on estimates and judgments of
management, have been prepared in conformity with generally accepted accounting
principles. Other financial information in the Form 10-K is consistent with that
in the Consolidated Financial Statements.
Management maintains a system of internal accounting controls designed to
provide reasonable assurance, at a reasonable cost, that the Company's assets
are safeguarded against loss from unauthorized use or disposition and that
transactions are executed and recorded in accordance with established
procedures. Management recognizes the inherent limitations of any system of
internal accounting control and, therefore cannot provide absolute assurance
that the objectives of the established internal accounting controls will be met.
This system includes written policies, an organizational structure designed to
ensure appropriate segregation of responsibilities, careful selection and
training of qualified personnel and internal audits. Management believes that
during 1995 the system of internal control was adequate to accomplish the
intended objective.
The Consolidated Financial Statements have been audited by Deloitte &
Touche LLP, independent auditors, who have been engaged by the Board of
Directors. Their audits were conducted in accordance with generally accepted
auditing standards and included a review of the Company's accounting systems,
procedures and internal controls, and the performance of tests and other
auditing procedures sufficient to provide reasonable assurance that the
Consolidated Financial Statements are not materially misleading and do not
contain material errors.
The Audit Committee of the Board of Directors, composed entirely of
directors who are not officers or employees of the Company, meets periodically
with the independent auditors, the internal auditors and management to discuss
auditing, internal accounting control and financial reporting matters and to
ensure that each is properly discharging its responsibilities. Both the
independent auditors and the internal auditors periodically meet alone with the
Audit Committee and have free access to the Committee at any time.
Management recognizes its responsibility for fostering a strong ethical
climate so that the Company's affairs are conducted according to the highest
standards of personal and corporate conduct. This responsibility is
characterized and reflected in the Company's Code of Ethics, which is
distributed throughout the Company. The Code of Ethics addresses, among other
things, the importance of ensuring open communication within the Company;
potential conflicts of interest; compliance with all domestic and foreign laws,
including those relating to financial disclosure; the confidentiality of
proprietary information; and full disclosure of public information.
VIRGINIA ELECTRIC AND POWER COMPANY
<TABLE>
<S> <C>
J. T. Rhodes E. M. Roach, Jr.
President and Senior Vice President-Finance,
Chief Executive Regulation & General Counsel
Officer
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of Virginia Electric and Power Company:
We have audited the accompanying consolidated balance sheets of Virginia
Electric and Power Company (a wholly-owned subsidiary of Dominion Resources,
Inc.) and subsidiaries as of December 31, 1995 and 1994 and the related
consolidated statements of income, earnings reinvested in business, and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the companies at December 31,
1995 and 1994 and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Richmond, Virginia
February 2, 1996
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C>
(MILLIONS)
Operating revenues................................................ $4,350.4 $4,170.8 $4,187.3
Operating expenses:
Operation:
Fuel, net.................................................... 1,006.9 973.0 959.5
Purchased power capacity, net................................ 688.4 669.4 646.1
Other........................................................ 543.8 577.4 525.7
Maintenance..................................................... 260.5 263.2 279.5
Restructuring................................................... 117.9
Depreciation and amortization................................... 469.1 446.3 426.8
Amortization of terminated construction project costs........... 34.4 34.4 36.1
Taxes -- Income................................................. 228.1 223.0 253.5
-- Other................................................. 254.8 252.7 246.7
Total...................................................... 3,603.9 3,439.4 3,373.9
Operating income.................................................. 746.5 731.4 813.4
Other income...................................................... 6.7 10.9 11.4
Income before interest charges.................................... 753.2 742.3 824.8
Interest charges:
Interest on long-term debt...................................... 302.6 291.9 300.2
Other........................................................... 20.1 7.5 19.1
Allowance for borrowed funds used during construction........... (4.7) (4.2) (3.5)
Total...................................................... 318.0 295.2 315.8
Distributions -- preferred securities of subsidiary trust, net.... 2.4
Net income........................................................ 432.8 447.1 509.0
Preferred dividends............................................... 44.1 42.2 42.1
Balance available for Common Stock................................ $ 388.7 $ 404.9 $ 466.9
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
1995 1994
<S> <C> <C>
(MILLIONS OF DOLLARS)
UTILITY PLANT:
Plant (includes plant under construction of $512.1 in 1995 and $828.2 in
1994).................................................................... $14,201.6 $13,896.6
Less accumulated depreciation............................................... 4,760.9 4,426.9
9,440.7 9,469.7
Nuclear fuel (less accumulated amortization of $703.6 in 1995 and $663.5 in
1994).................................................................... 132.4 153.7
Total net utility plant................................................ 9,573.1 9,623.4
INVESTMENTS:
Nuclear decommissioning trust funds......................................... 351.4 260.9
Pollution control project funds............................................. 11.9 20.3
Other....................................................................... 21.0 21.1
Total net investments.................................................. 384.3 302.3
CURRENT ASSETS:
Cash and cash equivalents................................................... 29.8 28.8
Customer accounts receivable (less allowance for doubtful accounts of $1.7
in 1995 and 1994)........................................................ 362.6 202.7
Accrued unbilled revenues................................................... 179.5 97.4
Materials and supplies at average cost or less:
Plant and general........................................................ 160.2 186.7
Fossil fuel.............................................................. 71.2 122.9
Other....................................................................... 133.5 104.9
Total current assets................................................... 936.8 743.4
DEFERRED DEBITS AND OTHER ASSETS:
Regulatory assets........................................................... 816.4 871.0
Unamortized debt issuance costs............................................. 26.6 22.8
Other....................................................................... 90.5 85.0
Total deferred debits and other assets................................. 933.5 978.8
Total assets........................................................... $11,827.7 $11,647.9
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
AT DECEMBER 31,
1995 1994
<S> <C> <C>
(MILLIONS OF DOLLARS)
LONG-TERM DEBT................................................................ $ 3,889.4 $ 3,910.4
COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY
TRUST*...................................................................... 135.0
PREFERRED STOCK:
Preferred stock subject to mandatory redemption............................. 180.0 221.7
Preferred stock not subject to mandatory redemption......................... 509.0 594.0
COMMON STOCKHOLDER'S EQUITY:
Common Stock, no par, 300,000 shares authorized, 171,484 shares outstanding
at December 31, 1995 and 1994............................................ 2,737.4 2,737.4
Other paid-in capital....................................................... 16.9 20.4
Earnings reinvested in business............................................. 1,272.5 1,277.8
Total common stockholder's equity........................................ 4,026.8 4,035.6
CURRENT LIABILITIES:
Securities due within one year.............................................. 259.6 312.2
Short-term debt............................................................. 169.0
Accounts payable, trade..................................................... 310.7 318.3
Customer deposits........................................................... 55.4 55.0
Payrolls accrued............................................................ 77.7 59.5
Severance costs accrued..................................................... 42.5
Interest accrued............................................................ 101.8 96.2
Other....................................................................... 99.0 107.9
Total current liabilities................................................ 1,115.7 949.1
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes........................................... 1,498.8 1,466.7
Deferred investment tax credits............................................. 272.2 289.2
Deferred fuel expenses...................................................... 57.7 51.5
Other....................................................................... 143.1 129.7
Total deferred credits and other liabilities............................. 1,971.8 1,937.1
COMMITMENTS AND CONTINGENCIES (See Note Q)
Total liabilities and shareholders' equity............................... $11,827.7 $11,647.9
</TABLE>
(*) As described in Note (J) to CONSOLIDATED FINANCIAL STATEMENTS, the 8.05%
Junior Subordinated Notes totalling $139.2 million principal amount
constitute 100% of the Trust's assets.
The accompanying notes are an integral part of the financial statements.
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS REINVESTED IN BUSINESS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C>
(MILLIONS)
Balance at beginning of year...................................... $1,277.8 $1,269.3 $1,182.7
Net income........................................................ 432.8 447.1 509.0
Total........................................................ 1,710.6 1,716.4 1,691.7
Cash dividends:
Preferred stock subject to mandatory redemption................. 13.5 14.4 17.2
Preferred stock not subject to mandatory redemption............. 30.8 28.3 25.0
Common Stock.................................................... 394.3 395.5 378.9
Total dividends.............................................. 438.6 438.2 421.1
Other additions (deductions), net................................. 0.5 (0.4) (1.3)
Balance at end of year............................................ $1,272.5 $1,277.8 $1,269.3
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C>
(MILLIONS)
Cash Flow From Operating Activities:
Net income............................................................... $ 432.8 $ 447.1 $ 509.0
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization....................................... 585.1 558.3 546.6
Allowance for other funds used during construction.................. (6.7) (6.4) (5.1)
Deferred income taxes............................................... 11.8 56.7 (6.7)
Deferred investment tax credits..................................... (16.9) (17.1) (19.2)
Noncash return on terminated construction project costs -- pretax... (8.4) (10.3) (11.9)
Deferred fuel expenses, net......................................... 6.2 (2.6) (36.1)
Deferred capacity expenses.......................................... 6.4 26.5 72.9
Restructuring....................................................... 96.2
Changes in:
Accounts receivable.............................................. (54.3) 36.5 (33.6)
Accrued unbilled revenues........................................ (27.7) 11.9 (6.3)
Materials and supplies........................................... 61.1 (6.5) 27.5
Accounts payable, trade.......................................... (8.9) 21.1 18.4
Accrued expenses................................................. 44.7 (29.0) 28.2
Provision for rate refunds....................................... (12.2) (89.5) (87.6)
Other............................................................... 16.2 21.6 26.8
Net Cash Flow From Operating Activities.................................... 1,125.4 1,018.3 1,022.9
Cash Flow From (To) Financing Activities:
Issuance of Common Stock................................................. 75.0 50.0
Issuance of preferred stock.............................................. 150.0
Issuance of long-term debt............................................... 240.0 464.0 1,035.0
Issuance of preferred securities of subsidiary trust..................... 135.0
Issuance (Repayment) of short-term debt.................................. 169.0 (43.0) (6.5)
Repayment of long-term debt and preferred stock.......................... (439.0) (334.3) (1,072.1)
Common Stock dividend payments........................................... (394.3) (395.5) (378.9)
Preferred stock dividend payments........................................ (44.3) (42.7) (42.2)
Distribution-preferred securities of subsidiary trust.................... (3.6)
Other.................................................................... (10.1) (7.8) (83.3)
Net Cash Flow From (To) Financing Activities............................... (347.3) (284.3) (348.0)
Cash Flow From (Used In) Investing Activities:
Utility plant expenditures (excluding AFC -- other funds)................ (519.9) (580.9) (644.9)
Nuclear fuel (excluding AFC -- other funds).............................. (57.6) (80.0) (68.1)
Pollution control project funds.......................................... 8.4 6.9 32.7
Nuclear decommissioning contributions.................................... (28.5) (24.5) (24.4)
Sale of accounts receivable, net......................................... (160.0) (40.0)
Other.................................................................... (19.5) (8.3) (13.7)
Net Cash Flow From (Used In) Investing Activities.......................... (777.1) (726.8) (718.4)
Increase (Decrease) in cash and cash equivalents........................... 1.0 7.2 (43.5)
Cash and cash equivalents at beginning of year............................. 28.8 21.6 65.1
Cash and cash equivalents at end of year................................... $ 29.8 $ 28.8 $ 21.6
Cash paid during the year for:
Interest (reduced for the cost of borrowed funds capitalized as AFC)..... $ 314.5 $ 302.9 $ 324.8
Income taxes............................................................. 215.8 190.5 268.1
Non-cash transactions for financing and investing activities:
Assumption of obligations................................................ 26.3
Acquisition of utility property.......................................... 26.3
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SIGNIFICANT ACCOUNTING POLICIES:
GENERAL
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 sells
electricity to retail customers (including governmental agencies) and to
wholesale customers such as rural electric cooperatives and municipalities. The
Virginia service area comprises about 65 percent of Virginia's total land area,
but accounts for over 80 percent of its population.
The Company's accounting practices are generally prescribed by the Uniform
System of Accounts promulgated by the regulatory commissions having jurisdiction
and are in accordance with generally accepted accounting principles applicable
to regulated enterprises.
The financial statements include the accounts of the Company and its
subsidiaries, with all significant intercompany transactions and accounts being
eliminated on consolidation.
The Company is a wholly-owned subsidiary of Dominion Resources, Inc., a
Virginia corporation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
REVENUES
Operating revenues are recorded on the basis of service rendered.
PROPERTY, PLANT AND EQUIPMENT
Utility plant is recorded at original cost which includes labor, materials,
services, AFC, where permitted by regulators, and other indirect costs. 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, as provided in the Uniform System of Accounts, is charged to
maintenance expense.
DEPRECIATION AND AMORTIZATION
Depreciation of utility plant (other than nuclear fuel) is computed on the
straight-line method based on projected useful service lives. The cost of
depreciable utility plant retired and the cost of removal, less salvage, are
charged to accumulated depreciation. The provision for depreciation is based on
weighted average depreciable plant using a rate of 3.2 percent for 1995, 1994
and 1993.
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 permanent storage and disposal costs.
FEDERAL INCOME TAXES
The Company files a consolidated federal income tax return with Dominion
Resources.
Deferred investment tax credits are being amortized over the service lives
of the property giving rise to such credits.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION
The applicable regulatory Uniform System of Accounts defines AFC as the
cost during the construction period of borrowed funds used for construction
purposes and a reasonable rate on other funds when so used.
The pretax AFC rates for 1995, 1994 and 1993 were 8.9, 8.9 and 9.4 percent,
respectively. Approximately 83 percent of the Company's construction work in
progress is now included in rate base, and a cash return is collected currently
thereon.
<PAGE>
DEFERRED CAPACITY AND FUEL EXPENSE
Approximately 80% of capacity expenses and 90% of fuel expenses are subject
to deferral accounting. The difference between reasonably incurred actual
expenses and the level of expenses included in current rates is deferred and
matched against future revenues.
AMORTIZATION OF DEBT ISSUANCE COSTS
The Company defers and amortizes any expenses incurred in the issuance of
long-term debt, including premiums and discounts associated with such debt, over
the lives of the respective issues. Any gains or losses resulting from the
refinancing of debt are also deferred and amortized over the lives of the new
issues of long-term debt as permitted by the appropriate regulatory
jurisdictions. Gains or losses resulting from the redemption of debt without
refinancing are amortized over the remaining lives of the redeemed issues.
CASH AND CASH EQUIVALENTS
Current banking arrangements generally do not require checks to be funded
until actually presented for payment. At December 31, 1995 and 1994, the
Company's accounts payable included the net effect of checks outstanding but not
yet presented for payment of $62.7 million and $66.8 million, respectively. For
purposes of the Consolidated Statement of Cash Flows, the Company considers cash
and cash equivalents to include cash on hand and temporary investments purchased
with an initial maturity of three months or less.
RECLASSIFICATION
Certain amounts in the 1994 and 1993 financial statements have been
reclassified to conform to the 1995 presentation.
B. INCOME TAXES:
Details of income tax expense are as follows:
<TABLE>
<CAPTION>
YEARS
1995 1994 1993
<S> <C> <C> <C>
(MILLIONS)
Current expense:
Federal............................................................ $ 231.0 $ 185.6 $ 283.0
State.............................................................. 2.1 2.1 (0.3)
233.1 187.7 282.7
Deferred expense:
Plant related items................................................ 48.9 39.0 45.0
Deferred fuel and capacity......................................... (6.0) (8.2) (12.9)
Debt issuance costs................................................ 1.3 3.7 8.3
Customer accounts reserve.......................................... 36.8 (34.9)
Terminated construction project costs.............................. (7.3) (7.3) (7.7)
Other.............................................................. (25.0) (11.6) (7.8)
11.9 52.4 (10.0)
Net deferred investment tax credits-amortization..................... (16.9) (17.1) (19.2)
Income tax expense-operating income.................................. 228.1 223.0 253.5
Income tax expense associated with nonoperating income:
Current expense:
Federal............................................................ 0.8 (1.7) (0.2)
Deferred expense..................................................... (0.1) 4.3 3.9
Income tax expense-nonoperating income............................... 0.7 2.6 3.7
Total income tax expense............................................. $ 228.8 $ 225.6 $ 257.2
</TABLE>
<PAGE>
Total federal income tax expense differs from the amount computed by
applying the statutory federal income tax rate to pretax income for the
following reasons:
<TABLE>
<CAPTION>
YEARS
1995 1994 1993
<S> <C> <C> <C>
(MILLIONS)
Federal income tax expense at statutory rate of 35%...... $229.9 $234.4 $266.5
Increases (decreases) resulting from:
Utility plant differences.............................. 3.2 (1.8) (6.2)
Ratable amortization of investment tax credits......... (16.9) (17.1) (16.1)
Terminated construction project costs.................. 5.0 5.0 5.2
Other, net............................................. 4.2 2.1 3.0
(4.5) (11.8) (14.1)
Total federal income tax expense......................... $225.4 $222.6 $252.4
Effective tax rate....................................... 34.3% 33.2% 33.1%
</TABLE>
The following chart reconciles total income tax expense as shown on the
Consolidated Statements of Income:
<TABLE>
<CAPTION>
YEARS
1995 1994 1993
<S> <C> <C> <C>
(MILLIONS)
Total federal income tax expense......................... $225.4 $222.6 $252.4
Less: federal income tax charged other income............ 0.7 2.6 3.7
Add: state income tax charged to operating income........ 3.4 3.0 4.8
Total income tax expense charged to operating income..... $228.1 $223.0 $253.5
</TABLE>
The Company's net accumulated deferred income taxes consist of the
following:
<TABLE>
<CAPTION>
YEARS
1995 1994
<S> <C> <C>
(MILLIONS)
Deferred income tax assets:
Investment tax credits................................................... $ 96.4 $ 102.4
Deferred income tax liabilities:
Plant-method and basis differences....................................... 1,384.4 1,338.2
Terminated construction project costs.................................... 19.5 23.9
Income taxes recoverable through future rates............................ 171.6 172.9
Other.................................................................... 19.7 34.1
Total deferred income tax liabilities...................................... 1,595.2 1,569.1
Total net accumulated deferred income taxes................................ $1,498.8 $1,466.7
</TABLE>
C. NUCLEAR OPERATIONS:
DECOMMISSIONING
Nuclear plant decommissioning costs are accrued and recovered through rates
over the expected service lives of the Company's nuclear generating units. The
amounts collected from customers are being placed in trusts, which, with the
accumulated earnings thereon, will be utilized solely to fund future
decommissioning obligations.
<TABLE>
<CAPTION>
NORTH ANNA SURRY
UNIT 1 UNIT 2 UNIT 1 UNIT 2
<S> <C> <C> <C> <C>
NRC license expiration year................................................ 2018 2020 2012 2013
Method of decommissioning.................................................. DECON DECON DECON DECON
<CAPTION>
(MILLIONS)
<S> <C> <C> <C> <C>
Current cost estimate (1994) dollars....................................... $247.0 $253.6 $272.4 $274.0
External trusts balance at December 31, 1995............................... $ 84.1 $ 78.9 $ 96.2 $ 92.2
1995 contribution to external trusts....................................... $ 6.1 $ 5.7 $ 8.0 $ 8.7
</TABLE>
<PAGE>
Approximately every four years, site-specific studies are prepared to
determine the decommissioning cost estimate for the Company's four nuclear
units. DECON assumes the activities associated with decontamination or prompt
removal of radioactive contaminants will begin shortly after cessation of
operations so that the property may be released for unrestricted use.
The accumulated provision for decommissioning of $351.4 million and $260.9
million is included in Utility Plant Accumulated Depreciation at December 31,
1995 and 1994, respectively. Provisions for decommissioning of $28.5 million,
$24.5 million and $24.4 million applicable to 1995, 1994 and 1993, respectively,
are included in Depreciation and Amortization Expense. The net unrealized gain
of $40.7 million and net unrealized loss of $5.2 million associated with
securities held by the Company's Nuclear Decommissioning trust at December 31,
1995 and 1994, respectively, are included in the accumulated provision for
decommissioning.
Earnings of the trust funds were $15.9 million, $15.2 million and $16.3
million for 1995, 1994 and 1993, respectively, and are included in Other Income
in the Company's Consolidated Statements of Income. The accretion of the
accumulated provision for decommissioning, equal to the earnings of the trust
funds, is also recorded in Other Income.
The Financial Accounting Standards Board (FASB) is reviewing the accounting
for nuclear plant decommissioning. If current electric utility industry
practices for such decommissioning are changed, annual provisions for
decommissioning could increase. FASB has tentatively determined that the
estimated cost of decommissioning should be reported as a liability rather than
as accumulated depreciation and that a substantial portion of the
decommissioning obligation should be recognized earlier in the operating life of
the nuclear plant.
During its deliberations, FASB has expanded the scope of this project to
include similar unavoidable obligations to perform closure and post-closure
activities incurred as a condition to operate assets other than nuclear power
plants. Whether this position, if adopted, would impact other assets of the
Company cannot be determined at this time. Furthermore, the FASB has tentatively
determined that it would be inappropriate to account for cost of removal as
negative salvage; thus, any forthcoming standard may also cause changes in
industry plant depreciation practices.
INSURANCE
The Price-Anderson Act limits the public liability of an owner of a nuclear
power plant to $8.9 billion for a single nuclear incident. The Price-Anderson
Amendments Act of 1988 allows for an inflationary provision adjustment every
five years. The Company has purchased $200 million of coverage from the
commercial insurance pools with the remainder provided through a mandatory
industry risk sharing program. In the event of a nuclear incident at any
licensed nuclear reactor in the United States, the Company could be assessed up
to $81.7 million (including a 3% insurance premium tax for Virginia) for each of
its four licensed reactors not to exceed $10.3 million (including a 3% insurance
premium tax for Virginia) per year per reactor. There is no limit to the number
of incidents for which this retrospective premium can be assessed.
Nuclear liability coverage for claims made by nuclear workers first hired
on or after January 1, 1988, except those arising out of an extraordinary
nuclear occurrence, is provided under the Master Worker insurance program.
(Those first hired into the nuclear industry prior to January 1, 1988, are
covered by the policy discussed above.) The aggregate limit of coverage for the
industry is $400 million ($200 million policy limit with automatic
reinstatements of an additional $200 million). The Company's maximum
retrospective assessment is approximately $12.5 million (including a 3%
insurance premium tax for Virginia).
The Company's current level of property insurance coverage ($2.55 billion
for North Anna and $2.40 billion for Surry) exceeds the NRC's minimum
requirement for nuclear power plant licensees of $1.06 billion per reactor site
and includes coverage for premature decommissioning and functional total loss.
The NRC requires that the proceeds from this insurance be used first to return
the reactor to and maintain it in a safe and stable condition and second to
decontaminate the reactor and station site in accordance with a plan approved by
the NRC. The Company's nuclear property insurance is provided by Nuclear Mutual
Limited (NML) and Nuclear Electric Insurance Limited (NEIL), two mutual
insurance companies, and is subject to retrospective premium assessments, in any
policy year in which losses exceed the funds available to these insurance
companies. The maximum assessment at the first incident of the current policy
period is $42.7 million and the maximum assessment related to a second incident
is an additional $15.4 million. Based on the severity of the incident, the
Boards of Directors of the Company's nuclear insurers have the discretion to
lower the maximum retrospective premium assessment or eliminate either or both
completely. For any losses that exceed the limits or for which insurance
proceeds are not available because they must first be used for stabilization and
decontamination, the Company has the financial responsibility for these losses.
<PAGE>
The Company purchases insurance from NEIL to cover the cost of replacement
power during the prolonged outage of a nuclear unit due to direct physical
damage of the unit. Under this program, Virginia Power is subject to a
retrospective premium assessment for any policy year in which losses exceed
funds available to NEIL. The current policy period's maximum assessment is $9
million.
As part owner of the North Anna Power Station, ODEC is responsible for its
proportionate share (11.6 percent) of the insurance premiums applicable to that
station, including any retrospective premium assessments and any losses not
covered by insurance.
D. SALE OF RECEIVABLES:
The Company has an agreement to sell, with limited recourse, certain
accounts receivable including unbilled amounts, up to a maximum of $200 million.
Additional receivables are continually sold, at the Company's discretion, to
replace those collected up to the limit. At December 31, 1995 no amount was
outstanding; however, at December 31, 1994, $160 million of receivables had been
sold and were outstanding under this agreement. The limited recourse is provided
by the Company's assignment of an additional undivided interest in accounts
receivable to cover any potential losses to the purchaser due to uncollectible
accounts. The Company has provided for the estimated amount of such losses in
its accounts.
E. UTILITY PLANT:
Utility plant consisted of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
1995 1994
<S> <C> <C>
(MILLIONS)
Production.......................................................................................... $ 7,340.0 $ 6,916.6
Transmission........................................................................................ 1,316.1 1,301.2
Distribution........................................................................................ 4,215.7 3,989.8
Other............................................................................................... 817.7 860.8
13,689.5 13,068.4
Construction work in progress....................................................................... 512.1 828.2
Total........................................................................................ $14,201.6 $13,896.6
</TABLE>
F. JOINTLY OWNED PLANTS:
The following information relates to the Company's proportionate share of
jointly owned plants at December 31, 1995:
<TABLE>
<CAPTION>
NORTH
BATH COUNTY ANNA CLOVER
PUMPED STORAGE POWER POWER
STATION STATION STATION
<S> <C> <C> <C>
Ownership interest............................................. 60.0% 88.4% 50.0%
<CAPTION>
(MILLIONS)
<S> <C> <C> <C>
Utility plant in service....................................... $1,074.8 $1,798.5 $289.6
Accumulated depreciation....................................... 188.6 635.7 1.5
Nuclear fuel................................................... 405.1
Accumulated amortization of nuclear fuel....................... 387.3
Construction work in progress.................................. 0.7 110.9 211.1
</TABLE>
The co-owners are obligated to pay their share of all future construction
expenditures and operating costs of the jointly owned facilities in the same
proportion as their respective ownership interest. The Company's share of
operating costs is classified in the appropriate operating expense (fuel,
maintenance, depreciation, taxes, etc.) in the Consolidated Statements of
Income.
<PAGE>
G. REGULATORY ASSETS:
Certain expenses normally reflected in income are deferred on the balance
sheet as regulatory assets and are recognized in income as the related amounts
are included in rates and recovered from customers. The Company's regulatory
assets included the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
1995 1994
<S> <C> <C>
(MILLIONS)
Income taxes recoverable through future rates.............................................................. $484.5 $488.2
Cost of decommissioning DOE uranium enrichment facilities.................................................. 78.5 83.7
Deferred losses (gains) on reacquired debt, net............................................................ 99.3 107.0
North Anna Unit 3 project termination costs................................................................ 101.8 128.5
Other...................................................................................................... 52.3 63.6
Total............................................................................................... $816.4 $871.0
</TABLE>
Income taxes recoverable through future rates represent principally the tax
effect of depreciation differences not normalized. These amounts are amortized
as the related temporary differences reverse.
The costs of decommissioning the Department of Energy's (DOE) uranium
enrichment facilities have been deferred and represent the unamortized portion
of Virginia Power's required contributions to a fund for decommissioning and
decontaminating the DOE's uranium enrichment facilities. Virginia Power is
making such contributions over a fifteen-year period with escalation for
inflation. These costs are being recovered in fuel rates.
Losses or gains on reacquired debt are deferred and amortized over the
lives of the new issues of long-term debt. Gains or losses resulting from the
redemption of debt without refinancing are amortized over the remaining lives of
the redeemed issues.
The construction of North Anna Unit 3 was terminated in November 1982. All
retail jurisdictions have permitted recovery of the incurred costs. For Virginia
and FERC jurisdictional customers, the amounts deferred are being amortized from
the date termination costs were first includible in rates.
The incurred costs underlying these regulatory assets may represent
expenditures by the Company or may represent the recognition of liabilities that
ultimately will be settled at some time in the future. For some of those
regulatory assets representing past expenditures that are not included in the
Company's rate base or used to adjust the Company's capital structure, the
Company is not allowed to earn a return on the unrecovered balance. Of the
$816.4 million of regulatory assets at December 31, 1995, approximately $123
million represent past expenditures that are effectively excluded from rate base
by the Virginia State Corporation Commission that has primary jurisdiction over
the Company's rates. However, of that amount $101.8 million represent the
present value of amounts to be recovered through future rates for North Anna
Unit 3 project termination costs, and thus reflect a reduction in the actual
dollars to be recovered through future rates for the time value of money. The
Company does not earn a return on the remaining $21.2 million of regulatory
assets, effectively excluded from rate base, to be recovered over various
recovery periods up to 23 years, depending on the nature of the deferred costs.
H. LEASES:
Plant and property under capital leases included the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
1995 1994
<S> <C> <C>
(MILLIONS)
Office buildings (*)....................................................... $34.4 $34.4
Data processing equipment.................................................. 2.8 5.8
Total plant and property under capital leases....................... 37.2 40.2
Less accumulated amortization.............................................. 11.8 12.5
Net plant and property under capital leases................................ $25.4 $27.7
</TABLE>
(*) The Company leases its principal office building from its parent, Dominion
Resources. The capitalized cost of the property under that lease, net of
accumulated amortization, represented $24 million and $25 million at December
31, 1995 and
<PAGE>
1994, respectively. Rental payments for such lease were $3 million for each of
the three years ended December 31, 1995, 1994 and 1993.
The Company is responsible for expenses in connection with the leases noted
above, including maintenance.
Future minimum lease payments under noncancellable capital leases and for
operating leases that have initial or remaining lease terms in excess of one
year as of December 31, 1995, are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
<S> <C> <C>
(MILLIONS)
1996....................................................................... $ 3.7 $ 9.9
1997....................................................................... 3.6 8.2
1998....................................................................... 3.3 4.1
1999....................................................................... 3.0 3.0
2000....................................................................... 3.0 2.4
After 2000................................................................. 22.8 26.0
Total future minimum lease payments........................................ 39.4 $53.6
Less interest element included above....................................... 14.0
Present value of future minimum lease payments............................. $25.4
</TABLE>
Rents on leases, which have been charged to other operation expenses, were
$9.8 million, $9.6 million and $11.2 million for 1995, 1994 and 1993,
respectively.
<PAGE>
I. LONG-TERM DEBT:
<TABLE>
<CAPTION>
Long-term debt included the following:
AT DECEMBER 31,
1995 1994
<S> <C> <C>
(MILLIONS)
First and Refunding Mortgage Bonds (1):
1992 Series A, 6.375%, due 1995......................................................... $ 180.0
Series T, 4.5%, due 1995................................................................ 56.6
Series U, 5.125%, due 1997.............................................................. $ 49.3 49.3
1992 Series B, 7.25%, due 1997.......................................................... 250.0 250.0
1988 Series A, 9.375%, due 1998......................................................... 150.0 150.0
1992 Series F, 6.25%, due 1998.......................................................... 75.0 75.0
1989 Series B, 8.875%, due 1999......................................................... 100.0 100.0
1993 Series C, 5.875%, due 2000......................................................... 135.0 135.0
Various series, 6.0-8%, due 2001-2004................................................... 805.0 805.0
1992 Series D, 7.625%, due 2007......................................................... 215.0 215.0
Various series, 5.45-8.75%, due 2020-2025............................................... 1,144.5 944.5
Total First and Refunding Mortgage Bonds........................................... 2,923.8 2,960.4
Other long-term debt:
Bank loans, notes and term loans:
Fixed interest rate, 6.15%-10.8%, due 1995-2003...................................... 762.7 798.2
Pollution control financings (2):
Money Market Municipals, due 2008-2027 (3)........................................... 488.6 488.6
Total other long-term debt......................................................... 1,251.3 1,286.8
4,175.1 4,247.2
Less amounts due within one year:
First and Refunding Mortgage Bonds...................................................... 236.6
Bank loans, notes and term loans........................................................ 259.6 75.6
Total amount due within one year................................................... 259.6 312.2
Less unamortized discount, net of premium................................................. 26.1 24.6
Total long-term debt............................................................... $3,889.4 $3,910.4
</TABLE>
(1) Substantially all of the Company's property is subject to the lien of
its mortgage, securing its First and Refunding Mortgage Bonds.
(2) Certain pollution control facilities at the Company's generating
facilities have been pledged or conveyed to secure the financings.
(3) Interest rates vary based on short-term, tax-exempt market rates. The
weighted average daily interest rates were 3.89% and 2.96% for 1995 and 1994,
respectively. Pollution control bonds subject to remarketing within one year are
classified as long-term debt to the extent that the Company's intention to
maintain the debt is supported by long-term bank commitments.
Maturities through 2000 are as follows (millions): 1996 -- $259.6; 1997
-- $311.3; 1998 -- $333.5; 1999 -- $261; and 2000 -- $195.5.
J. COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY
TRUST:
In 1995, the Company established Virginia Power Capital Trust I (VP Capital
Trust). VP Capital Trust sold 5,400,000 shares of Preferred Securities for $135
million, representing preferred beneficial interests and 97% beneficial
ownership in the assets held by VP Capital Trust.
The Company issued $139.2 million of its 1995 Series A, 8.05% Junior
Subordinated Notes (the Notes) in exchange for the $135 million realized from
the sale of the Preferred Securities and $4.2 million of common securities of VP
Capital Trust.
<PAGE>
The common securities represent the remaining 3% beneficial ownership interest
in the assets held by VP Capital Trust. The Notes constitute 100% of VP Capital
Trust's assets.
The Notes are due September 30, 2025, but may be extended up to an
additional ten years, subject to satisfying certain conditions. However, the
Company may redeem the Notes on or after September 30, 2000, under certain
circumstances. The Preferred Securities are subject to mandatory redemption upon
repayment of the Notes at maturity or earlier redemption. At redemption, each
Preferred Security shall be entitled to receive a liquidation amount of $25 plus
accrued and unpaid distributions, including any interest thereon.
K. PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION:
Preferred stock subject to mandatory redemption, $100 liquidation
preference, at December 31, 1995, was as follows:
<TABLE>
<CAPTION>
ISSUED AND
OUTSTANDING
DIVIDEND SHARES
<S> <C>
$5.58...................... 400,000(a)(b)
6.35...................... 1,400,000(a)(c)
Total............... 1,800,000
</TABLE>
(a) Shares are non-callable prior to redemption.
(b) All shares to be redeemed on 3/1/2000.
(c) All shares to be redeemed on 9/1/2000.
During the years 1993 through 1995, the following shares were redeemed:
<TABLE>
<CAPTION>
YEAR DIVIDEND SHARES
<S> <C> <C>
1995......................................... $7.30 417,319
1994......................................... 7.30 37,681
1993......................................... 7.30 30,000
1993......................................... 7.58 480,000
1993......................................... 7.325 400,419
</TABLE>
The total number of authorized shares for all preferred stock is 10,000,000
shares. Upon involuntary liquidation, all presently outstanding preferred stock
is entitled to receive $100 per share plus accrued dividends. Dividends are
cumulative.
<PAGE>
L. PREFERRED STOCK NOT SUBJECT TO MANDATORY REDEMPTION:
Preferred stock not subject to mandatory redemption, $100 liquidation
preference, at December 31, 1995, was as follows:
<TABLE>
<CAPTION>
ENTITLED PER SHARE UPON LIQUIDATION
ISSUED AND AND THEREAFTER TO
OUTSTANDING AMOUNTS DECLINING
DIVIDEND SHARES AMOUNT THROUGH IN STEPS TO
<S> <C> <C> <C> <C>
$5.00............................................................ 106,677 $ 112.50
4.04............................................................ 12,926 102.27
4.20............................................................ 14,797 102.50
4.12............................................................ 32,534 103.73
4.80............................................................ 73,206 101.00
7.05............................................................ 500,000 105.00 7/31/03 $100.00 after 7/31/13
6.98............................................................ 600,000 105.00 8/31/03 $100.00 after 8/31/13
MMP 1/87 (*)..................................................... 500,000 100.00
MMP 6/87 (*)..................................................... 750,000 100.00
MMP 10/88 (*).................................................... 750,000 100.00
MMP 6/89 (*)..................................................... 750,000 100.00
MMP 9/92A (*).................................................... 500,000 100.00
MMP 9/92B (*).................................................... 500,000 100.00
Total............................................................ 5,090,140
</TABLE>
(*) Money Market Preferred (MMP) dividend rates are variable and are set
every 49 days via an auction process. The combined weighted average rates for
these series in 1995, 1994 and 1993, including fees for broker/dealer
agreements, were 4.93%, 3.75% and 3.01%, respectively.
During the years 1993 through 1995 the following shares were redeemed:
<TABLE>
<CAPTION>
YEAR DIVIDEND SHARES
<S> <C> <C>
1995 $ 7.45 400,000
1995 7.20 450,000
1993 7.72 350,000
1993 7.72(1972
Series) 500,000
</TABLE>
M. COMMON STOCK:
During the years 1993 through 1995 the following changes in Common Stock
occurred:
<TABLE>
<CAPTION>
YEARS
1995 1994 1993
SHARES SHARES SHARES
OUTSTANDING AMOUNT OUTSTANDING AMOUNT OUTSTANDING AMOUNT
<S> <C> <C> <C> <C> <C> <C>
(MILLIONS, EXCEPT SHARES)
Balance at January 1............ 171,484 $2,737.4 168,277 $2,662.4 166,109 $2,612.4
Issuance to Dominion
Resources..................... 3,207 75.0 2,168 50.0
Balance at December 31.......... 171,484 $2,737.4 171,484 $2,737.4 168,277 $2,662.4
</TABLE>
N. SHORT-TERM DEBT:
The Company has an established commercial paper program, supported by a
credit agreement that has an expiration date of July 31, 2000. This credit
agreement provides for a maximum borrowing of $300 million. At December 31,
1995, $169 million of commercial paper was outstanding. No commercial paper was
outstanding at December 31, 1994.
The weighted average interest rate for commercial paper on December 31,
1995 was 5.79%
<PAGE>
O. RETIREMENT PLAN, POSTRETIREMENT BENEFITS AND OTHER BENEFITS:
RETIREMENT PLAN
The Company participates in the Dominion Resources, Inc. Retirement Plan
(the Retirement Plan), a defined benefit pension plan. The Retirement Plan
covers virtually all employees of Dominion Resources and its subsidiaries,
including the Company. The benefits are based on years of service and average
base compensation over the consecutive 60-month period in which pay is highest.
Pension plan expenses were $20.3 million, $19.3 million and $15.9 million
for 1995, 1994 and 1993, respectively and the amounts funded were $42.7 million,
$42.7 million and $16 million in 1995, 1994 and 1993, respectively.
Under the terms of its benefit plans, the Company reserves the right to
change, modify or terminate the plans. From time to time in the past, benefits
have changed, and some of these changes have reduced benefits.
POSTRETIREMENT BENEFITS
Net periodic postretirement benefit expense was as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995 1994
<S> <C> <C>
(MILLIONS)
Service cost............................................................... $ 8.7 $11.0
Interest cost.............................................................. 21.7 21.6
Return on plan assets...................................................... (6.2) 0.9
Amortization of transition obligation...................................... 12.1 12.1
Net amortization and deferral.............................................. 0.1 (4.1)
Net periodic postretirement benefit expense................................ $36.4 $41.5
</TABLE>
The following table sets forth the funded status of the plan:
<TABLE>
<CAPTION>
AT DECEMBER 31,
1995 1994
<S> <C> <C> <C> <C>
(MILLIONS)
Fair value of plan assets.................................................. $ 96.3 $ 59.7
Accumulated postretirement benefit obligation:
Retirees................................................................. $210.7 $208.4
Active plan participants................................................. 96.5 91.7
Accumulated postretirement benefit obligation......................... 307.2 300.1
Accumulated postretirement benefit obligation in excess of plan
assets.............................................................. (210.9) (240.4)
Unrecognized transition obligation......................................... 204.9 216.9
Unrecognized net experience (gain)/loss.................................... 7.9 16.6
Accrued postretirement benefit cost........................................ $ 1.9 $ (6.9)
</TABLE>
A one percent increase in the health care cost trend rate would result in
an increase of $3.5 million in the service and interest cost components and a
$36.9 million increase in the accumulated postretirement benefit obligation.
Significant assumptions used in determining the postretirement benefit
obligation were:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Discount rates.............................................................. 8.0% 8.25%
Assumed return on plan assets............................................... 9.0% 9.0%
Medical cost trend rate..................................................... 9% for 1st year 10% for 1st year
8% for 2nd year 9% for 2nd year
Scaling down to Scaling down to
4.75% beginning 4.75% beginning
in the year 2001 in the year 2001
</TABLE>
The Company is recovering these costs in rates on an accrual basis in all
material respects, in all jurisdictions. Current and future recoveries of other
postretirement benefits (OPEB) accruals are expected to collect sufficient
amounts to provide
<PAGE>
for the unfunded accumulated postretirement obligation over time. The funds
being collected for OPEB accruals in rates, in excess of OPEB benefits actually
paid during the year, are contributed to external benefit trusts under the
Company's current funding policy.
OTHER BENEFITS
In 1994, the Company offered an early retirement program to employees aged
50 or older and offered a voluntary separation program to all regular full-time
employees. Approximately 1,400 employees accepted offers under these programs.
The costs associated with these programs were $90.1 million. The Company
capitalized $25.9 million based upon regulatory precedent and expensed $64.2
million.
P. RESTRUCTURING:
In March 1995, the Company announced the implementation phase of its Vision
2000 program. During this phase, the Company began reviewing operations with the
objective of outsourcing services where economical and appropriate and re-
engineering the remaining functions to streamline operations. The re-engineering
process is resulting in outsourcing, decentralization, reorganization and
downsizing for portions of the Company's operations. As part of this process,
the Company is reevaluating its utilization of capital resources in the
operations of the Company to identify further opportunities for operational
efficiencies through outsourcing or re-engineering of its processes.
Restructuring charges of $117.9 million in 1995, included severance costs,
purchase power contract cancellation and negotiated settlement costs, capital
project cancellation costs, and other costs incurred directly as a result of the
Vision 2000 initiatives. The Vision 2000 review of operations is expected to
continue through 1996. At this time, Company management cannot estimate the
restructuring costs yet to be incurred.
In May 1995, the Company established a comprehensive involuntary severance
package for salaried employees who lose their positions as a result of these
initiatives. The Company is recognizing the cost associated with employee
terminations in accordance with Emerging Issues Task Force Consensus No. 94-3 as
management identifies the positions to be eliminated. Severance payments will be
made over a period not to exceed twenty months. Through December 31, 1995,
management had decided to eliminate 1,018 positions. The recognition of
severance costs resulted in a charge to operations in 1995 of $51.2 million. At
December 31, 1995, 507 employees have been terminated and severance payments
totaling $8.7 million have been paid. The Company estimates that these staffing
reductions will result in annual savings, net of outsourcing costs, in the range
of $50 million to $60 million. These savings will be reflected in lower
construction expenditures as well as lower operation and maintenance expenses.
In an effort to minimize its exposure to potential stranded investment, the
Company is evaluating its long-term purchased power contracts and negotiating
modifications to their terms, including cancellations, where it is determined to
be economically advantageous to do so. The Company also negotiated settlements
with several other parties to terminate their rights to sell power to the
Company. The cost of contract cancellations and negotiated settlements was $8.1
million in 1995. Based on contract terms and estimated quantities of power that
would have otherwise been delivered, the cancellation of these contracts and
rights to sell power to the Company has the effect of reducing the Company's
future purchased power costs, including energy payments, by up to $214 million
annually. The cost of alternative sources of power that might ultimately be
required as a result of these settlements is expected to be significantly less
than $214 million, on an annual basis.
Restructuring charges reported in 1995 included $37.3 million for the
cancellation of a project to construct a facility to handle low level
radioactive waste at the Company's North Anna Power Station. As a result of
reevaluating the handling of low level radioactive waste, the Company concluded
that the facility should not be completed due to the additional capital
investment required, decreased Company volumes of low level radioactive waste
resulting from improvements in station procedures and the availability of more
economical offsite processing.
As a regulated utility, Virginia Power provides service to its customers at
rates based on its cost of operations and an opportunity to earn a return on its
shareholder's investment. From time to time, the Company reviews its cost of
providing regulated services and files such information with certain regulatory
commissions having jurisdiction. The Company or the regulatory commissions may
initiate proceedings to review rates charged to Company jurisdictional
customers. The incurrence of restructuring charges and the savings resulting
therefrom in subsequent periods are elements of the Company's cost of
operations. Accordingly, Vision 2000 costs and related savings will be
considered in any future review of the Company's overall regulatory cost of
service.
<PAGE>
Q. COMMITMENTS AND CONTINGENCIES:
The Company is involved in legal, tax and regulatory proceedings before
various courts, regulatory commissions and governmental agencies regarding
matters arising in the ordinary course of business, some of which involve
substantial amounts. Management is of the opinion that the final disposition of
these proceedings will not have a material adverse effect on the results of
operations or the financial position of the Company.
FEDERAL ENERGY REGULATORY COMMISSION AUDIT
The FERC has recently conducted a compliance audit of the Company's
financial statements for the years 1990 through 1994. The Company has received a
preliminary draft of the audit report in which certain compliance exceptions
were noted. The Company has supplied information to the FERC staff relating to
these preliminary exceptions, but no final audit report has been issued. Based
on information available at this time, the disposition of these issues is not
expected to have a significant effect on the Company's financial position or
results of operations.
RETROSPECTIVE PREMIUM ASSESSMENTS
Under several of the Company's nuclear insurance policies, the Company is
subject to retrospective premium assessments in any policy year in which losses
exceed the funds available to these insurance companies. For additional
information, see Note C to CONSOLIDATED FINANCIAL STATEMENTS.
CONSTRUCTION PROGRAM
The Company has made substantial commitments in connection with its
construction program and nuclear fuel expenditures. Those expenditures are
estimated to total $569.3 million (excluding AFC) for 1996. Additional financing
is contemplated in connection with this program.
PURCHASED POWER CONTRACTS
Since 1984, the Company has entered into contracts for the long-term
purchases of capacity and energy from other utilities, qualifying facilities and
independent power producers. The Company has 67 non-utility purchase contracts
with a combined dependable summer capacity of 3,493 Mw. Of these, 66 projects
(aggregating 3,295 Mw) were operational as of the end of 1995 with the remaining
project to become operational before 1998.
The table below reflects the Company's minimum commitments as of December
31, 1995, for power purchases from utility and non-utility suppliers.
<TABLE>
<CAPTION>
COMMITMENT
YEAR CAPACITY OTHER
<S> <C> <C>
(MILLIONS)
1996......................................... $ 738.3 $ 207.4
1997......................................... 784.7 213.2
1998......................................... 788.8 219.8
1999......................................... 791.6 224.2
2000......................................... 707.4 163.6
Later years.................................. 11,106.3 1,200.9
Total...................................... $14,917.1 $ 2,229.1
Present value of the total................... $ 6,860.7 $ 1,243.4
</TABLE>
In addition to the minimum purchase commitments in the table above, under
some of these contracts the Company may purchase, at its option, additional
power as needed. Actual payments for purchased power (including economy,
emergency, limited term, short-term and long-term purchases) for the years 1995,
1994 and 1993 were $1,093 million, $1,025 million and $958 million,
respectively.
FUEL PURCHASE COMMITMENTS
The Company's estimated fuel purchase commitments for the next five years
for system generation are as follows (millions): 1996 -- $348; 1997 -- $319;
1998 -- $205; 1999 -- $137; and 2000 -- $151.
<PAGE>
SALE OF POWER
On November 26, 1991, the Company and ODEC signed an agreement whereby the
Company will provide 100 Mw of firm capacity and associated energy until the
commercial operation of Clover Unit 2 (currently scheduled for April 1996) or
December 31, 1996, whichever occurs first. In addition, the Company has a
diversity exchange agreement with APS under which APS delivers 200 Mw to
Virginia Power in the summer and Virginia Power delivers 200 Mw to APS in the
winter.
The Company has entered into agreements to supply wholesale power under
various terms on a firm basis during certain upcoming winter and summer months.
Under these agreements, the Company has the following commitments:
<TABLE>
<CAPTION>
YEARS
1996 1997 1998
<S> <C> <C> <C>
(MW OF CAPACITY)
Winter....................................................................................... 200 110
Summer....................................................................................... 425 310 200
</TABLE>
ENVIRONMENTAL MATTERS
The Company is subject to rising costs resulting from a steadily increasing
number of federal, state and local laws and regulations designed to protect
human health and the environment. These laws and regulations affect future
planning and existing operations. These laws and regulations can result in
increased capital, operating and other costs as a result of compliance,
remediation, containment and monitoring obligations of the Company. These costs
have been historically recovered through the ratemaking process; however, should
material costs be incurred and not recovered through rates, the Company's
results of operations and financial condition could be adversely impacted.
SITE REMEDIATION
The EPA has identified the Company and several other entities as
Potentially Responsible Parties (PRPs) at two Superfund sites located in
Kentucky and Pennsylvania. The estimated future remediation costs for the sites
are in the range of $46.5 million to $134.6 million. The Company's proportionate
share of the cost is expected to be in the range of $0.5 million to $6.7
million, based upon allocation formulas and the volume of waste shipped to the
sites. As of December 31, 1995, the Company accrued a reserve of $1.4 million to
meet its obligations at these two sites. Based on a financial assessment of the
PRPs involved at these sites, the Company has determined that it is probable
that the PRPs will fully pay the costs apportioned to them.
The Company and Dominion Resources along with Consolidated Natural Gas have
remedial action responsibilities remaining at two coal tar sites. The Company
accrued a $2 million reserve to meet its estimated liability based on site
studies and investigations performed at these sites. In addition, on December
13, 1995, a civil action was instituted against the City of Norfolk and Virginia
Power by a landowner who alleges that his property has been contaminated by
toxic pollutants originating from one of these sites, which is now owned by the
City of Norfolk. The plaintiff seeks compensatory damages of $10 million and
punitive damages of $5 million from Virginia Power. The Company filed its answer
denying liability on January 10, 1996.
The Company generally seeks to recover its costs associated with
environmental remediation from third party insurers. At December 31, 1995, any
pending or possible claims were not recognized as an asset or offset against
recorded obligations of the Company.
R. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Company used available market information and appropriate valuation
methodologies to estimate the fair value of each class of financial instrument
for which it is practicable to estimate fair value. These estimates are not
necessarily indicative of the amounts the Company could realize in a market
exchange. In addition, the use of different market assumptions may have a
material effect on the estimated fair value amounts.
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
<S> <C> <C> <C> <C>
(MILLIONS)
Assets:
Cash and cash equivalents.................................... $ 29.8 $ 29.8 $ 28.8 $ 28.8
Nuclear decommissioning trust funds.......................... 351.4 351.4 260.9 260.9
Pollution control project funds.............................. 11.9 11.9 20.3 20.3
Liabilities and capitalization:
Short-term debt.............................................. 169.0 169.0
Long-term debt:
First and refunding mortgage bonds........................ 2,923.8 3,106.3 2,960.4 2,763.2
Medium-term notes......................................... 762.7 810.1 798.2 807.2
Money Market Municipal pollution control notes............ 488.6 488.6 488.6 488.6
Preferred stock subject to mandatory redemption.............. 180.0 190.9 221.7 201.2
Preferred securities of subsidiary trust..................... 135.0 140.4
</TABLE>
Cash and cash equivalents, pollution control project funds and short-term
debt: The carrying amount of these items approximates fair value because of
their short maturity.
Nuclear decommissioning trust funds: The fair value is based on available
market information and generally is the average of bid and asked price.
First and refunding mortgage bonds and pollution control bonds: Fair value
is based on market quotations.
Medium-term notes: These notes were valued by discounting the remaining
cash flows at a rate estimated for each issue. A yield curve rate was estimated
to relate Treasury Bond rates for specific issues to the corresponding
maturities.
Money market municipal pollution control notes: These notes have variable
interest rates which are set so that fair value approximates carrying value.
Preferred stock subject to mandatory redemption: The fair value is based on
market quotations or is estimated by discounting the dividend and principal
payments for a representative issue of each series over the average remaining
life of the series.
Preferred securities of subsidiary trust: Fair value is based on market
quotations.
S. QUARTERLY FINANCIAL DATA (UNAUDITED):
The following amounts reflect all adjustments, consisting of only normal
recurring accruals (except as discussed below), necessary in the opinion of the
management for a fair statement of the results for the interim periods.
<TABLE>
<CAPTION>
BALANCE AVAILABLE
OPERATING OPERATING NET FOR COMMON
QUARTER REVENUES INCOME INCOME STOCK
<S> <C> <C> <C> <C>
(MILLIONS)
1995
1st..................... $1,076.3 $ 191.8 $115.0 $ 103.3
2nd..................... 971.1 156.7 78.0 66.3
3rd..................... 1,276.6 279.1 201.8 190.3
4th..................... 1,026.4 118.9 38.0 28.8
1994
1st..................... $1,102.1 $ 207.1 $133.4 $ 123.4
2nd..................... 990.2 175.2 102.1 91.7
3rd..................... 1,151.2 241.0 165.9 155.2
4th..................... 927.3 108.1 45.7 34.6
</TABLE>
Results for interim periods may fluctuate as a result of weather
conditions, rate relief and other factors.
As part of the Vision 2000 program (see Note P to CONSOLIDATED FINANCIAL
STATEMENTS) the Company recorded $117.9 million of restructuring charges in
1995. Restructuring charges included severance costs, purchase power
<PAGE>
contract cancellation and negotiated settlement costs, capital project
cancellation costs, and other costs incurred directly as a result of the Vision
2000 initiatives. The Company expensed $3.5 million, $1.8 million, $30.6 million
and $82 million during the first, second, third and fourth quarters,
respectively. The impact of the write-off reduced Balance Available for Common
Stock by $2.3 million, $1.1 million, $19.9 million and $53.3 million for the
first, second, third, and fourth quarters, respectively.
In 1994, the Company offered an early retirement program to employees aged
50 or older and offered a voluntary separation program to all regular full-time
employees. Approximately 1,400 employees accepted offers under these programs.
The costs associated with these programs were $90.1 million. The Company
capitalized $25.9 million based upon regulatory precedent and expensed $2.8
million, $10.4 million and $51 million during the second, third and fourth
quarters, respectively. The impact of the write-off reduced Balance Available
for Common Stock by $1.8 million, $6.7 million and $33.1 million for the second,
third and fourth quarters, respectively.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Information concerning directors of Virginia Electric and Power Company
is as follows:
<TABLE>
<CAPTION>
YEAR FIRST
PRINCIPAL OCCUPATION FOR LAST 5 YEARS, ELECTED A
NAME AND AGE DIRECTORSHIPS IN PUBLIC CORPORATIONS DIRECTOR
<S> <C> <C>
John B. Adams, Jr. (51) President and Chief Executive Officer of The Bowman Companies, 1987
Fredericksburg, Virginia, a manufacturer
and bottler of beverages and Chairman of the Board of
Directors and a Director of Virginia Electric
and Power Company. He is a Director of Dominion Resources.
James T. Rhodes (54) President and Chief Executive Officer of Virginia Electric and 1989
Power Company. He is a Director of NationsBank, N.A.
Tyndall L. Baucom (54) Retired, President and Chief Operating Officer of Dominion 1994
Resources, Inc. from August 16, 1994
to August 29, 1995. Prior to August 16, 1994,
he was Senior Vice President of Dominion Resources.
He is a Director of Dominion Resources.
James F. Betts (63) Retired, Richmond, Virginia. He is a Director of Central 1978
Fidelity Bank, Inc.
Benjamin J. Lambert, III (59) Optometrist, Richmond, Virginia. He is a Director of 1992
Consolidated Bank and Trust Company, Student Loan Marketing
Association (SallieMae) and
Dominion Resources.
Richard L. Leatherwood (56) Retired, Baltimore, Maryland (prior to December 1, 1991, 1994
President and Chief Executive Officer, CSX Equipment, an
operating unit of CSX Transportation, Inc.). He is a
Director of Dominion Resources.
Harvey L. Lindsay, Jr. (66) Chairman and Chief Executive Officer of Harvey Lindsay 1986
Commercial Real Estate, Norfolk, Virginia, a commercial real
estate firm. He is a Director of Dominion Resources.
William T. Roos (68) Retired, Hampton, Virginia (prior to December 31, 1993, 1975
President of Penn Luggage, Inc., retail specialty stores).
He is a Director of Dominion Resources.
Robert H. Spilman (68) Chairman, Chief Executive Officer and a Director of Bassett 1994
Furniture Industries, Inc., Bassett, Virginia. He is
Chairman of the Board and a Director of Jefferson-Pilot
Corp., Greensboro, North Carolina. He is a Director of
NationsBank Corporation, TRINOVA Corporation, The Pittston
Company and Dominion Resources.
William G. Thomas (56) President of Hazel & Thomas, Alexandria, Virginia, 1987
a law firm.
</TABLE>
The Directors are divided into three classes, with staggered terms. Each
class consists, as nearly as possible, of one-third of the total number of
Directors. Each Director holds office until the annual meeting for the year in
which his class term expires, or until his successor is duly qualified and
elected as provided in the Company's Articles of Incorporation.
Mr. Thomas has entered into a Consent Decree with the Office of Thrift
Supervision in connection with the lending and credit granting activities of
Perpetual Savings Bank, FSB, which Mr. Thomas formerly served as a director. The
Consent Decree requires that Mr. Thomas obtain approval from the appropriate
federal banking agency before accepting certain positions involving lending or
credit activities with an insured depository institution.
<PAGE>
(b) Information concerning the executive officers of Virginia Electric and
Power Company is as follows:
<TABLE>
<CAPTION>
NAME AND AGE BUSINESS EXPERIENCE PAST FIVE YEARS
<S> <C>
James T. Rhodes (54) President and Chief Executive Officer.
Robert E. Rigsby (46) Executive Vice President, January 1, 1996 to date; Senior Vice President-Finance and
Controller, January 1, 1995 to January 1, 1996; Vice President-Human Resources, October
1, 1991 to January 1, 1995; Vice President-Information Systems prior to October 1,
1991.
William R. Cartwright (53) Senior Vice President-Fossil and Hydro, July 1, 1995 to date; Vice President Fossil and
Hydro prior to July 1, 1995.
Larry W. Ellis (55) Senior Vice President-Energy Services, July 1, 1995 to date; Senior Vice President-Power
Operations and Planning prior to July 1, 1995.
Larry M. Girvin (52) Senior Vice President-Commercial Operations, January 1, 1996 to date; Vice
President-Human Resources, January 1, 1995 to January 1, 1996; Vice President-Nuclear
Services, September 1, 1992 to January 1, 1995; Vice President-Central Division,
January 1, 1991 to September 1, 1992.
James P. O'Hanlon (52) Senior Vice President-Nuclear, June 1, 1994 to date; Vice President-Nuclear Operations,
January 1, 1992 to June 1, 1994; Vice President-Nuclear Services prior to January 1,
1992.
Edgar M. Roach, Jr. (47) Senior Vice President-Finance, Regulation and General Counsel, January 1, 1996 to date;
Vice President-Regulation and General Counsel, January 1, 1995 to
January 1, 1996; Vice President-Regulation, February 1, 1994 to January 1, 1995;
Partner in the law firm of Hunton & Williams, Raleigh, North Carolina prior to
February 1, 1994.
Charles A. Brown (53) Vice President-Central Division, September 1, 1992 to date; Vice President-Procurement
prior to September 1, 1992.
Thomas L. Caviness, Jr. (50) Vice President-Retail Energy Services, July 1, 1995 to date;
Vice President-Eastern Division prior to July 1, 1995.
J. Kennerly Davis, Jr. (50) Vice President-Finance and Administrative Services, Treasurer and Corporate Secretary,
January 1, 1996 to date; Vice President, Treasurer and Corporate Secretary, October 1,
1994 to January 1, 1996; Vice President and Corporate Secretary of Dominion Resources
prior to October 1, 1994.
James T. Earwood, Jr. (52) Vice President-Energy Efficiency and Division Services, January 1, 1996 to date; Vice
President-Division Services prior to January 1, 1996.
Thomas A. Hyman, Jr. (44) Vice President-Eastern Division and North Carolina Power, July 1, 1995 to date; Vice
President-Southern Division, June 1, 1994 to July 1, 1995; Station Manager-Bremo Power
Station, September 1, 1992 to June 1, 1994; Assistant Controller Financial Services,
prior to September 1, 1992.
Michael R. Kansler (41) Vice President-Nuclear Engineering and Services, October 1, 1995 to date; Vice
President-Nuclear Services, January 1, 1995 to October 1, 1995 ; Manager-Nuclear
Operations Support, September 1, 1994 to January 1, 1995; Station Manager-Surry Nuclear
Power Station prior to September 1, 1994.
William S. Mistr (48) Vice President-Information Technology, January 1, 1996 to date; Vice President-Treasurer
of Dominion Energy, Inc., October 1, 1994 to January 1, 1996; Assistant Treasurer,
Dominion Resources, December 1, 1992 to October 1, 1994; Assistant Treasurer, May 1,
1991 to December 1, 1992; Manager-Information Systems Client Services prior to May 1,
1991.
F. Kenneth Moore (54) Vice President-Fossil and Hydro Services, July 1, 1995 to date. Vice President-
Procurement, September 1, 1992 to July 1, 1995; Vice President-Nuclear Engineering
Services prior to September 1, 1992.
Thomas J. O'Neil (53) Vice President-Human Resources, January 1, 1996 to date; Vice President-Energy
Efficiency, September 1, 1992 to January 1, 1996; Vice President-Regulation,
prior to September 1, 1992.
Robert F. Saunders (52) Vice President-Nuclear Operations, June 1, 1994 to date; Assistant Vice President-Nuclear
Operations, prior to June 1, 1994.
Johnny V. Shenal (50) Vice President-Northern and Western Divisions, June 1, 1994 to date; Vice President-
Western Division, prior to June 1, 1994.
Eva S. Teig (51) Vice President-Public Affairs.
</TABLE>
There is no family relationship between any of the persons named in
response to Item 10.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The Summary Table below includes compensation paid by the Company for
services rendered in 1995, 1994 and 1993 for the Chief Executive Officer and the
four other most highly compensated executive officers (as of December 31, 1995)
as determined by total salary and incentive payments for 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION ALL
ANNUAL COMPENSATION LTIP OTHER
NAME & PRINCIPAL POSITION YEAR SALARY INCENTIVES(1) PAYOUTS COMPENSATION
<S> <C> <C> <C> <C> <C>
James T. Rhodes 1995 $406,075 $ 273,000 $ 77,970(9) $ 14,558(6)
President & CEO 1994 $384,575 $ 193,830 $ 69,709 $ 14,558(6)
1993 $356,000 $ 202,202 $ 97,657(2) $ 17,133(3)
John A. Ahladas (5) 1995 $201,085 $ 108,150 $ 55,847(10) $ 51,115(8)
Senior Vice President- 1994 $192,385 $ 86,100 $ 29,096 $ 4,500(4)
Corporate Services 1993 $183,150 $ 90,954 $ 44,677 $ 5,495
Robert F. Hill (5) 1995 $226,775 $ 101,850 $ 54,041(11) $173,068(7)
Senior Vice President- 1994 $219,526 $ 74,550 $ 29,096 $ 4,500(4)
Commercial Operations 1993 $210,350 $ 85,086 $ 44,677 $ 6,311(4)
Larry W. Ellis 1995 $189,360 $ 102,900 $ 54,041(11) $ 4,500(4)
Senior Vice President- 1994 $181,160 $ 82,950 $ 29,096 $ 4,500(4)
Power Operations and
Planning 1993 $174,000 $ 81,174 $ 44,667 $ 5,220
James P. O'Hanlon 1995 $207,555 $ 136,400 $ 45,109(12) $ 4,500(4)
Senior Vice President-Nuclear
</TABLE>
(1) The Company does not maintain "bonus" plans which are used by some
companies to supplement salaries based on the success of the company without
regard to individual performance. However, the Company has in place various
incentive plans that compensate officers and employees for achieving
pre-determined specified performance goals.
(2) Includes 1,118 shares of Restricted Stock and $51,540 in cash awarded
on February 18, 1994 at the end of a three-year performance period. Dividends
are paid on Restricted Stock. Restrictions on the shares of stock lapsed six
months from the date of grant. As of December 31, 1995 no shares of Restricted
Stock were held.
(3) Company match on savings plan contribution ($7,075) and insurance
premium to Directors Charitable Contribution Program ($10,058).
(4) Company match on savings plan contribution.
(5) Retired December 31, 1995.
(6) Company match on savings plan contribution ($4,500) and insurance
premium to Directors Charitable Contribution Program ($10,058).
(7) Company match on savings plan contribution ($4,500) retirement payment
as provided by Company's Early Retirement and Voluntary Separation Program
($113,250) and payment at retirement for accrued vacation ($55,318).
(8) Company match on savings plan contribution ($4,500) and payment at
retirement for accrued vacation ($46,615).
(9) Represents 1,808 shares of Dominion Resources Common Stock awarded on
February 16, 1996 at the end of a three-year performance period.
(10) Represents 1,295 shares of Dominion Resources Common Stock awarded on
February 16, 1996 at the end of a three-year performance period.
(11) Includes $26,096 cash and 648 shares of Dominion Resources Common
Stock awarded on February 16, 1996 at the end of a three-year performance
period.
(12) Represents 1,046 shares of Dominion Resources Common Stock awarded on
February 16, 1996 at the end of a three-year performance period.
<PAGE>
LONG-TERM INCENTIVE COMPENSATION
Long-term incentive awards made during 1995 are shown in the following
table.
LONG-TERM INCENTIVE PLANS -- AWARDS IN THE LAST FISCAL YEAR
1995-1997 PERFORMANCE ACHIEVEMENT PLAN
<TABLE>
<CAPTION>
PERFORMANCE OR ESTIMATED FUTURE PAYOUTS
NUMBER OF OTHER PERIOD UNDER NON-STOCK PRICE BASED PLANS
SHARES, UNITS UNTIL MATURATION THRESHOLD TARGET MAXIMUM
NAME OR OTHER RIGHTS(1) OR PAYOUT (#) (#) (#)
<S> <C> <C> <C> <C> <C>
James T. Rhodes 4,300 3 years 1(2) 4,300(2) 6,450 (2)
John A. Ahladas 1,478 3 years 1(2) 1,478(2) 2,217 (2)
Robert F. Hill 1,478 3 years 1(2) 1,478(2) 2,217 (2)
Larry W. Ellis 1,478 3 years 1(2) 1,478(2) 2,217 (2)
James P. O'Hanlon 1,814 3 years 1(2) 1,814(2) 2,721 (2)
</TABLE>
(1) The performance shares representing Dominion Resources Common Stock to
be awarded at the end of performance period.
(2) Except for James T. Rhodes, payout of awards are tied to achieving
levels of Virginia Power's return on equity (ROE) (50%) and meeting a cost per
kilowatt-hour goal (50%). The threshold award will be earned if 81% of the ROE
goal or 75% of the costs per kilowatt-hour goal is achieved. The target awards
will be earned if the goals are fully achieved. The maximum award will be earned
at 110% or more of the ROE goal and 120% of the cost goal.
The award for James T. Rhodes will be paid out in shares of stock or an
equivalent amount of cash based on the achievement of three specified goals over
a three-year performance period (1995-1997), weighted as follows: a total return
to Dominion Resources Shareholders superior to that of the S&P Utility Index
(50%), utility return on equity equal to the average ROE achieved by a group of
comparable utilities (25%), and restraint of utility costs to a growth rate less
than that of the Consumer Price Index (25%).
The target number of shares will be earned if all goals are fully achieved.
The threshold amount will be earned if at least 71% of the total return goal,
81% of the ROE goal, and 75% of the cost control goal are achieved. The maximum
amount will be earned if at least 114% of the total return goal, 110% of the ROE
goal, and 120% of the cost control goal are achieved. Prorated amounts will be
earned between the threshold and the maximum.
<PAGE>
RETIREMENT PLANS
The table below sets forth the estimated annual straight life benefit that
would be paid following retirement under the Dominion Resources, Inc. Retirement
Plan's (the Retirement Plan) benefit formula.
<TABLE>
<CAPTION>
ESTIMATED ANNUAL BENEFITS PAYABLE UPON
RETIREMENT
CREDITED YEARS OF SERVICE
FINAL AVERAGE EARNINGS 15 20 25 30
<S> <C> <C> <C> <C>
15$0,000 $ 41,182 $ 54,910 $ 68,637 $ 82,364
175,000 48,795 65,060 81,325 97,589
200,000 56,407 75,210 94,012 112,814
225,000 64,020 85,360 106,700 128,039
250,000 71,632 95,510 119,387 143,264
300,000 86,857 115,810 144,762 173,714
350,000 102,082 136,110 170,137 204,164
400,000 117,307 156,410 195,512 234,614
450,000 132,532 176,710 220,887 265,064
500,000 147,757 197,010 246,262 295,514
550,000 162,982 217,310 271,637 325,964
600,000 178,207 237,610 297,012 356,414
650,000 193,432 257,910 322,387 386,864
</TABLE>
Benefits under the Retirement Plan are based on (i) average base
compensation over the consecutive 60-month period in which pay is highest, (ii)
years of credited service, (iii) age at retirement, and (iv) the offset of
Social Security Benefits.
Certain officers have entered into retirement agreements that give
additional credited years of service for retirement and retirement life
insurance purposes, contingent upon the officer reaching a specified age and
remaining in the employ of the Company or an affiliate.
For purposes of the above table, based on 1995 compensation, credited years
of service (including any additional years earned in connection with the
retirement agreements) for each of the individuals named in the cash
compensation table would be as follows:
James T. Rhodes: 30; John A. Ahladas: 30; Robert F. Hill: 30; Larry W.
Ellis: 30 and James P. O'Hanlon: 6.
Virginia Power's executive compensation program has placed increased
emphasis on incentive compensation opportunities linked to financial and
operating performance. Base salaries have been held below the mean for
comparable positions at comparable companies. The Retirement Plan benefit
formula recognizes base salary, but not incentive compensation payments.
Therefore, each year the Organization and Compensation Committee approves a
market-based adjustment to executive base salaries for use in calculating the
retirement benefit under the Dominion Resources, Inc. Benefit Restoration Plan
(the Restoration Plan). In 1995, this adjustment was 11 percent. Also, the
Internal Revenue Code limits the annual retirement benefit that may be paid from
a qualified retirement plan and the amount of compensation that may be
recognized by the Retirement Plan. To the extent that benefits determined under
the Retirement Plan's benefit formula exceed the limitations imposed by the
Internal Revenue Code, they will be paid under the Dominion Resources, Inc.
Benefit Restoration Plan.
In 1995, the Company entered into an agreement with Mr. Ahladas which
allowed him to retire on December 31, 1995 with Retirement Benefits
approximately equal to those he would have received had he remained an employee
through June 21, 1997.
The Company also provides an Executive Supplemental Retirement Plan (the
Supplemental Plan) to its elected officers designated to participate by the
Board of Directors. The Supplemental Plan provides an annual retirement benefit
equal to 25 percent of a participant's final compensation (base pay plus annual
incentive plan payments). The normal form of benefit is payable in equal monthly
installments for 120 months to a participant with 60 months of service, who (i)
retires at or after age 55 from the employ of the Company, (ii) has become
permanently disabled, or (iii) dies. If a participant dies while employed, the
normal form of benefit will be paid to a designated beneficiary. If a
participant dies while retired, but before receiving all benefit payments, the
remaining installments will be paid to a designated beneficiary. In order to be
entitled to benefits under the Supplemental Plan, an employee must be employed
as an elected officer of the Company until death, disability or retirement.
<PAGE>
Based on 1995 compensation, the estimated annual retirement benefit for
each of the executive officers under the Supplemental Plan would be as follows:
James T. Rhodes: $164,790; John A. Ahladas: $74,650; Robert F. Hill: $80,775;
Larry W. Ellis: $71,800; and James P. O'Hanlon: $84,747.
RETIREMENT BENEFIT FUNDING PLAN
The Company maintains a Retirement Benefit Funding Plan to provide a means
to secure obligations under the Supplemental Plan, the Restoration Plan, and
retirement agreements. The Retirement Benefit Funding Plan does not provide any
additional benefits; it simply helps secure the funding for these benefit
obligations. The amount payable by Virginia Power under the Supplemental Plan,
the Restoration Plan and retirement agreements is reduced, on a
dollar-for-dollar basis, by the funds available under the Retirement Benefit
Funding Plan.
EMPLOYMENT AGREEMENTS
The Company has entered into employment continuity agreements (the
Agreements) with its key management executives, including James T. Rhodes, John
A. Ahladas, Robert F. Hill, Larry W. Ellis and James P. O'Hanlon, which provide
benefits in the event of a change in control. Each Agreement has a three-year
term and thereafter is automatically extended on its anniversary date for an
additional year unless notified that the Agreement will not be extended by the
Company. If, following a change in control (as defined in the Agreements) of
Dominion Resources or the Company, an executive's employment is terminated by
the Company without cause, or voluntarily by the executive within sixty days
after a material reduction in the executive's compensation, benefits or
responsibilities, the Company will be obligated to pay to the executive
continued compensation equaling the average base salary and cash incentive
bonuses for the thirty-six full month period of employment preceding the change
in control or employment termination. In addition, the terminated executive will
continue to be entitled to any benefits due under any stock or benefit plans.
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. An executive shall not be entitled
to the above benefits in the event termination is for cause.
On April 21, 1995, the Company entered into an employment agreement with
Dr. James T. Rhodes. This agreement was amended on September 15, 1995. As
amended, the agreement replaces all previous agreements between the Company and
Dr. Rhodes, except that his Employment Continuity Agreement, and various
retirement, incentive and benefit plans in which Dr. Rhodes participates, remain
in effect.
The amended agreement provides that Dr. Rhodes will continue in the employ
of the Company, as Chief Executive Officer until July 31, 1999. During this
term, Dr. Rhodes' base salary will not be reduced, and he will participate in
the compensation and benefit plans provided for senior management.
If Dr. Rhodes' employment is terminated, for any reason, after July 31,
1996, his retirement benefits will be calculated using his final salary and will
assume 60 years of age and 30 years of service. In addition, any restricted
stock held for Dr. Rhodes will become fully vested, his benefit under the
Executive Supplemental Retirement Plan will be paid for life, he will receive
immediate payment for all outstanding awards under the Performance Achievement
Plan, and he will receive a lump sum payment approximately equal to his 1994
salary plus incentive, and he will receive a cash payment equal to the net
present value of base salary and incentives that he would be projected to
receive between August 1, 1996 and April 21, 1997. Salary and incentive will be
calculated at a rate not less than the maximum rate paid during the prior three
years. These benefits will also be paid if Dr. Rhodes is terminated by the
Company without cause prior to July 31, 1996. Termination as a result of
disability, at any time during the term of employment, will also result in the
above benefits. In the case of termination due to death, the above benefits will
be paid to the designated beneficiary, but payments under the Executive
Supplemental Retirement Plan will be made for ten years.
COMPENSATION OF DIRECTORS
The non-employee members of the Board receive an annual retainer of $19,000
and a fee of $900 for each Board or committee meeting attended. Committee
chairmen receive an additional annual retainer of $3,000 and the Chairman of the
Board receives an additional $25,000 annual retainer. These Directors may elect
to defer their annual retainer and/or their meeting fees under the Deferred
Compensation Plan until they retire from the Board or otherwise direct. The
deferred fees are credited, for bookkeeping purposes, with earnings and losses
as if they were invested in either an interest bearing account or Dominion
Resources Common Stock, depending on the Director's election.
<PAGE>
In addition, the Company makes payments to non-employee Directors or their
designated beneficiaries upon those Directors' retirement, death or disability.
Payments to a retired Director, including one who becomes disabled after
retirement, are made for a period of four years, or for a period of years equal
to the Director's service on the Board of the Company or one of its
subsidiaries, whichever is longer. If a non-employee Director becomes disabled
prior to retirement, these payments are made for four years. Each year, these
payments equal the annual retainer in effect at the time the payments begin.
Upon the death of a non-employee Director, the unpaid portion of these payments,
up to a maximum of four times the annual amount due, is paid in a lump sum to
the Director's designated beneficiary.
DIRECTORS CHARITABLE CONTRIBUTION PROGRAM
Dominion Resources administers a Directors' Charitable Contribution Program
(the Program) for all its subsidiaries, including the Company, as part of its
overall program of charitable giving. Beginning at the death of a Director a
donation in an aggregate amount of $50,000 per year for 10 years will be made to
one or more qualifying charitable organizations recommended by the individual
Director. Life insurance policies have been purchased on the lives of the
Directors in connection with the Program. These policies are owned by Dominion
Resources, which is also the beneficiary. The Directors derive no financial or
tax benefits from the Program.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth as of February 23, 1996, except as noted, the
number of shares of Common Stock of Dominion Resources owned by Directors and
four other more highly compensated executive officers of Virginia Electric and
Power Company.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK DEFERRED COMPENSATION
NAME BENEFICIALLY OWNED PLAN ACCOUNT (A)
<S> <C> <C>
James T. Rhodes.................................... 20,027
John A. Ahladas.................................... 3,851
Robert F. Hill..................................... 624
Larry W. Ellis..................................... 5,220
James P. O'Hanlon.................................. 2,763
John B. Adams, Jr.................................. 3,280
Tyndall L. Baucom.................................. 17,801
James F. Betts..................................... 7,500
Benjamin J. Lambert, III........................... -- 981
Richard L. Leatherwood............................. 1,000 4,395
Harvey L. Lindsay, Jr.............................. 400
William T. Roos.................................... 11,496 2,720
Robert H. Spilman.................................. 1,088
William G. Thomas.................................. -- 3,058
</TABLE>
(a) Represents shares the Directors have accumulated under the Deferred
Compensation Plan.
(b) Members of Mr. Roos' family are beneficiaries of trusts that own 4,387
shares of Common Stock for which he disclaims beneficial ownership.
All Directors and executive officers as a group (30 persons) beneficially
own, in the aggregate, 176,958 shares of Common Stock of Dominion Resources.
Beneficial ownership of 4,387 shares of the total are disclaimed. No shares of
the Company's Preferred Stock are owned by the Directors or executive officers
as a group.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Hazel & Thomas, a professional corporation, from time to time acts as
counsel to the Company. Mr. Thomas, a Director of the Company, is a shareholder
of Hazel & Thomas.
<PAGE>
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 21.
2. EXHIBITS
<TABLE>
<S> <C> <C>
3(i) -- Restated Articles of Incorporation, as amended, as in effect on September 12, 1994 (Exhibit 3(i), Form
8-K, dated October 19, 1994, File No. 1-2255, incorporated by reference).
3(ii) -- Bylaws, as amended, as in effect on December 31, 1994 (Exhibit 3(ii), Form 10-K for the fiscal year ended
December 31, 1994, File No. 1-2255, incorporated by reference).
4(i) -- See Exhibit 3(i) above.
4(ii) -- Indenture of Mortgage of the Company, dated November 1, 1935, as supplemented and modified by fifty-eight
Supplemental Indentures (Exhibit 4(ii), Form 10-K for the fiscal year ended December 31, 1985, File No.
1-2255, incorporated by reference); Fifty-Ninth Supplemental Indenture (Exhibit 4(ii), Form 10-Q for the
quarter ended March 31, 1986, File No. 1-2255, incorporated by reference); Sixtieth Supplemental Indenture
(Exhibit 4(ii), Form 10-Q for the quarter ended September 30, 1986, File No. 1-2255, incorporated by
reference); Sixty-First Supplemental Indenture (Exhibit 4(ii), Form 10-Q for the quarter ended June 30,
1987, File No. 1-2255, incorporated by reference); Sixty-Second Supplemental Indenture (Exhibit 4(ii),
Form 8-K, dated November 3, 1987, File No. 1-2255, incorporated by reference); Sixty-Third Supplemental
Indenture (Exhibit 4(i), Form 8-K, dated June 8, 1988, File No. 1-2255, incorporated by reference); Sixty
Fourth Supplemental Indenture (Exhibit 4(i), Form 8-K, dated February 8, 1989, File No. 1-2255,
incorporated by reference);
Sixty-Fifth Supplemental Indenture (Exhibit 4(i), Form 8-K, dated June 22, 1989, File No. 1-2255,
incorporated by reference); Sixty-Sixth Supplemental Indenture, (Exhibit 4(i), Form 8-K, dated February
27, 1990, File No. 1-2255, incorporated by reference); Sixty-Seventh Supplemental Indenture (Exhibit 4(i),
Form 8-K, dated April 2, 1991, File No. 1-2255, incorporated by reference); Sixty-Eighth Supplemental
Indenture, (Exhibit 4(i)), Sixty-Ninth Supplemental Indenture, (Exhibit 4(ii)) and Seventieth Supplemental
Indenture, (Exhibit 4(iii), Form 8-K, dated February 25, 1992, File No. 1-2255, incorporated by
reference); Seventy-First Supplemental Indenture (Exhibit 4(i)) and Seventy-Second Supplemental Indenture,
(Exhibit 4(ii), Form 8-K, dated July 7, 1992,
File No. 1-2255, incorporated by reference); Seventy-Third Supplemental Indenture, (Exhibit 4(i), Form
8-K, dated August 6, 1992, File No. 1-2255, incorporated by reference); Seventy-Fourth Supplemental
Indenture (Exhibit 4(i), Form 8-K, dated February 10, 1993, File No. 1-2255, incorporated by reference);
Seventy-Fifth Supplemental Indenture, (Exhibit 4(i), Form 8-K, dated April 6, 1993, File No. 1-2255,
incorporated by reference); Seventy-Sixth Supplemental Indenture, (Exhibit 4(i), Form 8-K, dated April 21,
1993, File No. 1-2255, incorporated by reference); Seventy-Seventh Supplemental Indenture, (Exhibit 4(i),
Form 8-K, dated June 8, 1993, File No. 1-2255, incorporated by reference); Seventy-Eighth Supplemental
Indenture, (Exhibit 4(i), Form 8-K, dated August 10, 1993, File No. 1-2255, incorporated by reference);
Seventy-Ninth Supplemental Indenture, (Exhibit 4(i), Form 8-K, dated August 10, 1993, File No. 1-2255,
incorporated by reference); Eightieth Supplemental Indenture, (Exhibit 4(i), Form 8-K, dated October 12,
1993, File No. 1-2255, incorporated by reference); Eighty-First Supplemental Indenture, (Exhibit 4(iii),
Form 10-K for the fiscal year ended December 31, 1993, File No. 1-2255, incorporated by reference);
Eighty-Second Supplemental Indenture, (Exhibit 4(i), Form 8-K, dated January 18, 1994, File No. 1-2255,
incorporated by reference); Eighty-Third Supplemental Indenture (Exhibit 4(i), Form 8-K, dated October 19,
1994, File No. 1-2255, incorporated by reference); and Eighty-Fourth Supplemental Indenture (Exhibit 4(i),
Form 8-K, dated March 22, 1995, File No. 1-2255, incorporated by reference).
4(iii) -- Indenture, dated April 1, 1985, between Virginia Electric and Power Company and Crestar Bank (formerly
United Virginia Bank) (Exhibit 4(iv), Form 10-K for the fiscal year ended December 31, 1993, File No.
1-2255, incorporated by reference).
4(iv) -- Indenture, dated as of June 1, 1986, between Virginia Electric and Power Company and Chemical Bank
(Exhibit 4(v), Form 10-K for the fiscal year ended December 31, 1993, File No. 1-2255, incorporated by
reference).
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
4(v) -- Indenture, dated April 1, 1988, between Virginia Electric and Power Company and Chemical Bank, as
supplemented and modified by a First Supplemental Indenture, dated August 1, 1989, (Exhibit 4(vi), Form
10-K for the fiscal year ended December 31, 1993, File No. 1-2255, incorporated by reference).
4(vi) -- Indenture, dated as of August 1, 1995, from Virginia Electric and Power Company to Chemical Bank, Trustee,
as supplemented and modified by a First Supplemental Indenture, dated as of August 1, 1995, pursuant to
which the Series A 8.05% Junior Subordinated Notes were issued to fund the purchase of Virginia Power
Capital Trust 1 Common Stock and Preferred Securities proceeds (Exhibits 4(a) and 4(b), respectively, Form
S-3 Registration Statement No. 33-61265 as filed on
July 24, 1995 and amended on August 21, 1995 and August 22, 1995, incorporated by reference).
4(vii) -- 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 percent of Virginia Electric and Power Company's total assets.
10(i) -- Operating Agreement, dated June 17, 1981, between Virginia Electric and Power Company and Monongahela
Power Company, the Potomac Edison Company, West Penn Power Company, and Allegheny Generating Company
(Exhibit 10(vi), Form 10-K for the fiscal year ended December 31, 1983, File No. 1-8489, incorporated by
reference).
10(ii) -- Purchase, Construction and Ownership Agreement, dated as of December 28, 1982 but amended and restated on
October 17, 1983, between Virginia Electric and Power Company and Old Dominion Electric Cooperative
(Exhibit 10(viii), Form 10-K for the fiscal year ended December 31, 1983,
File No. 1-8489, incorporated by reference).
10(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
10(ix), Form 10-K for the fiscal year ended December 31, 1983,
File No. 1-8489, incorporated by reference).
10(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 10(x), Form 10-K for
the fiscal year ended December 31, 1983, File No. 1-8489, incorporated by reference).
10(v) -- Credit Agreement dated as of September 1, 1995, between Chemical Bank and Virginia Electric and Power
Company (filed herewith).
10(vi) -- Credit Agreement, dated December 1, 1985, between Virginia Electric and Power Company and Old Dominion
Electric Cooperative (Exhibit 10(xix), Form 10-K for the fiscal year ended December 31, 1985, File No.
1-8489, incorporated by reference).
10(vii) -- Agreement for Northern Virginia Services, dated as of November 1, 1985, between Potomac Electric Power
Company and Virginia Electric and Power Company (Exhibit 10(xxi), Form 10-K for the fiscal year ended
December 31, 1985, File No. 1-8489, incorporated by reference).
10(viii) -- Purchase, Construction and Ownership Agreement, dated May 31, 1990, between Virginia Electric and Power
Company and Old Dominion Electric Cooperative (Exhibit 10(xi), Form 10-K for the fiscal year ended
December 31, 1990, File No. 1-2255, incorporated by reference).
10(ix) -- Operating Agreement, dated May 31, 1990, between Virginia Electric and Power Company and Old Dominion
Electric Cooperative (Exhibit 10(xii), Form 10-K for the fiscal year ended December 31, 1990, File No.
1-2255, incorporated by reference).
10(x) -- Coal-Fired Unit Turnkey Contract (Volume 1), dated April 6, 1989, and the Unit 2 Amendment (Volume 1),
dated May 31, 1990 between Virginia Electric and Power Company and Old Dominion Electric Cooperative,
Westinghouse, Black & Veatch, Combustion Engineering and H. B. Zachry (Volumes 2-11 contain technical
specifications) (Exhibit 10(xiii), Form 10-K for the fiscal year ended December 31, 1990, File No. 1-2255,
incorporated by reference).
10(xi) -- Receivables Purchase Agreement, dated as of December 11, 1991, between Virginia Electric and Power Company
and Dynamic Funding Corporation (Exhibit 10(xv), Form 10-K for the fiscal year ended December 31, 1991,
File No. 1-2255, incorporated by reference).
10(xxi)* -- Description of arrangements with certain officers regarding additional credited years of service for
retirement purposes (Exhibit 10(xii), Form 10-K for the fiscal year ended December 31, 1992,
File No. 1-2255, incorporated by reference).
10(xxii)* -- Dominion Resources, Inc. Directors' Deferred Compensation Plan effective July 1, 1986 (Exhibit 10(xxii),
Form 10-K for the fiscal year ended December 31, 1994, File No. 1-2255, incorporated by reference).
10(xxiii)* -- Dominion Resources, Inc. Performance Achievement Plan, effective January 1, 1986, as amended
and restated effective February 19, 1988 (Exhibit 10(xxiii), Form 10-K for the fiscal year ended December
31, 1994, File No. 1-2255, incorporated by reference).
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
10(xxiv)* -- Dominion Resources, Inc. Executive Supplemental Retirement Plan, effective January 1, 1981 as amended and
restated effective October 22, 1988 and as amended and restated June 15, 1990
(Exhibit 10(xxiv), Form 10-K for the fiscal year ended December 31, 1994, File No. 1-2255, incorporated by
reference).
10(xxv)* -- Dominion Resources, Inc.'s Cash Incentive Plan as adopted December 20, 1991 (Exhibit 10(xxv), Form 10-K
for the fiscal year ended December 31, 1994, File No. 1-2255, incorporated by reference).
10(xxvi)* -- Dominion Resources, Inc. Long-Term Incentive Plan, effective April 17, 1987 (Exhibit 10(xxvi), Form 10-K
for the fiscal year ended December 31, 1994, File No. 1-2255, incorporated by reference).
10(xxvii)* -- Employment Continuity Agreement for James T. Rhodes of Virginia Power (Exhibit 10(xxvii), Form 10-K for
the fiscal year ended December 31, 1994, File No. 1-2255, incorporated by reference).
10(xxviii)* -- Dominion Resources, Inc. Retirement Benefit Funding Plan, effective June 29, 1990 (Exhibit 10(xxviii),
Form 10-K for the fiscal year ended December 31, 1994, File No. 1-2255, incorporated by reference).
10(xxix)* -- Dominion Resources, Inc. Retirement Benefit Restoration Plan as adopted effective January 1, 1991 (Exhibit
10(xxix), Form 10-K for the fiscal year ended December 31, 1994, File No. 1-2255, incorporated by
reference).
10(xxx)* -- Dominion Resources, Inc. Executives' Deferred Compensation Plan, effective January 1, 1994
(Exhibit 10(xxx), Form 10-K for the fiscal year ended December 31, 1994, File No. 1-2255, incorporated by
reference).
10(xxxi)* -- Employment Agreement dated April 21, 1995 between Virginia Power and James T. Rhodes (Exhibit 10, Form 10-Q
for the period ended March 31, 1995, incorporated by reference) and an amendment dated September 15, 1995
(Exhibit 10, Form 10-Q for the period ended September 30, 1995, incorporated by reference).
10(xxxii)* -- Employment Agreement dated June 23, 1994 between Virginia Power and L.W. Ellis
(Exhibit 10(xxxiv), Form 10-K for the fiscal year ended December 31, 1994, incorporated
by reference).
23(i) -- Consent of Hunton & Williams (filed herewith).
23(ii) -- Consent of Jackson & Kelly (filed herewith).
23(iii) -- Consent of Deloitte & Touche LLP (filed herewith).
27 -- Financial Data Schedule (filed herewith).
99(i) -- Consent Order by the Virginia State Corporation Commission (Item 5., Form 8-K dated February 21, 1995,
incorporated by reference).
99(ii) -- Final Report by the Staff of the Virginia State Corporation Commission (Item 5., Form 8-K dated April 17,
1995, incorporated by reference).
</TABLE>
*Indicates management contract or compensatory plan or arrangement
(b) Reports on Form 8-K
None.
<PAGE>
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.
VIRGINIA ELECTRIC AND POWER COMPANY
Date: March 12, 1996
By /s/ JOHN B. ADAMS, JR.
(JOHN B. ADAMS, JR., CHAIRMAN OF THE 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 indicated on March 12, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C>
/s/ JOHN B. ADAMS, JR. Chairman of the Board of Directors and
JOHN B. ADAMS, JR. Director
/s/ TYNDALL BAUCOM Director
TYNDALL L. BAUCOM
/s/ JAMES F. BETTS Director
JAMES F. BETTS
/s/ BENJAMIN J. LAMBERT, III Director
BENJAMIN J. LAMBERT, III
/s/ RICHARD L. LEATHERWOOD Director
RICHARD L. LEATHERWOOD
/s/ HARVEY L. LINDSAY, JR. Director
HARVEY L. LINDSAY, JR.
/s/ J. T. RHODES President (Chief Executive Officer) and
J. T. RHODES Director
/s/ WILLIAM T. ROOS Director
WILLIAM T. ROOS
Director
ROBERT H. SPILMAN
/s/ WILLIAM G. THOMAS Director
WILLIAM G. THOMAS
/s/ R. E. RIGSBY Executive Vice President
R. E. RIGSBY
/s/ E. M. ROACH, JR. Senior Vice President-Finance,
E. M. ROACH, JR. Regulation and General Counsel (Chief
Financial Officer)
/s/ M. S. BOLTON, JR. Controller (Principal Accounting
M. STUART BOLTON, JR. Officer)
</TABLE>
CONFORMED COPY
_______________________________________________________________________________
CREDIT AGREEMENT
among
VIRGINIA ELECTRIC AND POWER COMPANY
The Several Lenders
from Time to Time Parties Hereto
and
CHEMICAL BANK,
as Administrative Agent
Dated as of September 1, 1995
_______________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1. DEFINITIONS ....................................................... 1
1.1 Defined Terms ...................................................... 1
1.2 Other Definitional Provisions ...................................... 10
SECTION 2. AMOUNT AND TERMS OF THE CREDIT FACILITIES ......................... 11
2.1 The Commitments .................................................... 11
2.2 Procedure for Revolving Credit Borrowing ........................... 11
2.3 Facility Fee ....................................................... 11
2.4 Termination or Reduction of Commitments ............................ 12
2.5 Repayment of Loans; Evidence of Debt ............................... 12
2.6 Optional Prepayments ............................................... 13
2.7 Conversion and Continuation Options ................................ 13
2.8 Minimum Amounts and Maximum Number of Tranches ..................... 13
2.9 The Competitive Loans .............................................. 14
2.10 Procedure for and Payment of Competitive Loan Borrowing ............ 14
2.11 Interest Rates and Payment Dates ................................... 17
2.12 Computation of Interest and Fees ................................... 18
2.13 Inability to Determine Interest Rate ............................... 18
2.14 Pro Rata Treatment and Payments .................................... 19
2.15 Illegality ......................................................... 20
2.16 Additional Costs .................................................. 20
2.17 Taxes .............................................................. 21
2.18 Indemnity .......................................................... 24
2.19 Change of Lending Office ........................................... 24
2.20 Replacement of Lenders under Certain Circumstances ................. 24
SECTION 3. REPRESENTATIONS AND WARRANTIES .................................... 25
3.1 Financial Condition ................................................ 25
3.2 No Change .......................................................... 26
3.3 Corporate Existence; Compliance with Law ........................... 26
3.4 Corporate Power; No Legal Bar ...................................... 26
3.5 Authorization; Enforceability ...................................... 26
3.6 ERISA .............................................................. 26
3.7 No Material Litigation ............................................. 26
3.8 Taxes .............................................................. 27
3.9 Purpose of Loans ................................................... 27
SECTION 4. CONDITIONS PRECEDENT .............................................. 27
4.1 Conditions to Initial Loans ........................................ 27
4.2 Conditions to Each Loan ............................................ 28
SECTION 5. COVENANTS ......................................................... 28
5.1 Financial Statements ............................................... 28
5.2 Conduct of Business and Compliance ................................. 29
5.3 Books and Records .................................................. 29
5.4 Notices ............................................................ 30
5.5 Limitation on Liens ................................................ 30
5.6 Limitation on Fundamental Changes .................................. 30
5.7 Limitation on Guarantee Obligations ................................ 30
5.8 Maintenance of Net Worth ........................................... 31
SECTION 6. EVENTS OF DEFAULT ................................................. 31
SECTION 7. THE ADMINISTRATIVE AGENT .......................................... 33
7.1 Appointment ........................................................ 33
7.2 Delegation of Duties ............................................... 33
7.3 Exculpatory Provisions ............................................. 33
7.4 Reliance by Administrative Agent ................................... 34
7.5 Notice of Default .................................................. 34
7.6 Non-Reliance on Administrative Agent and Other Lenders ............. 34
7.7 Indemnification .................................................... 35
7.8 Administrative Agent in Its Individual Capacity .................... 35
7.9 Successor Administrative Agent ..................................... 35
SECTION 8. MISCELLANEOUS ..................................................... 36
8.1 Amendments and Waivers ............................................. 36
8.2 Notices ............................................................ 36
8.3 No Waiver; Cumulative Remedies ..................................... 37
8.4 Survival ........................................................... 37
8.5 Payment of Expenses ................................................ 37
8.6 Transfer Provisions ................................................ 38
8.7 Adjustments ........................................................ 39
8.8 Counterparts ....................................................... 40
8.9 Severability ....................................................... 40
8.10 Integration ........................................................ 40
8.11 GOVERNING LAW ...................................................... 40
8.12 WAIVERS OF JURY TRIAL .............................................. 40
8.13 Confidentiality .................................................... 40
SCHEDULES
I Lending Offices and Commitments
II Facility Fee/Applicable Margin
III Permitted Guarantee Obligations
</TABLE>
<PAGE>
EXHIBITS
A-1 Form of Revolving Credit Note
A-2 Form of Competitive Loan Note
B-1 Form of Competitive Loan Confirmation
B-2 Form of Competitive Loan Offer
B-3 Form of Competitive Loan Request
C Form of Closing Certificate
D-1 Form of Legal Opinion of General Counsel of the Borrower
D-2 Form of Legal Opinion of Simpson Thacher & Bartlett
E Form of Assignment and Acceptance
<PAGE>
CREDIT AGREEMENT, dated as of September 1, 1995, among VIRGINIA
ELECTRIC AND POWER COMPANY, a Virginia public service corporation (the
"Borrower"), the several banks and other financial institutions from time to
time parties to this Agreement (the "Lenders") and Chemical Bank, a New York
banking corporation, as administrative agent for the Lenders hereunder (in such
capacity, the "Administrative Agent").
WITNESSETH:
The parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms
shall have the following meanings:
"ABR": for any day, a rate per annum (rounded upwards, if necessary,
to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in
effect on such day and (b) the Federal Funds Effective Rate in effect on
such day plus 1/2 of 1%. Any change in the ABR due to a change in the
Prime Rate or the Federal Funds Effective Rate shall be effective as of
the opening of business on the effective day of such change in the Prime
Rate or the Federal Funds Effective Rate.
"ABR Loans": Revolving Credit Loans the rate of interest applicable
to which is the ABR.
"Additional Costs": as defined in subsection 2.16(a).
"Affiliate": as to any Person, any other Person which, directly or
indirectly, is in control of, is controlled by, or is under common control
with, such Person. For purposes of this definition, "control" of a Person
means the power, directly or indirectly, either to (a) vote 10% or more of
the securities having ordinary voting power for the election of directors
of such Person or (b) direct or cause the direction of the management and
policies of such Person, whether by contract or otherwise.
"Agreement": this Credit Agreement, as amended, supplemented or
otherwise modified from time to time.
"Applicable Lending Office": each Lender's lending office designated
in Schedule I or such other office of such Lender notified to the
Administrative Agent and Borrower.
"Applicable Margin": the rate per annum set forth in Schedule II
under the applicable S&P Bond Rating and Moody's Bond Rating.
"Assignee": as defined in subsection 8.6(c).
<PAGE>
"Board": the Board of Governors of the Federal Reserve System (or
any successor).
"Borrowing Date": any Business Day specified in a notice given by
the Borrower pursuant to subsection 2.2 or 2.10 as a date on which the
Loans are to be made hereunder.
"Business Day": a day other than a Saturday, Sunday or other day on
which commercial banks in New York City are authorized or required by law
to close, except that, when used in connection with a LIBOR Loan or LIBOR
Competitive Loan, the term "Business Day" shall mean any Business Day on
which dealings in foreign currencies and exchange between banks may be
carried on in London, England and New York, New York.
"CD Assessment Rate": for any day as applied to any CD Rate Loan,
the annual assessment rate in effect on such day which is payable by a
member of the Bank Insurance Fund maintained by the Federal Deposit
Insurance Corporation (the "FDIC") classified as well-capitalized and
within supervisory subgroup "B" (or a comparable successor assessment risk
classification) within the meaning of 12 C.F.R. (S) 327.4(a) (or any
successor provision) to the FDIC (or any successor) for the FDIC's (or such
successor's) insuring time deposits at offices of such institution in the
United States.
"CD Base Rate": with respect to each day during each Interest Period
pertaining to a CD Rate Loan, the rate of interest per annum determined by
the Agent to be the rate notified to the Agent by Chemical as the average
rate bid at 9:00 A.M., New York City time, or as soon thereafter as
practicable, on the first day of such Interest Period by a total of three
certificate of deposit dealers of recognized standing selected by Chemical
for the purchase at face value from Chemical of its certificates of deposit
in an amount comparable to the CD Rate Loan of Chemical to which such
Interest Period applies and having a maturity comparable to such Interest
Period.
"CD Rate": with respect to each day during each Interest Period
pertaining to a CD Rate Loan, a rate per annum determined for such day in
accordance with the following formula (rounded upward to the nearest
l/lOOth of 1%):
CD Base Rate + CD Assessment Rate
1.00 - CD Reserve Percentage
"CD Rate Loans": Loans the rate of interest applicable to which is
based upon the CD Rate.
"CD Reserve Percentage": for any day as applied to any CD Rate Loan,
that percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board, for determining the maximum reserve requirement
for a Depositary Institution (as defined in Regulation D of the Board) in
respect of new non-personal time deposits in Dollars having a maturity
comparable to the Interest Period for such CD Rate Loan.
2
<PAGE>
"Chemical": Chemical Bank.
"Closing Date": the date on which the conditions precedent set forth
in subsection 4.1 shall be satisfied or waived in accordance with
subsection 8.1.
"Code": the Internal Revenue Code of 1986, as amended from time to
time.
"Commitment": as to any Lender, the obligation of such Lender to
make Revolving Credit Loans in an aggregate principal amount at any one
time outstanding not to exceed the amount set forth opposite such Lender's
name on Schedule I, as such amount may be changed from time to time in
accordance with this Agreement.
"Commitment Percentage": as to any Lender at any time, the
percentage which such Lender's Commitment then constitutes of the aggregate
Commitments (or, at any time after the Commitments shall have expired or
terminated, the percentage which the aggregate principal amount of such
Lender's Loans then outstanding constitutes of the aggregate principal
amount of the Loans then outstanding).
"Commitment Period": the period from and including the Closing Date
to but not including the Termination Date or such earlier date on which the
Commitments shall terminate as provided herein.
"Commonly Controlled Entity": an entity, whether or not
incorporated, which is under common control with the Borrower within the
meaning of Section 4001 of ERISA or is part of a group which includes the
Borrower and which is treated as a single employer under Section 414 of the
Code.
"Competitive Loan Confirmation": each confirmation by the Borrower
of its acceptance of Competitive Loan Offers, which Competitive Loan
Confirmation shall be substantially in the form of Exhibit B-l and shall be
delivered to the Administrative Agent in writing or by facsimile
transmission.
"Competitive Loan Lender": each Lender that has agreed to offer to
make Competitive Loans hereunder and each other Lender that shall hereafter
become a Competitive Loan Lender in accordance with the provisions of
subsection 8.6
"Competitive Loan Maturity Date": as to any Competitive Loan, the
date specified by the Borrower pursuant to subsection 2.10(d)(ii) in its
acceptance of the related Competitive Loan Offer.
"Competitive Loan Note": as defined in subsection 2.10(i).
"Competitive Loan Offer": each offer by a Competitive Loan Lender to
make Competitive Loans pursuant to a Competitive Loan Request, which
Competitive Loan Offer shall contain the information specified in Exhibit
B-2 and shall be delivered to the Administrative Agent by telephone,
immediately confirmed by facsimile transmission.
3
<PAGE>
"Competitive Loan Request": each request by the Borrower for
Competitive Loans, which request shall contain the information specified in
Exhibit B-3 and shall be delivered to the Administrative Agent in writing
or by facsimile transmission, or by telephone, immediately confirmed by
facsimile transmission.
"Competitive Loan": each loan made pursuant to subsection 2.9.
"Consolidated Net Worth": as of the date of determination, all items
which in conformity with GAAP would be included under stockholders' equity
on a consolidated balance sheet of the Borrower and its consolidated
Subsidiaries, if any, at such date, including preferred stock issued by the
Borrower.
"Default": any of the events specified in Section 6, whether or not
any requirement for the giving of notice, the lapse of time, or both, or
any other condition, has been satisfied.
"Dollars" and "$": dollars in lawful currency of the United States
of America.
"Dominion Resources": Dominion Resources, Inc., a Virginia
corporation.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Eurocurrency Reserve Requirements": for any day as applied to a
LIBOR Loan or a LIBOR Competitive Loan, as the case may be, the aggregate
(without duplication) of the rates (expressed as a decimal fraction) of
reserve requirements in effect on such day (including, without limitation,
basic, supplemental, marginal and emergency reserves under any regulations
of the Board or other Governmental Authority having jurisdiction with
respect thereto) dealing with reserve requirements prescribed for
eurocurrency funding (currently referred to as "Eurocurrency Liabilities"
in Regulation D of the Board) maintained by a member bank of the Federal
Reserve System.
"Event of Default": any of the events specified in Section 6,
provided that any requirement for the giving of notice, the lapse of time,
or both, or any other condition, has been satisfied.
"Facility Fee Rate": the rate per annum set forth in Schedule II
under the applicable S&P Bond Rating and Moody's Bond Rating.
"Federal Funds Effective Rate": for any day, the weighted average of
the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers, as published on
the next succeeding Business Day by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day which is a Business Day,
the average of the quotations for the day of such transactions received by
the Administrative Agent from three federal funds brokers of recognized
standing selected by it.
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<PAGE>
"First Mortgage Bond Indenture": the first mortgage bond indenture,
dated November 1, 1935, by and between the Company and Chase Manhattan Bank,
as supplemented and amended.
"Fixed Rate Competitive Loan Request": any Competitive Loan Request
requesting the Competitive Loan Lenders to offer to make Fixed Rate
Competitive Loans.
"Fixed Rate Competitive Loans": Competitive Loans the rate of
interest applicable to which is equal to a fixed percentage rate per annum
specified by the Competitive Loan Lender making such Loan in its Competitive
Loan Offer (as opposed to a rate composed of LIBOR plus or minus a margin).
"GAAP": generally accepted accounting principles in the United States
of America in effect from time to time.
"Governmental Authority": any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guarantee Obligation": as to any Person (the "guaranteeing person"),
any obligation of:
(a) the guaranteeing person or
(b) another Person (including, without limitation, any bank under
any letter of credit), when the creation of such obligation was
induced by a reimbursement, counterindemnity or similar
obligation issued by the guaranteeing person,
in either case guaranteeing or in effect guaranteeing any Indebtedness,
leases, dividends or other obligations (the "primary obligations") of any
other third Person (the "primary obligor") in any manner, whether directly
or indirectly, including, without limitation, any obligation of the
guaranteeing person, whether or not contingent, (i) to purchase any such
primary obligation or any property constituting direct or indirect security
therefor, (ii) to advance or supply funds (1) for the purchase or payment
of any such primary obligation or (2) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth or
solvency of the primary obligor, (iii) to purchase property, securities or
services primarily for the purpose of assuring the owner of any such
primary obligation of the ability of the primary obligor to make payment of
such primary obligation or (iv) otherwise to assure or hold harmless the
owner of any such primary obligation against loss in respect thereof;
provided, however, that the term Guarantee Obligation shall not include
endorsements of instruments for deposit or collection in the ordinary
course of business. The amount of any Guarantee Obligation of any
guaranteeing person shall be deemed to be the lower of (a) an amount equal
to the stated or determinable amount of the primary obligation in respect
of which such Guarantee Obligation is made and (b) the maximum amount for
which such guaranteeing person
6
<PAGE>
may be liable pursuant to the terms of the instrument embodying such
Guarantee Obligation, unless such primary obligation and the maximum amount
for which such guaranteeing person may be liable are not stated or
determinable, in which case the amount of such Guarantee Obligation shall
be such guaranteeing person's maximum reasonably anticipated liability in
respect thereof as determined by the Borrower in good faith.
"Indebtedness": of any Person at any date, (a) all indebtedness of
such Person for borrowed money or for the deferred purchase price of
property or services (other than current trade liabilities incurred in the
ordinary course of business and payable in accordance with customary
practices), (b) any other indebtedness of such Person which is evidenced by
a note, bond, debenture or similar instrument, (c) all obligations of such
Person as lessee which are capitalized in accordance with GAAP, (d) all
obligations of such Person in respect of acceptances issued or created for
the account of such Person and (e) all liabilities secured by any Lien on
any property owned by such Person even though such Person has not assumed
or otherwise become liable for the payment thereof.
"Interest Payment Date": (a) as to any ABR Loan, the last day of
each March, June, September and December and the Termination Date, (b) as
to any LIBOR Loan having an Interest Period of three months or less and any
CD Rate Loan having an lnterest Period of 90 days or less, the last day of
such Interest Period, (c) as to any LIBOR Loan or CD Rate Loan having an
Interest Period longer than three months or 90 days, respectively, each day
which is three months or 90 days, respectively, or a whole multiple
thereof, after the first day of such Interest Period and the last day of
such Interest Period, (d) as to any Fixed Rate Competitive Loan, each
interest payment date specified by the Borrower for such Loan in the
related Competitive Loan Request (including, in any event, the applicable
Competitive Loan Maturity Date) and (e) as to any LIBOR Competitive Loan,
(i) the applicable Competitive Loan Maturity Date and (ii) each date (if
any) occurring prior to such Competitive Loan Maturity Date which is three
months, or a whole multiple thereof, after the Borrowing Date in respect of
such Loan
"Interest Period": (a) with respect to any LIBOR Loan:
(i) initially, the period commencing on the borrowing or
conversion date, as the case may be, with respect to such LIBOR Loan and
ending one, two, three, six or, to the extent available as
determined by the Administrative Agent, nine or twelve months
thereafter, as selected by the Borrower in its notice of borrowing or
notice of conversion, as the case may be, given with respect
thereto; and
(ii) thereafter, each period commencing on the last day
of the next preceding Interest Period applicable to such LIBOR Loan
and ending one, two, three, six or, to the extent available as
determined by the Administrative Agent, nine or twelve months
thereafter, as selected by the Borrower by irrevocable
7
<PAGE>
notice to the Administrative Agent not less than three Business Days
prior to the last day of the then current Interest Period with respect
thereto;
and (b) with respect to any CD Rate Loan:
(i) initially, the period commencing on the borrowing or
conversion date, as the case may be, with respect to such CD Rate Loan
and ending 30, 60, 90 or 180 days thereafter, as selected by the
Borrower in its notice of borrowing or notice of conversion, as the
case may be, given with respect thereto; and
(ii) thereafter, each period commencing on the last day of
the next preceding Interest Period applicable to such CD Rate Loan and
ending 30, 60, 90 or 180 days thereafter, as selected by the Borrower
by irrevocable notice to the Agent not less than three Business Days
prior to the last day of the then current Interest Period with respect
thereto;
and (c) with respect to any LIBOR Competitive Loan, the period specified in
the Competitive Loan Request for the LIBOR Competitive Loan with the
maturity date corresponding to the LIBOR Competitive Loan accepted by the
Borrower in the Competitive Loan Confirmation;
provided that, all of the foregoing provisions relating to Interest Periods
are subject to the following:
(1) if any Interest Period pertaining to a LIBOR Loan would
otherwise end on a day that is not a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless
the result of such extension would be to carry such Interest Period
into another calendar month in which event such Interest Period shall
end on the immediately preceding Business Day;
(2) if any Interest Period pertaining to a CD Rate Loan would
otherwise end on a day that is not a Business Day, such Interest
Period shall be extended to the next succeeding Business Day;
(3) any Interest Period that would otherwise extend beyond the
Termination Date shall end on the Termination Date;
(4) any Interest Period pertaining to a LIBOR Loan that begins
on the last Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month at the
end of such Interest Period) shall end on the last Business Day of a
calendar month; and
(5) the Borrower shall select Interest Periods so as not to
require a payment or prepayment of any LIBOR Loan or CD Rate Loan
during an Interest Period for such Loan.
8
<PAGE>
"LIBOR": with respect to each day during each Interest Period
pertaining to a LIBOR Loan or a LIBOR Competitive Loan, the rate per annum
equal to the rate at which Chemical is offered Dollar deposits at or about
11:00 A.M., London time, two Business Days prior to the beginning of such
Interest Period, in the London interbank eurodollar market where the
eurodollar and foreign currency and exchange operations in respect of its
LIBOR Loans are then being conducted, for delivery on the first day of such
Interest Period for the number of days comprised therein and in an amount
comparable to the amount of its LIBOR Loan (or, in the case of a LIBOR
Competitive Loan, an amount that would have been Chemical's portion of such
LIBOR Competitive Loan had such Loan been a LIBOR Loan) to be outstanding
during such Interest Period.
"LIBOR Competitive Loan": Competitive Loans the rate of interest
applicable to which is equal to LIBOR plus or minus a margin.
"LIBOR Competitive Loan Request": any Competitive Loan Request requesting
the Competitive Loan Lenders to offer to make LIBOR Competitive Loans.
"LIBOR Loans": Revolving Credit Loans the rate of interest applicable to
which is based upon LIBOR.
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge or other
security interest or any preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement and any
capitalized lease obligation having substantially the same economic effect as
any of the foregoing).
"Loan": any Revolving Credit Loan or Competitive Loan made by any Lender
pursuant to this Agreement.
"Loan Documents": this Agreement and any Notes.
"Majority Lenders": at any time, Lenders the Commitment Percentages of
which aggregate more than 50%.
"Material Subsidiary": means a Subsidiary of the Borrower whose total
assets, as determined in accordance with GAAP, represent at least 20% of the
total assets of the Borrower, on a consolidated basis, as determined in
accordance with GAAP.
"Moody's Bond Rating" means for any day, the rating of the
Borrower's senior secured long-term debt or if there is no senior secured
debt, the Borrower's senior long-term unsecured debt by Moody's Investor
Service, Inc. in effect at 11:00 A.M., New York City time, on such day.
"Non-Excluded Taxes": as defined in subsection 2.17(a).
9
<PAGE>
"Notes": the collective reference to the Revolving Credit Notes and the
Competitive Loan Notes.
"Participant": as defined in subsection 8.6(b).
"PBGC": the Pension Benefit Guaranty Corporation established pursuant to
Subtitle A of Title IV of ERISA.
"Person": an individual, partnership, corporation, business trust, joint
stock company, trust, unincorporated association, joint venture, Governmental
Authority or other entity of whatever nature.
"Plan": at a particular time, any employee benefit plan which is
covered by ERISA and in respect of which the Borrower or a Commonly
Controlled Entity is (or, if such plan were terminated at such time, would
under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"Prime Rate": the rate of interest per annum publicly announced from time
to time by Chemical as its prime rate in effect at its principal office in
New York City (the Prime Rate not being intended to be the lowest rate of
interest charged by Chemical in connection with extensions of credit to
debtors).
"Register": as defined in subsection 8.6(d)
"Regulatory Change": shall mean, as to any Lender, any change
occurring or taking effect after the date of this Agreement in Federal,
state, local or foreign laws or regulations, or the adoption or making or
taking effect after such date of any interpretations, directives, or
requests applying to a class of lenders including the Lenders of or under any
Federal, state, local or foreign laws or regulations (whether or not having
the force of law) by any court or governmental or monetary authority charged
with the interpretation or administration thereof.
"Requirement of Law": as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"Responsible Officer": the President, any Vice President, the Treasurer
or any Assistant Treasurer of the Borrower.
"Revolving Credit Loans": as defined in subsection 2.1.
"Revolving Credit Note": as defined in subsection 2.5(e).
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<PAGE>
"S&P Bond Rating" means for any day, the rating of the Borrower's
senior secured long-term debt or if there is no senior secured debt, the
Borrower's senior long-term unsecured debt by Standard & Poor's Ratings
Group in effect at 11:00 A.M., New York City time, on such day.
"Subsidiary": as to any Person, a corporation, partnership or other
entity of which shares of stock or other ownership interests having
ordinary voting power (other than stock or such other ownership interests
having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly
through one or more intermediaries, or both, by such Person. Unless
otherwise qualified, all references to a "Subsidiary" or to
"Subsidiaries" in this Agreement shall refer to a Subsidiary or
Subsidiaries of the Borrower.
"Termination Date": July 31, 2000.
"Tranche": the collective reference to LIBOR Loans or CD Rate Loans
the then current Interest Periods with respect to all of which begin on
the same date and end on the same later date (whether or not such Loans
shall originally have been made on the same day); Tranches may be
identified as "LIBOR Tranches" or "CD Rate Tranches", as applicable.
"Transferee": as defined in subsection 8.6(f).
"Type": (a) as to any Revolving Credit Loan, its nature as an ABR Loan, a
CD Rate Loan or a LIBOR Loan and (b) as to any Competitive Loan, its nature as a
Fixed Rate Competitive Loan or a LIBOR Competitive Loan.
1.2 Other Definitional Provisions. (a) Unless otherwise specified
therein, all terms defined in this Agreement shall have the defined meanings
when used in the Notes or any certificate or other document made or delivered
pursuant hereto or thereto.
(b) As used herein and in the Notes and any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms relating
to the Borrower and its Subsidiaries not defined in subsection 1.1 and
accounting terms partly defined in subsection 1.1, to the extent not defined,
shall have the respective meanings given to them under GAAP, and the parties
hereto agree that upon any change to GAAP that has the effect of materially
altering any of the terms herein, the parties hereto will negotiate in good
faith to amend the terms affected thereby to place the parties in a position as
nearly equivalent as possible to what existed prior to such change to GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section,
subsection Schedule and Exhibit references are to this Agreement unless
otherwise specified.
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(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF THE CREDIT FACILITIES
2.1 The Commitments. (a) Subject to the terms and conditions
hereof, each Lender severally agrees to make revolving credit loans ("Revolving
Credit Loans") to the Borrower from time to time during the Commitment Period in
an aggregate principal amount at any one time outstanding not to exceed the
amount of such Lender's Commitment. During the Commitment Period the Borrower
may use the Commitments by borrowing, prepaying the Revolving Credit Loans in
whole or in part, and reborrowing, all in accordance with the terms and
conditions hereof, Notwithstanding anything to the contrary in this Agreement,
in no event may Revolving Credit Loans be borrowed under this Section 2 if,
after giving effect thereto, the aggregate principal amount of the Loans then
outstanding would exceed the aggregate Commitments then in effect.
(b) The Revolving Credit Loans may from time to time be (i) LIBOR
Loans, (ii) ABR Loans, (iii) CD Rate Loans or (iv) a combination thereof, as
determined by the Borrower and notified to the Agent in accordance with
subsections 2.2 and 2.7, provided that no Revolving Credit Loan shall be made as
a LIBOR Loan or a CD Rate Loan after the day that is one month or 30 days,
respectively, prior to the Termination Date.
2.2 Procedure for Revolving Credit Borrowing. The Borrower may
borrow under the Commitments during the Commitment Period on any Business Day,
provided that the Borrower shall give the Administrative Agent irrevocable
written notice, which notice must be received by the Administrative Agent prior
to (a) 12:00 P.M., New York City time, three Business Days prior to the
requested Borrowing Date, in the case of LIBOR Loans or CD Rate Loans, or (b)
10:30 A.M. New York City time, on the requested Borrowing Date, in the case of
ABR Loans. Each such notice shall specify (i) the amount to be borrowed, (ii)
the requested Borrowing Date, (iii) whether the borrowing is to be of ABR Loans,
CD Rate Loans, LIBOR Loans, or a combination thereof and (iv) if the borrowing
is to be entirely or partly of LIBOR Loans or CD Rate Loans, the respective
lengths of the initial Interest Periods therefor. Each borrowing under the
Commitments shall be in an amount equal to $10,000,000 or a whole multiple of
$1,000,000 in excess thereof. Upon receipt of any such notice from the Borrower,
the Administrative Agent shall promptly notify each Lender thereof. Each Lender
will make the amount of its pro rata share of each borrowing available to the
Administrative Agent for the account of the Borrower at the office of the
Administrative Agent specified in subsection 8.2 prior to 2:00 P.M., New York
City time, on the Borrowing Date requested by the Borrower in funds immediately
available to the Administrative Agent. Such borrowing will then be made
available to the Borrower by the Administrative Agent crediting the account of
the Borrower on the books of such office with the aggregate of the amounts made
available to the Administrative Agent by the Lenders and in like funds as
received by the Administrative Agent.
2.3 Facility Fee. The Borrower agrees to pay to the Administrative
Agent for the account of each Lender a facility fee for the period from and
including the first day of the
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Commitment Period to the Termination Date, computed at the Facility Fee Rate on
the average daily amount of the Commitment (whether used or unused) of such
Lender during the period for which payment is made, payable quarterly in arrears
on the last day of each March, June, September and December and on the date on
which the Commitments shall terminate as provided herein, commencing on the
first of such dates to occur after the date hereof.
2.4 Termination or Reduction of Commitments. The Borrower may, upon
not less than three Business Days' written notice to the Administrative Agent,
terminate or reduce the unutilized amount of the Commitments. Any reduction of
the Commitments shall be in an amount equal to $10,000,000 or a whole multiple
of $1,000,000 in excess thereof and shall reduce permanently the Commitments
then in effect.
2.5 Repayment of Loans; Evidence of Debt. (a) The Borrower hereby
unconditionally promises to pay to the Administrative Agent for the account of
each Lender the then unpaid principal amount of each Revolving Credit Loan of
such Lender on the Termination Date (or such earlier date on which the Revolving
Credit Loans become due and payable pursuant to Section 6). The Borrower hereby
further agrees to pay interest on the unpaid principal amount of the Loans from
time to time outstanding from the date hereof until payment in full thereof at
the rates per annum, and on the dates, set forth in subsection 2.11.
(b) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing indebtedness of the Borrower to such
Lender resulting from each Loan of such Lender from time to time, including the
amounts of principal and interest payable and paid to such Lender from time to
time under this Agreement.
(c) The Administrative Agent shall maintain the Register pursuant
to subsection 8.6(d), and a subaccount therein for each Lender, in which shall
be recorded (i) the amount of each Loan made hereunder, the Type thereof and
each Interest Period applicable thereto, (ii) the amount of any principal or
interest due and payable or to become due and payable from the Borrower to each
Lender hereunder and (iii) both the amount of any sum received by the
Administrative Agent hereunder from the Borrower and each Lender's share
thereof.
(d) The entries made in the Register and the accounts of each
Lender maintained pursuant to subsection 2.5(b) shall, to the extent permitted
by applicable law, be prima facie evidence of the existence and amounts of the
obligations of the Borrower therein recorded: provided, however, that the
failure of any Lender or the Administrative Agent to maintain the Register or
any such account, or any error therein, shall not in any manner affect the
obligation of the Borrower to repay (with applicable interest) the Loans made to
such Borrower by such Lender in accordance with the terms of this Agreement.
(e) The Borrower agrees that, upon the request to the
Administrative Agent by any Lender, the Borrower will execute and deliver to
such Lender a promissory note of the Borrower evidencing the Revolving Credit
Loans of such Lender, substantially in the form of Exhibit A-1 with appropriate
insertions as to date and principal amount (a "Revolving Credit Note").
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2.6 Optional Prepayments. The Borrower may at any time and from
time to time prepay the Revolving Credit Loans, in whole or in part, without
premium or penalty, upon at least four Business Days' irrevocable notice to the
Administrative Agent. Each such notice shall specify the date and amount of
prepayment and whether the prepayment is of ABR Loans, CD Rate Loans, LIBOR
Loans, or a combination thereof, and, if of a combination thereof, the amount
allocable to each. Upon receipt of any such notice the Administrative Agent
shall promptly notify each Lender thereof. If any such notice is given, the
amount specified in such notice shall be due and payable on the date specified
therein, together with any amounts payable pursuant to subsection 2.18. Partial
prepayments shall be in an aggregate principal amount of $10,000,000 or a whole
multiple of $1,000,000 in excess thereof. Prepayments of the Competitive Loans
shall not be permitted.
2.7 Conversion and Continuation Options. (a) The Borrower may elect
from time to time to convert LIBOR Loans or CD Rate Loans to ABR Loans, by
giving the Administrative Agent at least one Business Day's prior irrevocable
notice of such election, provided that any such conversion of LIBOR Loans or CD
Rate Loans may only be made on the last day of an Interest Period with respect
thereto. The Borrower may elect from time to time to convert ABR Loans or CD
Rate Loans to LIBOR Loans, and/or to convert LIBOR Loans or ABR Loans to CD Rate
Loans, by giving the Administrative Agent at least three Business Days' prior
irrevocable notice of such election, provided that any such conversion of LIBOR
Loans or CD Rate Loans may only be made on the last day of an Interest Period
with respect thereto. Any such notice of conversion to LIBOR Loans or CD Rate
Loans shall specify the length of the initial Interest Period or Interest
Periods therefor. Upon receipt of any such notice the Administrative Agent shall
promptly notify each Lender thereof. All or any part of outstanding LIBOR Loans,
ABR Loans and CD Rate Loans may be converted as provided herein, provided that
(i) no Loan may be converted into a LIBOR Loan or a CD Rate Loan when any Event
of Default has occurred and is continuing and the Administrative Agent has or
the Majority Lenders have determined that such a conversion is not appropriate
and (ii) no Loan may be converted into a LIBOR Loan or a CD Rate Loan after the
date that is one month or 30 days, respectively, prior to the Termination Date.
(b) Any LIBOR Loans or CD Rate Loans may be continued as such upon
the expiration of the then current Interest Period with respect thereto by the
Borrower giving notice to the Administrative Agent, in accordance with the
applicable provisions of the term "Interest Period" set forth in subsection 1.1,
of the length of the next Interest Period to be applicable to such Loans,
provided that no LIBOR Loan or CD Rate Loan may be continued as such (i) when
any Event of Default has occurred and is continuing and the Agent has or the
Majority Lenders have determined that such a continuation is not appropriate or
(ii) after the date that is one month or 30 days prior to, respectively, the
Termination Date and provided, further, that if the Borrower shall fail to give
such notice or if such continuation is not permitted such Loans shall be
automatically converted to ABR Loans on the last day of such then expiring
Interest Period.
2.8 Minimum Amounts and Maximum Number of Tranches. All borrowings,
prepayments, conversions and continuations of Loans hereunder and all selections
of Interest Periods hereunder shall be in such amounts and be made pursuant to
such elections so that, after giving effect thereto, the aggregate principal
amount of the Loans comprising each LIBOR
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Tranche or each CD Rate Tranche shall be equal to $10,000,000 or a whole
multiple of $1,000,000 in excess thereof. In no event shall there be more than 5
LIBOR Tranches or 5 CD Rate Tranches outstanding at any time.
2.9 The Competitive Loans. Subject to the terms and conditions of
this Agreement, the Borrower may borrow Competitive Loans in Dollars from time
to time on any Business Day during the period from the date hereof through the
date 14 days prior to the Termination Date; provided, that in no event may
Competitive Loans be borrowed hereunder if, after giving effect thereto the
aggregate principal amount of Loans then outstanding would exceed the aggregate
Commitments then in effect. Within the limits and on the conditions herein set
forth with respect to Competitive Loans, the Borrower from time to time may
borrow, repay and reborrow Competitive Loans.
2.10 Procedure for and Payment of Competitive Loan Borrowing. (a)
The Borrower shall request Competitive Loans by delivering a Competitive Loan
Request to the Administrative Agent, not later than 2:00 P.M. (New York City
time) four Business Days prior to the proposed Borrowing Date (in the case of a
LIBOR Competitive Loan Request), and not later than 1:00.P.M. (New York City
time) one Business Day prior to the proposed Borrowing Date (in the case of a
Fixed Rate Competitive Loan Request). Each Competitive Loan Request may solicit
bids for Competitive Loans in an aggregate principal amount of $10,000,000 or an
integral multiple of $1,000,000 in excess thereof and having not more than three
alternative maturity dates. The maturity date for each Fixed Rate Competitive
Loan shall be not less than 14 days nor more than 180 days after the Borrowing
Date therefor and the maturity date for each LIBOR Competitive Loan shall be not
less than one month nor more than six months after the Borrowing Date therefor,
and in any event shall be not later than the Termination Date. The
Administrative Agent shall notify each Competitive Loan Lender promptly by
facsimile transmission of the contents of each Competitive Loan Request received
by the Administrative Agent.
(b) In the case of a LIBOR Competitive Loan Request, upon receipt
of notice from the Administrative Agent of the contents of such Competitive Loan
Request, each Competitive Loan Lender may elect, in its sole discretion, to
offer irrevocably, subject to Section 4, to make one or more Competitive Loans
at LIBOR plus or minus a margin determined by such Competitive Loan Lender in
its sole discretion for each such Competitive Loan. Any such irrevocable offer
shall be made by delivering a Competitive Loan Offer to the Administrative
Agent, before 10:30 A.M. (New York City time) on the day that is three Business
Days before the proposed Borrowing Date, setting forth:
(i) the maximum amount of Competitive Loans for each maturity
date and the aggregate maximum amount of Competitive Loans for all maturity
dates which such Competitive Loan Lender would be willing to make (which
amounts may, subject to subsection 2.9, exceed such Competitive Loan
Lender's Commitment); and
(ii) the margin above or below LIBOR at which such Competitive
Loan Lender is willing to make each such Competitive Loan.
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The Administrative Agent shall advise the Borrower before 11:00 A.M. (New York
City time) on the date which is three Business Days before the proposed
Borrowing Date of the contents of each such Competitive Loan Offer received by
it. If the Administrative Agent, in its capacity as a Competitive Loan Lender,
shall elect, in its sole discretion, to make any such Competitive Loan Offer, it
shall advise the Borrower of the contents of its Competitive Loan Offer before
10:15 A.M. (New York City time) on the date which is three Business Days before
the proposed Borrowing Date.
(c) In the case of a Fixed Rate Competitive Loan Request upon
receipt of notice from the Administrative Agent of the contents of such
Competitive Loan Request, each Competitive Loan Lender may elect, in its sole
discretion, to offer irrevocably, subject to Section 4, to make one or more
Competitive Loans at a rate of interest determined by such Competitive Loan
Lender in its sole discretion for each such Competitive Loan. Any such
irrevocable offer shall be made by delivering a Competitive Loan Offer to the
Administrative Agent before 9:30 A.M. (New York City time) on the proposed
Borrowing Date, setting forth:
(i) the maximum amount of Competitive Loans for each maturity
date, and the aggregate maximum amount for all maturity dates, which such
Competitive Loan Lender would be willing to make (which amounts may,
subject to subsection 2.9, exceed such Competitive Loan Lender's Revolving
Credit Commitment); and
(ii) the rate of interest at which such Competitive Loan Lender
is willing to make each such Competitive Loan.
The Administrative Agent shall advise the Borrower before 10:00 A.M. (New York
City time) on the proposed Borrowing Date of the contents of each such
Competitive Loan Offer received by it. If the Administrative Agent, in its
capacity as a Competitive Loan Lender, shall elect, in its sole discretion, to
make any such Competitive Loan Offer, it shall advise the Borrower of the
contents of its Competitive Loan Offer before 9:15 A.M. (New York City time) on
the proposed Borrowing Date.
(d) Before 12:00 P.M. (New York City time) three Business Days
before the proposed Borrowing Date (in the case of LIBOR Competitive Loans) and
before 10:30 A.M. (New York City time) on the proposed Borrowing Date (in the
case of Fixed Rate Competitive Loans), the Borrower, in its absolute discretion,
shall:
(i) cancel such Competitive Loan Request by giving the
Administrative Agent telephone notice to that effect, or
(ii) by giving telephone notice to the Administrative Agent
(immediately confirmed by delivery to the Administrative Agent of a
Competitive Loan Confirmation in writing or by facsimile transmission) (1)
subject to the provisions of subsection 2.10(e), accept one or more of the
offers made by any Competitive Loan Lender or Competitive Loan Lenders of
the amount of Competitive Loans for each relevant maturity date and (2)
reject any remaining offers made by Competitive Loan Lenders.
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(e) The Borrower's acceptance of Competitive Loans in response to
any Competitive Loan Request shall be subject to the following limitations:
(i) The amount of Competitive Loans accepted for each maturity
date specified by any Competitive Loan Lender in its Competitive Loan Offer
shall not exceed the maximum amount for such maturity date specified in
such Competitive Loan Offer;
(ii) the aggregate amount of Competitive Loans accepted for all
maturity dates specified by any Competitive Loan Lender in its Competitive
Loan Offer shall not exceed the aggregate maximum amount specified in such
Competitive Loan Offer for all such maturity dates;
(iii) the Borrower may not accept offers for Competitive Loans
for any maturity date in an aggregate principal amount in excess of the
maximum principal amount requested in the related Competitive Loan Request;
and
(iv) if the Borrower accepts any of such offers, (1) it must
accept such offers based solely upon the lowest pricing for such relevant
maturity date (including any amounts which shall be payable to the relevant
Competitive Loan Lender in respect of the relevant Competitive Loans
pursuant to subsection 2.17) and upon no other criteria whatsoever and (2)
if (x) two or more Competitive Loan Lenders submit offers for any maturity
date at identical pricing and the Borrower accepts any of such offers but
does not wish to (or by reason of the limitations set forth in subsection
2.9 or in this subsection 2.10, cannot) borrow the total amount offered by
such Competitive Loan Lenders with such identical pricing, the Borrower
shall accept offers from all of such Competitive Loan Lenders in amounts
allocated among them pro rata according to the amounts offered by such
Competitive Loan Lenders (or as nearly pro rata as shall be practicable
after giving effect to the requirement that Competitive Loans made by a
Competitive Loan Lender on a Borrowing Date for each relevant maturity date
shall be in a principal amount of $10,000,000 or an integral multiple of
$1,000,000 in excess thereof) or (y) a Competitive Loan Lender submits
offers for multiple maturity dates specifying a maximum aggregate principal
amount for all maturity dates, and the Borrower accepts offers from such
Competitive Loan Lender for more than one maturity date, then the Borrower
shall instruct the Administrative Agent how to apportion the Borrower's
acceptances among such offers for different maturity dates to the extent,
if any, necessary to provide for acceptance of offers from such Competitive
Loan Lender equal to but not exceeding such specified maximum aggregate
amount.
(f) If the Borrower notifies the Administrative Agent that a
Competitive Loan Request is cancelled pursuant to subsection 2.10(d)(i), the
Administrative Agent shall give prompt telephone notice thereof to the
Competitive Loan Lenders.
(g) If the Borrower accepts pursuant to subsection 2.10(d)(ii) one
or more of the offers made by any one or more Competitive Loan Lenders, the
Administrative Agent promptly shall notify each Competitive Loan Lender which
has made such a Competitive Loan Offer of (i) the aggregate amount of such
Competitive Loans to be made on such Borrowing Date for each
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maturity date, (ii) the acceptance or rejection of any offers to make such
Competitive Loans made by such Competitive Loan Lender and (iii) in the case of
LIBOR Competitive Loans, LIBOR in respect thereof. Before 12:30 P.M. (New York
City time) on the Borrowing Date specified in the applicable Competitive Loan
Request, each Competitive Loan Lender whose Competitive Loan Offer has been
accepted shall make available to the Administrative Agent at its office set
forth in subsection 8.2 the amount of Competitive Loans to be made by such
Competitive Loan Lender, in immediately available funds. The Administrative
Agent will make such funds available to the Borrower as soon as practicable on
such date at the Administrative Agent's aforesaid address. As soon as
practicable after each Borrowing Date, the Administrative Agent shall notify
each Competitive Loan Lender of the aggregate amount of Competitive Loans
advanced on such Borrowing Date, the respective maturity dates thereof and the
respective interest rates applicable thereto.
(h) The Borrower hereby unconditionally promises to pay to the
Administrative Agent for the account of each Competitive Loan Lender the then
unpaid principal amount of each Competitive Loan of such Competitive Loan Lender
on the applicable Competitive Loan Maturity Date. The Borrower hereby further
agrees to pay interest on the unpaid principal amount of the Competitive Loans
from time to time outstanding from the date hereof until payment in full thereof
at the rates per annum, and on the dates, set forth in subsection 2.11. Each
Competitive Loan Lender shall maintain accounts and the Administrative Agent
shall maintain the Register with respect to Competitive Loans as provided in
subsections 2.5(b), (c) and (d).
(i) The Borrower agrees that, upon the request to the
Administrative Agent by any Competitive Loan Lender, the Borrower will execute
and deliver to such Competitive Loan Lender a promissory note of the Borrower
evidencing the Competitive Loans of such Competitive Loan Lender, substantially
in the form of Exhibit A-2 with appropriate insertions as to date and principal
amount (a "Competitive Loan Note").
2.11 Interest Rates and Payment Dates. (a) Each LIBOR Loan shall
bear interest for each day during each Interest Period with respect thereto at a
rate per annum equal to LIBOR determined for such day plus the Applicable
Margin.
(b) Each ABR Loan shall bear interest at a rate per annum equal to
the ABR plus the Applicable Margin.
(c) Each CD Rate Loan shall bear interest for each day during each
Interest Period with respect thereto at a rate per annum equal to the CD Rate
determined for such day plus the Applicable Margin.
(d) Each Competitive Loan shall bear interest for each day from the
applicable Borrowing Date to (but excluding) the applicable Competitive Loan
Maturity Date at the rate of interest specified in the Competitive Loan Offer
accepted by the Borrower in connection with such Competitive Loan.
(e) If all or a portion of (i) the principal amount of any Loan,
(ii) any interest payable thereon or (iii) any fee or other amount payable
hereunder shall not be paid when due
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(whether at the stated maturity, by acceleration or otherwise), such overdue
amount shall, to the extent permitted by applicable law, bear interest at a rate
per annum which is (x) in the case of overdue principal (except as otherwise
provided in clause (y) below), the rate that would otherwise be applicable
thereto pursuant to the foregoing provisions of this subsection 2.11 plus 2% or
(y) in the case of principal of any Competitive Loan which remains overdue past
the applicable Competitive Loan Maturity Date, or any overdue interest, fee or
other amount, the rate described in subsection 2.11(b) plus 2%, in each case
from the date of such non-payment until such overdue principal, interest, fee or
other amount is paid in full (as well after as before judgment).
(f) lnterest shall accrue from and including the first day of an
Interest Period to but excluding the last day of such Interest Period. Interest
shall be payable in arrears on each Interest Payment Date, provided that
interest accruing pursuant to paragraph (e) of this subsection shall be payable
from time to time on demand.
2.12 Computation of Interest and Fees. (a) Facility fees and,
whenever it is calculated on the basis of the ABR, interest shall be calculated
on the basis of a 365- (or 366-, as the case may be) day year for the actual
days elapsed; and, otherwise, interest shall be calculated on the basis of a
360-day year for the actual days elapsed. The Administrative Agent shall as soon
as practicable notify the Borrower and the Lenders of each determination of
LIBOR or of a CD Rate. Any change in the interest rate on a Loan resulting from
a change in the CD Assessment Rate or the CD Reserve Percentage shall become
effective as of the opening of business on the day on which such change becomes
effective. The Administrative Agent shall as soon as practicable notify the
Borrower and the Lenders of the effective date and the amount of each such
change in interest rate.
(b) Each determination of an interest rate by the Administrative
Agent pursuant to any provision of this Agreement shall be conclusive and
binding on the Borrower and the Lenders in the absence of manifest error. The
Administrative Agent shall, at the request of the Borrower, deliver to the
Borrower upon request a statement showing the quotations used by the
Administrative Agent in determining any interest rate pursuant to subsection 2.1
I(c).
2.13 Inability to Determine Interest Rate. If prior to the first
day of any Interest Period:
(a) the Administrative Agent shall have determined (which
determination shall be conclusive and binding upon the Borrower) that, by
reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining LIBOR or the CD Rate for
such Interest Period, or
(b) the Administrative Agent shall have received notice from the
Majority Lenders that LIBOR or the CD Rate determined or to be determined
for such Interest Period will not adequately and fairly reflect the cost
to such Lenders (as conclusively certified by such Lenders) of making or
maintaining their affected Loans during such Interest Period,
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the Administrative Agent shall give telecopy or telephonic notice thereof to the
Borrower and the Lenders as soon as practicable thereafter. If such notice is
given (x) any LIBOR Loans, CD Rate Loans or LIBOR Competitive Loans, as the case
may be, requested to be made on the first day of such Interest Period shall be
made as ABR Loans, (y) any Loans that were to have been converted on the first
day of such Interest Period to LIBOR Loans or CD Rate Loans, as the case may be,
shall be converted to or continued as ABR Loans and (z) any outstanding LIBOR
Loans or CD Rate Loans, as the case may be, shall be converted, on the first day
of such Interest Period, to ABR Loans. Until such notice has been withdrawn by
the Administrative Agent, no further LIBOR Loans, CD Rate Loans or LIBOR
Competitive Loans, as the case may be, shall be made or continued as such, nor
shall the Borrower have the right to convert Loans to LIBOR Loans or CD Rate
Loans, as the case may be.
2.14 Pro Rata Treatment and Payments. (a) Each borrowing by the
Borrower from the Lenders of a Revolving Credit Loan, each payment by the
Borrower on account of any facility fee hereunder and any reduction of the
Commitments of the Lenders shall be made pro rata according to the respective
Commitment Percentages of the Lenders. Each payment (including each prepayment)
by the Borrower on account of principal of and interest on the Loans shall be
made pro rata according to the respective outstanding principal amounts of the
Loans for which such payment is being made. All payments (including prepayments)
to be made by the Borrower hereunder, whether on account of principal, interest,
fees or otherwise, shall be made without set off or counterclaim and shall be
made prior to 2:00 P.M., New York City time, on the due date thereof to the
Administrative Agent, for the account of the Lenders, at the Administrative
Agent's office specified in subsection 8.2, in Dollars and in immediately
available funds. The Administrative Agent shall distribute such payments to the
Lenders promptly upon receipt in like funds as received. If any payment
hereunder becomes due and payable on a day other than a Business Day, such
payment shall be extended to the next succeeding Business Day, and, with respect
to payments of principal, interest thereon shall be payable at the then
applicable rate during such extension.
(b) Unless the Administrative Agent shall have been notified in
writing by any Lender prior to a borrowing that such Lender will not make the
amount that would constitute its share of such borrowing available to the
Administrative Agent, the Administrative Agent may assume that such Lender is
making such amount available to the Administrative Agent, and the Administrative
Agent may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. If such amount is not made available to the Administrative
Agent by the required time on the Borrowing Date therefor, such Lender shall pay
to the Administrative Agent, on demand, such amount with interest thereon at a
rate equal to the daily average Federal Funds Effective Rate for the period
until such Lender makes such amount immediately available to the Administrative
Agent. A certificate of the Administrative Agent submitted to any Lender with
respect to any amounts owing under this subsection shall be conclusive in the
absence of manifest error. If such Lender's share of such borrowing is not made
available to the Administrative Agent by such Lender within three Business Days
of such Borrowing Date, the Administrative Agent shall also be entitled to
recover such amount with interest thereon at the rate per annum applicable to
ABR Loans hereunder, on demand, from the Borrower.
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2.15 Illegality. Notwithstanding any other provision herein, if the
adoption of or any change in any Requirement of Law or in the interpretation or
application thereof shall make it unlawful for any Lender to make or maintain
LIBOR Loans or LIBOR Competitive Loans as contemplated by this Agreement (a)
such Lender shall promptly give notice thereof to the Borrower and the
Administrative Agent, (b) the commitment of such Lender hereunder to make LIBOR
Loans, continue LIBOR Loans as such and convert ABR Loans or CD Rate Loans to
LIBOR Loans shall forthwith be cancelled, (c) such Lender's outstanding LIBOR
Loans, if any, shall be converted automatically to ABR Loans on the respective
last days of the then current Interest Periods with respect to such Loans or
within such earlier period as required by law and (d) the Borrower shall, with
respect to any LIBOR Competitive Loan of such Lender, take such action as such
Lender may reasonably request. If any such conversion of a LIBOR Loan occurs on
a day which is not the last day of the then current Interest Period with respect
thereto, the Borrower shall pay to such Lender such amounts, if any, as may be
required pursuant to subsection 2.18.
2.16 Additional Costs. (a) If, as a result of any Regulatory Change:
(i) the basis of taxation of payments to any Lender of the
principal of or interest on any LIBOR Loans, any CD Rate Loans or LIBOR
Competitive Loans or any other amounts payable under this Agreement in
respect thereof (other than Non-Excluded Taxes covered by subsection 2.17
and taxes imposed on the overall net income of any Lender) is changed;
(ii) any reserve, special deposit, or capital adequacy, or similar
requirements relating to any extensions of credit or other assets of, or
any deposits with or other liabilities of, any Lender are imposed,
modified, or deemed applicable; or
(iii) any other condition affecting this Agreement or any LIBOR
Loans, any CD Rate Loans or LIBOR Competitive Loans is imposed on any
Lender after the date hereof; and
any Lender determines that, by reason thereof, the cost (or in the case of
clause (i) above, the actually incurred cost) to such Lender of making or
maintaining its Commitment or any of its LIBOR Loans, CD Rate Loans or LIBOR
Competitive Rate Loans to the Borrower is increased or any amount receivable by
such Lender hereunder in respect of any of such Loans is reduced, in each case
by an amount reasonably deemed by such Lender to be material (such increases in
cost and reductions in amounts receivable being herein called "Additional
Costs"), then the Borrower shall pay to such Lender upon its request the
additional amount or amounts as will compensate such Lender for such Additional
Costs within 15 Business Days after such written notice is received; provided,
however, that if all or any such Additional Costs would not have been payable
or incurred but for such Lender's voluntary decision to designate a new
Applicable Lending Office, the Borrower shall have no obligation under this
subsection 2.16 to compensate such Lender for such amount relating to such
Lender's decision; provided, further, that the Borrower shall not be required
to make any payments to such Lender for Additional Costs resulting from capital
adequacy requirements unless (A) such Lender has given at least 60 days' prior
written notice of its intent to request such payments and (B) such payments are
with respect
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to Additional Costs which accrued and were incurred after the expiration of such
60-day notice period. Each Lender will notify the Borrower and the
Administrative Agent of any Regulatory Change occurring after the date of this
Agreement which will entitle such Lender to compensation pursuant to this
subsection 2.16(a) as promptly as practicable after it obtains knowledge thereof
and determines to request such compensation. If such Lender requests
compensation under this subsection 2.16(a) in respect of any Regulatory Change,
the Borrower may, by notice to such Lender, require that such Lender forward to
the Borrower a statement setting forth the basis for requesting such
compensation and the method for determining the amount thereof.
(b) Without limiting the effect of the provisions of subsection
2.16(a) (but without duplication thereof), the Borrower will pay to any Lender,
within 15 Business Days of receipt by the Borrower of notice from such Lender,
for each day such Lender is required to maintain reserves against "Eurocurrency
liabilities" under Regulation D of the Board as in effect on the date of this
Agreement, an additional amount determined by such Lender equal to the product
of the following:
(i) the principal amount of the LIBOR Loan or LIBOR Competitive
Loan, as the case may be;
(ii) the remainder of (x) a fraction the numerator of which is
LlBOR for such LIBOR Loan or LIBOR Competitive Loan, as the case may be,
and the denominator of which is one minus the rate at which such reserve
requirements are imposed on such Lender on such day minus (y) such
numerator; and
(iii) 1/360.
Such Lender shall request payment under this subsection 2.16(b) by giving
notice to the Borrower as of the last day of each Interest Period for each LIBOR
Loan and LIBOR Competitive Loan, as the case may be (and, if such Interest
Period exceeds three months' duration, also as of three months, or a whole
multiple thereof, after the first day of such Interest Period). Such notice
shall specify the basis for requesting such compensation and the method for
determining the amount thereof. Such Lender shall provide any evidence of such
requirement to maintain reserves as the Borrower may reasonably request.
(c) Determinations by any Lender for purposes of this subsection
2.16 of the effect of any Regulatory Change shall be conclusive, provided that
such determinations are made absent manifest error. The agreements in this
subsection shall survive the termination of this Agreement and the payment of
the Loans and all other amounts payable hereunder.
2.17 Taxes. (a) All payments made by the Borrower under this
Agreement and any Notes shall be made free and clear of, and without deduction
or withholding for or on account of, any present or future income, stamp or
other taxes, levies, imposts, duties, charges, fees, deductions or withholdings,
now or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority, excluding net income taxes and franchise taxes (imposed
in lieu of net income taxes) imposed on the Administrative Agent, any Lender or
any
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Applicable Lending Office as a result of a present or former connection between
the Administrative Agent, such Lender or Applicable Lending Office and the
jurisdiction of the Governmental Authority imposing such tax or any political
subdivision or taxing authority thereof or therein (other than any such
connection arising solely from the Administrative Agent or such Lender having
executed, delivered or performed its obligations or received a payment under, or
enforced, this Agreement or any Note). If any such non-excluded taxes, levies,
imposts, duties, charges, fees deductions or withholdings ("Non-Excluded Taxes")
are required to be withheld from any amounts payable to the Administrative Agent
or any Lender hereunder or under any Note, the amounts so payable to the
Administrative Agent or such Lender shall be increased to the extent necessary
so that the amount received by the Administrative Agent or such Lender (after
payment of all Non-Excluded Taxes) shall be equal to the interest or any such
other amounts it would have received had no such withholding been required,
provided, however, that the Borrower shall not be required to increase any such
amounts payable to any Lender that is not organized under the laws of the United
States of America or a state thereof if such Lender fails to comply with the
requirements of paragraph (b) of this subsection. Whenever any Non-Excluded
Taxes are payable by the Borrower, as promptly as practicable thereafter the
Borrower shall send to the Administrative Agent for its own account or for the
account of such Lender, as the case may be, evidence reasonably satisfactory to
the Administrative Agent or such Lender, as the case may be, of such payment. If
the Borrower fails to pay any Non-Excluded Taxes payable by the Borrower when
due to the appropriate taxing authority or fails to remit to the Administrative
Agent the receipts therefor or other required documentary evidence, the Borrower
shall indemnify the Administrative Agent and the Lenders for any incremental
taxes, interest or penalties that may become payable by the Administrative Agent
or any Lender as a result of any such failure. The agreements in this subsection
shall survive the termination of this Agreement and the payment of the Loans and
all other amounts payable hereunder.
(b) Each Lender that is not incorporated under the laws of the
United States of America or a state thereof shall:
(i) deliver to the Borrower and the Administrative Agent (A) two
duly completed copies of United States Internal Revenue Service Form 1001
or 4224, or successor applicable form, as the case may be, and (B) an
Internal Revenue Service Form W-8 or W-9, or successor applicable form, as
the case may be;
(ii) deliver to the Borrower and the Administrative Agent two
further copies of any such form or certification on or before the date that
any such form or certification expires or becomes obsolete and after the
occurrence of any event requiring a change in the most recent form
previously delivered by it to the Borrower; and
(iii) obtain such extensions of time for filing and complete
such forms or certifications as may reasonably be requested by the Borrower
or the Administrative Agent;
unless in any such case an event (including, without limitation, any change in
treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Lender from
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duly completing and delivering any such form with respect to it and such Lender
so advises the Borrower and the Administrative Agent. Such Lender shall certify
(i) in the case of a Form 1001 or 4224, that it is entitled to receive payments
under this Agreement without deduction or withholding of any United States
federal income taxes and (ii) in the case of a Form W-8 or W-9, that it is
entitled to an exemption from United States backup withholding tax. Each Person
that shall become a Lender or a Participant pursuant to subsection 8.6 shall, no
later than the effectiveness of the related transfer, be required to provide all
of the forms and statements required pursuant to this subsection, provided that
in the case of a Participant such Participant shall furnish all such required
forms and statements to the Lender from which the related participation shall
have been purchased.
(c) Any Lender claiming any amount pursuant to this subsection 2.17
shall use reasonable efforts (consistent with legal and regulatory restrictions)
to file any certificate or document reasonably requested by the Borrower if such
a filing would avoid the need for or reduce the amount payable by the Borrower
under this subsection 2.17 and would not, in the good faith determination of
such Lender, be otherwise disadvantageous to such Lender.
(d) Refunds. If a Lender or the Administrative Agent (as the case
may be) shall become aware that it is entitled to claim a refund (or a refund in
the form of a credit) (each, a "Refund") from a Governmental Authority (as a
result of any error in the amount of Non-Excluded Taxes paid to such
Governmental Authority) of Non-Excluded Taxes which the Borrower has paid, or
with respect to which the Borrower has paid additional amounts, pursuant to this
subsection 2.17, it shall promptly notify the Borrower of the availability of
such Refund and shall, within 30 days after receipt of written notice by the
Borrower, make a claim to such Governmental Authority for such Refund at the
Borrower's expense if, in the judgment of such Lender or the Administrative
Agent (as the case may be), the making of such claim will not be otherwise
disadvantageous to it; provided that nothing in this subsection 2.17(d) shall be
construed to require any Lender or the Administrative Agent to institute any
administrative proceeding (other than the filing of a claim for any such Refund)
or judicial proceeding to obtain such Refund. If a Lender or the Administrative
Agent (as the case may be) receives a Refund from a Governmental Authority (as a
result of any error in the amount of Non-Excluded Taxes paid to such
Governmental Authority) of any Non-Excluded Taxes which have been paid by the
Borrower, or with respect to which the Borrower has paid additional amounts
pursuant to this subsection 2.17, it shall promptly pay to the Borrower the
amount so received (but only to the extent of payments made, or additional
amounts paid, by the Borrower under this subsection 2.17 with respect to
Non-Excluded Taxes giving rise to such Refund), net of all reasonable
out-of-pocket expenses (including the net amount of taxes, if any, imposed on
such Lender or the Administrative Agent with respect to such Refund) of such
Lender or the Administrative Agent, and without interest (other than interest
paid by the relevant Governmental Authority with respect to such Refund);
provided, however, that the Borrower, upon the request of such Lender or the
Administrative Agent, agrees to repay the amount paid over to the Borrower (plus
penalties, interest or other charges) to such Lender or the Administrative Agent
in the event such Lender or the Administrative Agent is required to repay such
Refund to such Governmental Authority. Nothing contained in this subsection 2.1
7(d) shall require any Lender or the Administrative Agent to make available any
of its tax returns (or any other information that it deems to be confidential or
proprietary).
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(e) For purposes of this subsection 2.17, the term "Lender"
includes (i) an "Assignee" within the meaning of, and after compliance with the
requirements of, subsection 8.6(c), and (ii) a "Participant" within the meaning
of subsection 8.6(b); provided that such Participant shall have complied with
the requirements of subsection 2.17(c) to the extent applicable and provided,
further, that such Participant shall not be entitled to receive any greater
amount pursuant to this subsection 2.17 than the transferor Lender would have
been entitled to receive had no such transfer occurred.
2.18 Indemnity. The Borrower agrees to indemnify each Lender and to
hold each Lender harmless from any loss or expense which such Lender may sustain
or incur as a consequence of (a) default by the Borrower in making a borrowing
of LIBOR Loans, CD Rate Loans or Competitive Loans, or in the conversion into or
continuation of LIBOR Loans or CD Rate Loans, after the Borrower has given a
notice requesting or accepting the same in accordance with the provisions of
this Agreement, (b) default by the Borrower in making any prepayment after the
Borrower has given a notice thereof in accordance with the provisions of this
Agreement, or (c) the making of a prepayment of LIBOR Loans, CD Rate Loans or
Competitive Loans on a day which is not the last day of an Interest Period or
the applicable Competitive Loan Maturity Date, as the case may be, with respect
thereto. Such indemnification may include an amount equal to the excess, if any,
of (i) the amount of interest which would have accrued on the amount so prepaid,
or not so borrowed, converted or continued, for the period from the date of such
prepayment or of such failure to borrow, convert or continue to the last day of
the relevant Interest Period (or proposed Interest Period) or, in the case of
Competitive Loans, the applicable Competitive Loan Maturity Date (or proposed
Competitive Loan Maturity Date), in each case at the applicable rate of interest
for such Loans provided for herein (excluding, however, the Applicable Margin or
any positive margin applicable to LIBOR Competitive Loans included therein, if
any) over (ii) the amount of interest (as reasonably determined by such Lender)
which would have accrued to such Lender on such amount by placing such amount on
deposit for a comparable period with leading banks in the interbank eurodollar
market. The agreements in this subsection shall survive the termination of this
Agreement and the payment of the Loans and all other amounts payable hereunder.
2.19 Change of Lending Office. Each Lender agrees that if it makes
any demand for payment under subsection 2.16 or 2.17(a), or if any adoption or
change of the type described in subsection 2.15 shall occur with respect to it,
it will use reasonable efforts (consistent with its internal policy and legal
and regulatory restrictions and so long as such efforts would not be
disadvantageous to it, as determined in its sole discretion) to designate a
different Applicable Lending Office if the making of such a designation would
reduce or obviate the need for the Borrower to make payments under subsection
2.16 or 2.17(a), or would eliminate or reduce the effect of any adoption or
change described in subsection 2.15.
2.20 Replacement of Lenders under Certain Circumstances. The
Borrower shall be permitted to replace any Lender which (a) requests
reimbursement for amounts owing pursuant to subsection 2.16 or 2.17 (other than
with respect to LIBOR Competitive Loans), (b) is affected in the manner
described in subsection 2.15 (other than with respect to LIBOR Competitive
Loans) and as a result thereof any of the actions described in said subsection
is required to be taken or (c) defaults in its obligation to make Revolving
Credit Loans hereunder, with a
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replacement bank or other financial institution; provided that (i) such
replacement does not conflict with any Requirement of Law, (ii) no Event of
Default shall have occurred and be continuing at the time of such replacement,
(iii) the Borrower shall repay (or the replacement bank or institution shall
purchase, at par) all Loans and other amounts owing to such replaced Lender
prior to the date of replacement, (iv) the Borrower shall be liable to such
replaced Lender under subsection 2.18 if any LIBOR Loan owing to such replaced
Lender shall be prepaid (or purchased) other than on the last day of the
Interest Period relating thereto or any Competitive Loan owing to such replaced
Lender shall be paid other than on the relevant Competitive Loan Maturity Date,
(v) the replacement bank or institution, if not already a Lender, shall be
reasonably satisfactory to the Administrative Agent, (vi) the replaced Lender
shall be obligated to make such replacement in accordance with the provisions of
subsection 8.6 (provided that the Borrower shall be obligated to pay the
registration and processing fee referred to therein), (vii) until such time as
such replacement shall be consummated, the Borrower shall pay all additional
amounts (if any) required pursuant to subsection 2.16 or 2.17, as the case may
be, and (viii) any such replacement shall not be deemed to be a waiver of any
rights which the Borrower, the Administrative Agent or any other Lender shall
have against the replaced Lender.
SECTION 3. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter into
this Agreement and to make the Loans, the Borrower hereby represents and
warrants to the Administrative Agent and each Lender that:
3.1 Financial Condition. The balance sheets of the Borrower as at
December 31, 1994 and the related statements of income, earnings reinvested in
business, and cash flows for the fiscal year then ended on such date, reported
on by Deloitte & Touche LLP, copies of which have heretofore been furnished to
each Lender, present fairly the financial condition of the Borrower as at such
date, and the results of its operations and its cash flows for the fiscal year
then ended. The unaudited balance sheet of the Borrower as at March 31, 1995 and
the related unaudited statements of income, earnings reinvested in business, and
cash flows for the three-month period ended on such date, certified by a
Responsible Officer, copies of which have heretofore been furnished to each
Lender, are complete and correct and present fairly the financial condition of
the Borrower as at such date, and the results of its operations and its cash
flows for the three-month period then ended (subject to normal year-end audit
adjustments) All such financial statements, including the related schedules and
notes thereto, have been prepared in accordance with GAAP applied consistently
throughout the periods involved (except as approved by such accountants or
Responsible Officer, as the case may be, and as disclosed therein). During the
period from December 31, 1994 to and including the date hereof there has been no
sale, transfer or other disposition by the Borrower of any material part of its
business or property and no purchase or other acquisition of any business or
property (including any capital stock of any other Person) material in relation
to the financial condition of the Borrower at December 31, 1994.
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3.2 No Change. From December 31, 1994 through the date hereof there
has been no development or event which has had or could reasonably be expected
to have a material adverse effect on the financial position or business
operations of the Borrower.
3.3 Corporate Existence; Compliance with Law. Each of the Borrower
and its Material Subsidiaries, if any, (a) is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization, (b)
has the corporate power and authority, and the legal right, to own and operate
its property, to lease the property it operates as lessee and to conduct the
business in which it is currently engaged, (c) is duly qualified as a foreign
corporation and in good standing under the laws of each jurisdiction where its
ownership, lease or operation of property or the conduct of its business
requires such qualification other than in such jurisdictions where the failure
so to qualify would not, individually or in the aggregate, have a material
adverse effect on the financial position or business operations of the Borrower
and (d) is in compliance with all Requirements of Law except to the extent that
the failure to comply therewith could not, in the aggregate, have a material
adverse effect on the financial position or business operations of the Borrower.
3.4 Corporate Power; No Legal Bar. The execution, delivery, and
performance by the Borrower of this Agreement and any Note are within its
corporate powers, have been duly authorized by all necessary corporate action,
and do not violate any provision of law or any agreement, indenture, note, or
other instrument binding upon or affecting it or its charter or by-laws or give
cause for acceleration of any of its Indebtedness.
3.5 Authorization; Enforceability. All authorizations, approvals,
and other actions by, and notices to and filings with all Governmental
Authorities required for the due execution, delivery and performance of this
Agreement and any Note have been obtained or made and are in full force and
effect. Each of this Agreement and each Note executed in connection herewith is
a legal, valid and binding obligation of the Borrower enforceable against the
Borrower in accordance with its terms, subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.
3.6 ERISA. No "prohibited transaction" (as defined in Section 406
of ERISA or Section 4975 of the Code) or "accumulated funding deficiency" (as
defined in Section 022 of ERISA) or "reportable event" (herein defined as any of
the events set forth in Section 4043(b) of ERlSA or the regulations thereunder)
has occurred since July 1, 1974 with respect to any Plan which would materially
and adversely affect the financial condition of the Borrower. The present value
of all benefits vested under all Plans maintained by the Borrower or any
Commonly Controlled Entity (based on those assumptions used to fund the Plans)
did not, as of the last annual valuation date, exceed the value of the assets of
the Plan allocable to such vested benefits.
3.7 No Material Litigation. As of the date hereof, except as
heretofore disclosed pursuant to Section 13 of the Securities Exchange Act of
1934, as amended, there are no legal or arbitral proceedings or any proceedings
by or before any governmental or regulatory authority or agency, now pending or,
to the knowledge of the Borrower, threatened against the Borrower
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or any of its Material Subsidiaries, which the Borrower would be required to
disclose pursuant to Section 13 of the Securities Exchange Act of 1934, as
amended.
3.8 Taxes. The Borrower (or Dominion Resources for years in which
the Borrower filed a consolidated return with Dominion Resources) and its
Material Subsidiaries have filed all United States Federal income tax returns
and all other tax returns which are required to be filed by them and have paid
all taxes due pursuant to such returns or pursuant to any assessment received by
the Borrower or any such Material Subsidiary. The charges, accruals and reserves
on the books of the Borrower and such Material Subsidiaries in respect of taxes
and other governmental charges are, in the opinion of the Borrower, adequate.
3.9 Purpose of Loans. The proceeds of the Loans shall be used by
the Borrower for general corporate purposes, including commercial paper back-up,
and no part of the proceeds of any Loans will be used in violation of
Regulations G, U or X of the Board as now and from time to time hereafter in
effect.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions to Initial Loans. The effectiveness of this
Agreement is subject to the satisfaction of the following conditions precedent
on or prior to September 1, 1995:
(a) Execution of Agreement. (i) This Agreement shall have been
executed and delivered by a duly authorized officer of each of the
Borrower and the Administrative Agent and (ii) the Administrative Agent
shall have received an executed counterpart hereof (or a copy thereof by
facsimile transmission) from each Lender listed on Schedule I.
(b) Closing Certificate. The Administrative Agent shall have
received a certificate of the Borrower, dated the Closing Date,
substantially in the form of Exhibit C, executed by any Assistant
Treasurer and the Secretary or any Assistant Secretary of the Borrower,
and attaching the documents referred to in subsections 4.1(c), (d) and
(e).
(c) Corporate Proceedings. The Administrative Agent shall have
received a copy of the resolutions, in form and substance satisfactory to
the Administrative Agent, of the Board of Directors of the Borrower (or a
duly authorized committee thereof) authorizing (i) the execution, delivery
and performance of this Agreement and (ii) the borrowings contemplated
hereunder.
(d) Corporate Documents. The Administrative Agent shall have
received a copy of the articles of incorporation and by-laws of the
Borrower.
(e) Regulatory Approvals. The Administrative Agent shall have
received copies of any required orders of the Virginia State Corporation
Commission or any other state utilities commission approving the
Borrower's execution, delivery and performance of this Agreement and the
borrowings hereunder.
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(f) Legal Opinions. The Administrative Agent shall have received the
following executed legal opinions, with a copy for each Lender:
(i) the executed legal opinion of Hunton & Williams, counsel to
the Borrower, substantially in the form of Exhibit D-l; and
(ii) the executed legal opinion of Simpson Thacher & Bartlett,
special counsel to the Administrative Agent, substantially in the
form of Exhibit D-2.
(g) Representations and Warranties; No Default. Each of the
representations and warranties made by the Borrower in or pursuant to the
Loan Documents shall be true and correct in all material respects on and
as of such date as if made on and as of such date and no Default or Event
of Default shall have occurred and be continuing on such date.
4.2 Conditions to Each Loan. The agreement of each Lender to make
any Loan requested to be made by it on any date (including, without limitation,
its initial Loan) is subject to the satisfaction of the following conditions
precedent:
(a) Representations and Warranties. Each of the representations and
warranties made by the Borrower in or pursuant to the Loan Documents shall
be true and correct in all material respects on and as of such date as if
made on and as of such date.
(b) No Default. No Default or Event of Default shall have occurred
and be continuing on such date or after giving effect to the Loans
requested to be made on such date.
Each borrowing by the Borrower hereunder shall constitute a representation and
warranty by the Borrower as of the date thereof that the conditions contained in
this subsection 4.2 have been satisfied.
SECTION 5. COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain
in effect or any amount is owing to any Lender or the Administrative Agent
hereunder or under any other Loan Document:
5.1 Financial Statements. The Borrower shall furnish to the
Administrative Agent, who shall forward to each Lender:
(a) as soon as practicable, but in any event within 120 days after
the end of each fiscal year of the Borrower, a copy of the consolidated
balance sheet of the Borrower and its consolidated Subsidiaries, if any,
as at the end of such year and the related consolidated statements of
income, earnings reinvested in business, and cash flows for such year,
setting forth in each case in comparative form the figures for the
previous year,
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reported on, by Deloitte & Touche LLP or other independent certified public
accountants of nationally recognized standing; and
(b) as soon as practicable, but in any event not later than 60 days
after the end of each of the first three quarterly periods of each fiscal
year of the Borrower, the unaudited consolidated balance sheet of the
Borrower and its consolidated Subsidiaries, if any, as at the end of such
quarter and the related unaudited consolidated statements of income,
earnings reinvested in business, and cash flows for such quarter and the
portion of the fiscal year through the end of such quarter, setting forth
in each case in comparative form the figures for the previous year
certified by a Responsible Officer as being fairly stated in all material
respects (subject to normal year-end audit adjustments);
(c) within fourteen days after the same are sent, copies of all
financial statements and reports which the Borrower sends to its
stockholders generally, and within fourteen days after the same are filed,
copies of all financial statements and reports which the Borrower may make
to, or file with, the Securities and Exchange Commission or any successor
or analogous Governmental Authority; and
(d) promptly, such additional financial and other information as the
Administrative Agent, or any Lender through the Administrative Agent, may
from time to time reasonably request.
All such financial statements in (a) and (b) shall be (i) complete
and correct in all material respects, (ii) prepared in reasonable detail and in
accordance with GAAP applied consistently throughout the periods reflected
therein and with prior periods (except as approved by such accountants or
officer, as the case may be, and disclosed therein) and (iii) accompanied by a
compliance certificate signed by a Responsible Officer of the Borrower setting
forth the Consolidated Net Worth of the Borrower as of the date of such
financial statements.
Unless accompanied by a statement of a Responsible Officer setting
forth the details of each Default which has occurred and is continuing and the
steps which the Borrower proposes to take to remedy such Default, each delivery
of financial statements pursuant to clauses (a) and (b) of this subsection 5.1
shall be deemed to constitute a certification by the Borrower that no Default
has occurred and is continuing.
5.2 Conduct of Business and Compliance. The Borrower will continue
to engage in business of the same general type as now conducted by it, and the
Borrower will, and will cause each of its Subsidiaries, if any, to comply with
all Requirements of Law except to the extent that failure to comply therewith
would not materially and adversely affect the ability of the Borrower to perform
its obligations hereunder.
5.3 Books and Records. The Borrower will, and will cause each of
its Material Subsidiaries, if any, to, keep proper books of records and account
in which full, true and correct entries in conformity with GAAP and all
Requirements of Law shall be made of all dealings and transactions in relation
to its business and activities.
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5.4 Notices. The Borrower shall promptly give notice to the
Administrative Agent, and the Administrative Agent shall in turn give notice to
each Lender, of:
(a) the occurrence of any Default or Event of Default, which such
notice shall state that such notice is a "notice of default";
(b) the existence or imposition of any judgements against the
Borrower or any of its Material Subsidiaries in an amount in excess of
$25,000,000;
(c) the failure of the Borrower or any of its Material Subsidiaries
to pay any principal or interest in an aggregate amount of $25,000,000 or
more on any Indebtedness; and
(d) promptly following the Borrower's receipt, any change in the
Moody's Bond Rating or the S&P Bond Rating.
Each notice pursuant to clause (a) shall be accompanied by a
statement of a Responsible Officer setting forth details of the occurrence
referred to therein and stating what action the Borrower proposes to take with
respect thereto.
5.5 Limitation on Liens. The Borrower shall not, nor shall it
permit any of its Material Subsidiaries to, create, incur, assume or suffer to
exist any Lien upon any of its property, assets or revenues, whether now owned
or hereafter acquired, except for (i) Liens permitted by the First Mortgage Bond
Indenture and (ii) Liens created in the ordinary course of business.
5.6 Limitation on Fundamental Changes. The Borrower will not enter
into any merger, consolidation or amalgamation, or liquidate, wind up or
dissolve itself (or suffer any liquidation or dissolution), or convey, sell,
lease, assign, transfer or otherwise dispose of, a material part of its
property, business or assets, except the Borrower may be merged or consolidated
with another Person that is a corporation duly organized and existing under the
laws of any state in the United States provided that (i) the survivor shall
continue to use and operate the Borrower's public utility business, (ii) the
survivor shall assume the Borrower's obligations hereunder in accordance with
documentation acceptable to the Administrative Agent and the Majority Lenders
and (iii) after giving effect to such merger or consolidation no Default or
Event of Default shall have occurred or be continuing.
5.7 Limitation on Guarantee Obligations. The Borrower shall not
create, incur, assume or suffer to exist any Guarantee Obligation except for (a)
Guarantee Obligations in existence on the date hereof and listed on Schedule
III; (b) Guarantee Obligations made in the ordinary course of its business by
the Borrower of obligations of any of its Subsidiaries; and (c) Guarantee
Obligations guaranteeing securities issued by a corporation, partnership or
trust formed at the direction of the Borrower, provided that (i) the proceeds
from the issuance of such securities (other than to cover offering expenses)
were used solely by such corporation, partnership or trust to purchase from the
Borrower securities issued by the Borrower and (ii) the
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Guarantee Obligations exist only so long as and only to the extent that such
corporation, partnership or trust holds such securities issued by the Borrower.
5.8 Maintenance of Net Worth. The Borrower will not permit
Consolidated Net Worth to be less than $3.75 billion.
SECTION 6. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Loan when due
in accordance with the terms hereof, or to pay any interest on any Loan, or
any other amount payable hereunder, within 5 Business Days after any such
amount becomes due in accordance with the terms hereof;
(b) Any representation or warranty made to the Administrative Agent
or any Lender in connection with the execution and delivery of this
Agreement or the making of Loans hereunder proves to have been incorrect in
any material respect when made, and the future financial position or
business operations of the Borrower could reasonably be expected to be
materially and adversely affected from what would be the case had such
representation and warranty not been incorrect;
(c) The Borrower shall default in the performance of any other term,
covenant, or provision contained in this Agreement (other than as provided
in paragraphs (a) and (b) of this Section) and such default shall continue
unremedied for 30 days;
(d) The Borrower or any of its Material Subsidiaries shall (i) apply
for or consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee, or liquidator of itself or of all or a
substantial part of its property, (ii) admit in writing its inability, or
be generally unable, to pay its debts as such debts become due, (iii) make
a general assignment for the benefit of its creditors, (iv) commence a
voluntary case under the federal bankruptcy laws (as now or hereafter in
effect), (v) file a petition seeking to take advantage of any other law
relating to bankruptcy, insolvency, reorganization, winding-up, or
composition or readjustment of debts, (vi) fail to controvert in a timely
and appropriate manner, or acquiesce in writing to, any petition filed
against the Borrower or any of its Material Subsidiaries in an involuntary
case under such federal laws, or (vii) take any corporate action for the
purpose of affecting any of the foregoing;
(e) A case or other proceeding shall be commenced (including
commencement of such case or proceeding by way of service of process on the
Borrower or any of its Material Subsidiaries), in any court of competent
jurisdiction, seeking (i) the liquidation, reorganization, dissolution or
winding-up, or the composition or readjustment of debts of the Borrower or
any of its Material Subsidiaries, (ii) the appointment of a trustee,
receiver, custodian, liquidator, or the like of the Borrower or any of its
Material Subsidiaries or of all or any substantial part of their respective
assets, (iii) similar relief
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in respect of the Borrower or any of its Material Subsidiaries under any
law relating to bankruptcy, insolvency, reorganization, winding up, or
composition or readjustment of debts, or a warrant of attachment,
execution, or similar process shall be issued against a substantial part of
the property of the Borrower or any of its Material Subsidiaries and such
case, proceeding, warrant, or process shall continue undismissed or
unstayed and in effect for a period of 45 days, or an order, judgment, or
decree approving or ordering any of the foregoing shall be entered in an
involuntary case under such federal bankruptcy laws;
(f) A trustee shall be appointed to administer any Plan under Section
4042 of ERISA, or the PBGC shall institute proceedings to terminate, or to
have a trustee appointed to administer any Plan and such proceedings shall
continue undismissed or unstayed and in effect for a period of 30 days, and
any such event shall result in any liability which is material in relation
to the consolidated financial condition of the Borrower and its
consolidated Subsidiaries, if any;
(g) The Borrower or any of its Material Subsidiaries shall (i)
default in any payment of principal or interest in an aggregate amount of
$25,000,000 or more (or in the payment of any guarantee thereof) beyond
the period of grace, if any, provided in the instrument or agreement
under which such Indebtedness or guarantee thereof was created or (ii)
default beyond any applicable grace period in the observance or
performance of any other agreement or condition relating to any
Indebtedness in an aggregate amount of $25,000,000 or more or any guarantee
thereof or contained in any instrument or agreement evidencing, securing
or relating thereto, or any other event shall occur or condition exist,
the effect of which default or other event or condition is to cause, or to
permit the holder or holders of such Indebtedness to cause, with the
giving of notice if required, such Indebtedness to become due prior to its
stated maturity; provided, however, if such default shall be cured by the
Borrower or any Material Subsidiary or waived by the holders of such
Indebtedness and any acceleration of maturity having resulted from such
default shall be rescinded or annulled, in each case in accordance with
the terms of such agreement or instrument, without (i) any modification of
the terms of such Indebtedness requiring the Borrower or any such
Material Subsidiary to furnish additional or other security therefor,
reducing the average life to maturity thereof or increasing the principal
amount thereof or (ii) any agreement by the Borrower or any such Material
Subsidiary to furnish additional or other security therefor or to issue
in lieu thereof Indebtedness secured by additional or other collateral or
with a shorter average life to maturity or in a greater principal amount,
then any default hereunder by reason thereof shall be deemed likewise to
have been thereupon cured or waived; or
(h) There shall have been entered by a court of competent
jurisdiction within the United States and shall not have been vacated,
discharged or stayed within sixty (60) days from the entry thereof (or such
longer period as may be provided by law) one or more final judgments or
final decrees for payment of money against the Borrower or any of its
Material Subsidiaries involving in the aggregate a liability (to the extent
not paid or covered by insurance) in excess of $25,000,000;
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then, and in any such event, (A) if such event is an Event of Default specified
in paragraph (d) or (e) of this Section with respect to the Borrower,
automatically the Commitments shall immediately terminate and the Loans
hereunder (with accrued interest thereon) and all other amounts owing under this
Agreement shall immediately become due and payable, and (B) if such event is any
other Event of Default, either or both of the following actions may be taken:
(i) with the consent of the Majority Lenders, the Administrative Agent may, or
upon the request of the Majority Lenders, the Administrative Agent shall, by
notice to the Borrower declare the Commitments to be terminated forthwith,
whereupon the Commitments shall immediately terminate; and (ii) with the consent
of the Majority Lenders, the Administrative Agent may, or upon the request of
the Majority Lenders, the Administrative Agent shall, by notice to the Borrower,
declare the Loans hereunder (with accrued interest thereon) and all other
amounts owing under this Agreement to be due and payable forthwith, whereupon
the same shall immediately become due and payable. Except as expressly provided
above in this Section, presentment, demand, protest and all other notices of any
kind are hereby expressly waived.
SECTION 7. THE ADMINISTRATIVE AGENT
7.1 Appointment. Each Lender hereby irrevocably designates and
appoints the Administrative Agent as the agent of such Lender under this
Agreement and the other Loan Documents, and each such Lender irrevocably
authorizes the Administrative Agent, in such capacity, to take such action on
its behalf under the provisions of this Agreement and the other Loan Documents;
and to exercise such powers and perform such duties as are expressly delegated
to the Administrative Agent by the terms of this Agreement and the other Loan
Documents, together with such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary elsewhere in this Agreement, the
Administrative Agent shall not have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with any Lender, and
no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Administrative Agent.
7.2 Delegation of Duties. The Administrative Agent may execute any
of its duties under this Agreement and the other Loan Documents by or through
agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Administrative Agent shall
not be responsible for the negligence or misconduct of any agents or attorneys
in-fact selected by it with reasonable care.
7.3 Exculpatory Provisions. Neither the Administrative Agent nor
any of its officers, directors, employees, agents, attorneys-in-fact or
Affiliates shall be (i) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Agreement or any
other Loan Document (except for its or such Person's own gross negligence or
willful misconduct) or (ii) responsible in any manner to any of the Lenders for
any recitals, statements, representations or warranties made by the Borrower or
any officer thereof contained in this Agreement or any other Loan Document or in
any certificate, report, statement or other document referred to or provided for
in, or received by the Administrative Agent under or in connection with, this
Agreement or any other Loan Document or for the value, validity,
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effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any other Loan Document or for any failure of the Borrower to perform its
obligations hereunder or thereunder. The Administrative Agent shall not be under
any obligation to any Lender to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
Agreement or any other Loan Document, or to inspect the properties, books or
records of the Borrower.
7.4 Reliance by Administrative Agent. The Administrative Agent
shall be entitled to rely, and shall be fully protected in relying, upon any
Note, writing, resolution, notice, consent, certificate, affidavit, letter,
telecopy, telex or teletype message, statement, order or other document or
conversation believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons and upon advice and statements of
legal counsel (including, without limitation, counsel to the Borrower),
independent accountants and other experts selected by the Administrative Agent.
The Administrative Agent may deem and treat the payee of any Note as the owner
thereof for all purposes unless a written notice of assignment, negotiation or
transfer thereof shall have been filed with the Administrative Agent. The
Administrative Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless it shall first
receive such advice or concurrence of the Majority Lenders as it deems
appropriate or it shall first be indemnified to its satisfaction by the Lenders
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Administrative Agent shall
in all cases be fully protected in acting, or in refraining from acting, under
this Agreement and the other Loan Documents in accordance with a request of the
Majority Lenders, and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Lenders and all future holders of
the Loans.
7.5 Notice of Default. The Administrative Agent shall not be deemed
to have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Administrative Agent has received notice from a Lender or
the Borrower referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default". In the event that
the Administrative Agent receives such a notice, the Administrative Agent shall
give notice thereof to the Lenders. The Administrative Agent shall take such
action with respect to such Default or Event of Default as shall be reasonably
directed by the Majority Lenders; provided that unless and until the
Administrative Agent shall have received such directions, the Administrative
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of Default as it shall
deem advisable in the best interests of the Lenders.
7.6 Non-Reliance on Administrative Agent and Other Lenders. Each
Lender expressly acknowledges that neither the Administrative Agent nor any of
its officers, directors, employees, agents, attorneys-in-fact or Affiliates has
made any representations or warranties to it and that no act by the
Administrative Agent hereafter taken, including any review of the affairs of the
Borrower, shall be deemed to constitute any representation or warranty by the
Administrative Agent to any Lender. Each Lender represents to the Administrative
Agent that it has, independently and without reliance upon the Administrative
Agent or any other Lender, and based on such documents and information as it has
deemed appropriate, made its own
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appraisal of and investigation into the business, operations, property,
financial and other condition and creditworthiness of the Borrower and made its
own decision to make its Loans hereunder and enter into this Agreement. Each
Lender also represents that it will, independently and without reliance upon the
Administrative Agent or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement and the other Loan Documents, and to make such investigation as
it deems necessary to inform itself as to the business, operations, property,
financial and other condition and creditworthiness of the Borrower. Except for
notices, reports and other documents expressly required to be furnished to the
Lenders by the Administrative Agent hereunder, the Administrative Agent shall
not have any duty or responsibility to provide any Lender with any credit or
other information concerning the business, operations, property, condition
(financial or otherwise), prospects or creditworthiness of the Borrower which
may come into the possession of the Administrative Agent or any of its officers,
directors, employees, agents, attorneys-in-fact or Affiliates.
7.7 Indemnification. The Lenders agree to indemnify the
Administrative Agent in its capacity as such (to the extent not reimbursed by
the Borrower and without limiting the obligation of the Borrower to do so),
ratably according to their respective Commitment Percentages in effect on the
date on which indemnification is sought (or, if indemnification is sought after
the date upon which the Commitments shall have terminated and the Loans shall
have been paid in full, ratably in accordance with their Commitment Percentages
immediately prior to such date), from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind whatsoever which may at any time
(including, without limitation, at any time following the payment of the Loans)
be imposed on, incurred by or asserted against the Administrative Agent in any
way relating to or arising out of, the Commitments, this Agreement, any of the
other Loan Documents or any documents contemplated by or referred to herein or
therein or the transactions contemplated hereby or thereby or any action taken
or omitted by the Administrative Agent under or in connection with any of the
foregoing; provided that no Lender shall be liable for the payment of any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting solely from the
Administrative Agent's gross negligence or willful misconduct. The agreements in
this subsection shall survive the payment of the Loans and all other amounts
payable hereunder.
7.8 Administrative Agent in Its Individual Capacity. The
Administrative Agent and its Affiliates may make loans to, accept deposits from
and generally engage in any kind of business with the Borrower as though the
Administrative Agent were not the Administrative Agent hereunder and under the
other Loan Documents. With respect to the Loans made by it, the Administrative
Agent shall have the same rights and powers under this Agreement and the other
Loan Documents as any Lender and may exercise the same as though it were not the
Administrative Agent, and the terms "Lender" and "Lenders" shall include the
Administrative Agent in its individual capacity.
7.9 Successor Administrative Agent. The Administrative Agent may
resign as Administrative Agent upon 10 days' notice to the Lenders. If the
Administrative Agent shall resign as Administrative gent under this Agreement
and the other Loan Documents, then the
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Majority Lenders shall appoint from among the Lenders a successor agent for the
Lenders, which successor agent shall be approved by the Borrower, whereupon such
successor agent shall succeed to the rights, powers and duties of the
Administrative Agent, and the term "Administrative Agent" shall mean such
successor agent effective upon such appointment and approval, and the former
Administrative Agent's rights, powers and duties as Administrative Agent shall
be terminated, without any other or further act or deed on the part of such
former Administrative Agent or any of the parties to this Agreement or any
holders of the Loans. After any retiring Administrative Agent's resignation as
Administrative Agent, the provisions of this Section 7 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under this Agreement and the other Loan Documents,
SECTION 8. MISCELLANEOUS
8.1 Amendments and Waivers. The Majority Lenders may, or, with the
written consent of the Majority Lenders, the Administrative Agent may, from time
to time, enter into with the Borrower written amendments, supplements,
modifications or waivers hereto and to the other Loan Documents provided,
however, that no such waiver and no such amendment, supplement or modification
shall (i) reduce the amount or extend the scheduled date of maturity of any
Loan, or reduce the stated rate of any interest or fee payable hereunder or
extend the scheduled date of any payment thereof or increase the amount or
extend the expiration date of any Lender's Commitment, in each case without the
consent of each Lender affected thereby, or (ii) amend, modify or waive any
provision of this subsection, the provision of Section 8.6(a) requiring the
written consent of each Lender for the assignment or transfer by the Borrower of
its rights and obligations under this Agreement, or reduce the percentage
specified in the definition of Majority Lenders, in each case without the
written consent of all the Lenders, or (iii) amend, modify or waive any
provision of Section 7 without the written consent of the then Administrative
Agent.
8.2 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
facsimile transmission) and, unless: otherwise expressly provided herein, shall
be deemed to have been duly given or made (a) in the case of delivery by hand,
when delivered, (b) in the case of delivery by mail, 5 days after being
deposited in the mails, postage prepaid, or (c) in the case of delivery by
facsimile transmission, when sent and receipt has been confirmed, addressed as
follows in the case of the Borrower and the Administrative Agent, and as set
forth in Schedule I in the case of the other parties hereto, or to such other
address as may be hereafter notified by the respective parties hereto:
The Borrower: Treasurer
Virginia Electric and Power Company
701 E. Cary Street
P.O. Box 26666
Richmond, VA 23261
Fax: (804) 771-4066
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The Administrative Agent: Chemical Bank
270 Park Avenue
New York, New York 10017
Attention: Delia Marin
Fax: (212) 270-4711
Chemical Bank Agency Services
140 East 45th Street
New York, New York 10017
Attention: Lynette Lang
Fax: (212) 622-0136
provided that any notice, request or demand to or upon the Administrative Agent
or the Lenders pursuant to subsection 2.2, 2.4, 2.6, 2.7, 2.10 or 2.14 shall not
be effective until received.
8.3 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of the Administrative Agent or any Lender, any
right, remedy, power or privilege hereunder or under the other Loan Documents
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
The rights, remedies, powers and privileges herein provided are cumulative and
not exclusive of any rights, remedies, powers and privileges provided by law.
8.4 Survival. All representations and warranties made hereunder, in
the other Loan Documents and in any document, certificate or statement delivered
pursuant hereto or in connection herewith or therewith shall survive the
execution and delivery of this Agreement and the making of the Loans hereunder.
8.5 Payment of Expenses. The Borrower agrees (a) to pay or
reimburse the Administrative Agent for all its reasonable out-of-pocket costs
and expenses incurred in connection with the development, preparation and
execution of, and any amendment, supplement or modification to, this Agreement
and the other Loan Documents including, without limitation, the reasonable fees
and disbursements of counsel to the Administrative Agent, (b) to pay or
reimburse each Lender and the Administrative Agent for all its costs and
expenses incurred in connection with the enforcement or preservation of any
rights under this Agreement or the other Loan Documents including, without
limitation, the fees and disbursements of counsel (and the allocated fees and
expenses of in-house counsel) to each Lender and of counsel to the
Administrative Agent and (c) to pay, indemnify, and hold each Lender and the
Administrative Agent harmless from and against any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever with respect to the
execution, delivery, enforcement, performance and administration of this
Agreement and the other Loan Documents (all the foregoing in this clause (c),
collectively, the "indemnified liabilities"), provided, that the Borrower shall
have no obligation hereunder to the Administrative Agent or any Lender with
respect to indemnified liabilities arising from the gross negligence or willful
misconduct of the Administrative Agent or any such Lender or the failure of the
Administrative Agent or any such Lender to comply with this
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Agreement. The agreements in this subsection shall survive repayment of the
Loans and all other amounts payable hereunder.
8.6 Transfer Provisions. (a) Successors and Assigns. This Agreement
shall be binding upon and inure to the benefit of the Borrower, the Lenders, the
Administrative Agent and their respective successors and assigns, except that
the Borrower may not assign or transfer any of its rights or obligations under
this Agreement without the prior written consent of each Lender.
(b) Participations. Any Lender may, in the ordinary course of its
commercial banking business and in accordance with applicable law, at any time
sell to one or more banks or other entities ("Participants") participating
interests in any Loan owing to such Lender, any Commitment of such Lender or any
other interest of such Lender hereunder and under the other Loan Documents. In
the event of any such sale by a Lender of a participating interest to a
Participant, such Lender's obligations under this Agreement to the other parties
to this Agreement shall remain unchanged, such Lender shall remain solely
responsible for the performance thereof, such Lender shall remain the holder of
any such Loan for all purposes under this Agreement and the other Loan
Documents, and the Borrower and the Administrative Agent shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and the other Loan Documents.
(c) Assignments. Any Lender may, in the ordinary course of its
commercial banking business and in accordance with applicable law, at any time
and from time to time assign to any Lender or any affiliate thereof or, with the
consent of the Borrower and the Administrative Agent (which in each case shall
not be unreasonably withheld), to an additional bank or financial institution
("an Assignee") all or any part of its rights and obligations under this
Agreement and the other Loan Documents pursuant to an Assignment and Acceptance,
substantially in the form of Exhibit E, executed by such Assignee, such
assigning Lender (and, in the case of an Assignee that is not then a Lender or
an affiliate thereof, by the Borrower and the Administrative Agent) and
delivered to the Administrative Agent for its acceptance and recording in the
Register, provided that, (i) in the case of any such assignment to an additional
bank or financial institution, the sum of the aggregate principal amount of the
Commitment being assigned shall not be less than $10,000,000 (or such lesser
amount as may be agreed to by the Borrower and the Administrative Agent) and
(ii) any such assignment may, but need not, include rights of the assigning
Lender in respect of Competitive Loans. Upon such execution, delivery,
acceptance and recording, from and after the effective date determined pursuant
to such Assignment and Acceptance, (x) the Assignee thereunder shall be a party
hereto and, to the extent provided in such Assignment and Acceptance, have the
rights and obligations of a Lender hereunder with a Commitment as set forth
therein, and (y) the assigning Lender thereunder shall, to the extent provided
in such Assignment and Acceptance, be released from its obligations under this
Agreement (and, in the case of an Assignment and Acceptance covering all or the
remaining portion of an assigning Lender's rights and obligations under this
Agreement, such assigning Lender shall cease to be a party hereto).
(d) The Register. The Administrative Agent, on behalf of the
Borrower, shall maintain at the address of the Administrative Agent referred to
in subsection 8.2 a copy of each Assignment and Acceptance delivered to it and a
register (the "Register") for the recordation of
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the names and addresses of the Lenders and the Commitment of, and principal
amounts of the Loans owing to, each Lender from time to time. The entries in the
Register shall be conclusive, in the absence of manifest error, and the
Borrower, the Administrative Agent and the Lenders may (and, in the case of any
Loan or other obligation hereunder not evidenced by a Note, shall) treat each
Person whose name is recorded in the Register as the owner of a Loan or other
obligation hereunder as the owner thereof for all purposes of this Agreement and
the other Loan Documents, notwithstanding any notice to the contrary. Any
assignment of any Loan or other obligation hereunder not evidenced by a Note
shall be effective only upon appropriate entries with respect thereto being made
in the Register. The Register shall be available for inspection by the Borrower
or any Lender at any reasonable time and from time to time upon reasonable prior
notice.
(e) Recordation. Upon its receipt of an Assignment and Acceptance
executed by an assigning Lender and an Assignee (and, in the case of an Assignee
that is not then a Lender or an affiliate thereof, by the Borrower and the
Administrative Agent) together with payment by the Assignee or the Assignor (or,
in the event of a replacement of a Lender pursuant to subsection 2.20, the
replacement Lender) to the Administrative Agent of a registration and processing
fee of $1,500, the Administrative Agent shall (i) promptly accept such
Assignment and Acceptance and (ii) on the effective date determined pursuant
thereto record the information contained therein in the Register and give notice
of such acceptance and recordation to the Lenders and the Borrower.
(f) Disclosure. The Borrower authorizes each Lender to disclose to
any Participant or Assignee (each, a "Transferee") and any prospective
Transferee, any and all financial information in such Lender's possession
concerning the Borrower and its Subsidiaries, which has been delivered to such
Lender by or on behalf of the Borrower pursuant to this Agreement or which has
been delivered to such Lender by or on behalf of the Borrower in connection with
such Lender's credit evaluation of the Borrower and its Subsidiaries prior to
becoming a party to this Agreement.
(g) Pledges. For avoidance of doubt, the parties to this Agreement
acknowledge that the provisions of this subsection concerning assignments of
Loans and Notes relate only to absolute assignments and that such provisions do
not prohibit assignments creating security interests, including, without
limitation, any pledge or assignment by a Lender of any Loan or Note to any
Federal Reserve Bank in accordance with applicable law.
8.7 Adjustments. If any Lender (a "benefitted Lender") shall at any
time receive any payment of all or part of its Loans, or interest thereon, or
receive any collateral in respect thereof (whether voluntarily or involuntarily,
by set-off, pursuant to events or proceedings of the nature referred to in
Section 6(d) or (e), or otherwise), in a greater proportion than any such
payment to or collateral received by any other Lender, if any, in respect of
such other Lender's Loans that are then due and payable, or interest thereon,
such benefitted Lender shall purchase for cash from the other Lenders a
participating interest in such portion of each such other Lender's Loans, or
shall provide such other Lenders with the benefits of any such collateral, or
the proceeds thereof, as shall be necessary to cause such benefitted Lender to
share the excess payment or benefits of such collateral or proceeds ratably with
each of the Lenders; provided,
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however, that if all or any portion of such excess payment or benefits is
thereafter recovered from such benefitted Lender, such purchase shall be
rescinded, and the purchase price and benefits returned, to the extent of such
recovery, but without interest.
8.8 Counterparts. This Agreement may be executed by one or more of
the parties to this Agreement on any number of separate counterparts (including
by facsimile transmission), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument. A set of the copies of this
Agreement signed by all the parties shall be lodged with the Borrower and the
Administrative Agent.
8.9 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
8.10 Integration. This Agreement and the other Loan Documents
represent the agreement of the Borrower, the Administrative Agent and the
Lenders with respect to the subject matter hereof, and there are no promises,
undertakings, representations or warranties by the Administrative Agent or any
Lender relative to subject matter hereof not expressly set forth or referred to
herein or in the other Loan Documents.
8.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
8.12 WAIVERS OF JURY TRIAL. THE BORROWER, THE ADMINISTRATIVE AGENT
AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN
ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT.
8.13 Confidentiality. Each Lender agrees to keep confidential any
written or oral information (a) provided to it by or on behalf of the Borrower
pursuant to or in connection with this Agreement or (b) obtained by such Lender
based on a review of the books and records of the Borrower; provided that
nothing herein shall prevent any Lender from disclosing any such information (i)
to its affiliates, the Administrative Agent or any other Lender, (ii) to any
Transferee which agrees to comply with the provisions of this subsection, (iii)
to its employees, directors, agents, attorneys, accountants and other
professional advisors, (iv) upon the request or demand of any Governmental
Authority having jurisdiction over such Lender, (v) in response to
41
<PAGE>
any order of any court or other Governmental Authority or as may otherwise be
required pursuant to any Requirement of Law, (vi) which has been publicly
disclosed other than in breach of this Agreement, or (vii) in connection with
the exercise of any remedy hereunder. In the event that a Lender determines to
disclose information pursuant to clause (v) of this subsection 8.13, such Lender
will, to the extent permitted by applicable law, notify the Borrower prior to
disclosing such information.
42
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered by their proper and duly authorized officers
as of the day and year first above written.
VIRGINIA ELECTRIC AND POWER COMPANY
By: /s/ J. Kennerly Davis. Jr.
Name: J. Kennerly Davis, Jr.
Title: Vice President Treasurer and Corporate
Secretary
CHEMICAL BANK,
as Administrative Agent and as a Lender
By: /s/ Jane Ritchie
Name: Jane Ritchie
Title: Vice President
FIRST UNION NATIONAL BANK OF VIRGINIA,
as a Lender
By: /s/ Douglas T. Davis
Name: Douglas T. Davis
Title: Vice President
THE FUJI BANK, LIMITED,
as a Lender
By: /s/ Gina M. Kearns
Name: Gina M. Kearns
Title: Vice President & Manager
J.P. MORGAN DELAWARE,
as a Lender
By: /s/ Philip S. Detjens
Name: Philip S. Detjens
Title: Vice President
43
<PAGE>
NATIONS BANK, N.A. (CAROLINAS),
as a Lender
By: /s/ Brenda R. Tate
Name: Brenda R. Tate
Title: Vice President
ABN AMRO BANK N.V. (NEW YORK
BRANCH), as a Lender
By: /s/ John W. Deegan
Name: John W. Deegan
Title: Vice President
By: /s/ George M. Dugan
Name: George M. Dugan
Title: Vice President
THE FIRST NATIONAL BANK OF CHICAGO,
as a Lender
By: /s/ Paul C. Friedland
Name: Paul C. Friedland
Title: Senior Managing Director
THE MISTUBISHI BANK, LIMITED,
as a Lender
By: /s/ J. Bruce Meredith
Name: J. Bruce Meredith
Title: Senior Vice President and Manager
44
<PAGE>
THE SUMITOMO BANK, LIMITED,
as a Lender
By: /s/ S. Higashi
Name: S. Higashi
Title: Joint General Manager
TORONTO DOMINION (NEW YORK), INC.,
as a Lender
By: /s/ Debbie A. Greene
Name: Debbie A. Greene
Title: Vice President
WACHOVIA BANK OF NORTH CAROLINA,
as a Lender
By: /s/ F. Richard Redden III
Name: F. Richard Redden, III
Title: Corporate Banking Officer
THE BANK OF NEW YORK,
as a Lender
By: /s/ Ian K. Stewart
Name: Ian K. Stewart
Title: Senior Vice President
CRESTAR BANK,
as a Lender
By: /s/ Christopher B. Werner
Name: Christopher B. Werner
Title: Vice President
<PAGE>
SCHEDULE I
ADDRESSES AND COMMITMENTS
Name and Address of Lender Amount of Commitment
CHEMICAL BANK $36,000,000.00
270 Park Avenue
New York, New York 10017
Attention: Jane Ritchie
Facsimile: (212) 270-7138
FIRST UNION NATIONAL BANK OF VIRGINIA $30,000,000.00
901 East Cary Street, 2nd Floor
Richmond, VA 23219
Attention: Martin Rust
Facsimile: (804)-788-9673
THE FUJI BANK, LIMITED $28,000,000.00
Two World Trade Center, 79th Floor
New York, NY 10048
Attention: Gina Kearns
Facsimile: (212)-912-0516
J.P. MORGAN SERVICES, INC. $28,000,000.00
500 Stanton-Christiana Road
Newark, DE 19713
Attention: Loan Department
Facsimile: (303)-634-1093
NATIONSBANK, N.A. (CAROLINAS) $28,000,000.00
100 North Tryon, 8th Floor
Charlotte, NC 28255
Attention: Brenda Tate
Facsimile: (704)-386-1270
ABN AMRO BANK N.V. $20,000,000.00
500 Park Avenue
New York, NY 10022
Attention: Pam Delvecchio
Facsimile: (212)-832-7129
THE FIRST NATIONAL BANK OF CHICAGO $20,000,000.00
One First National Plaza
Chicago, IL 60670
Attention: Richard H. Waldman
Facsimile: (312)-732-3055
<PAGE>
THE MISTUBISHI BANK, LIMITED $20,000,000.00
191 Peachtree Street, Suite 1170
Atlanta, GA 30303
Attention: Randy Glass
Facsimile: (404)-730-9014
THE SUMITOMO BANK, LIMITED $20,000,000.00
277 Park Avenue
New York, NY 10172
Attention: Harry Oashi
Facsmile: (212)-224-5188
TORONTO DOMINION (NEW YORK), INC. $20,000,000.00
909 Fannin Street
Houston, TX 77010
Attention: Neva Nesbitt
Facsimile: (713)-951-9921
WACHOVIA BANK OF NORTH CAROLINA $20,000,000.00
301 North Main Street
Winston Salem, NC 27150
Attention: F. Richard Redden III
Facsimile: (910)-761-6458
THE BANK OF NEW YORK $15,000,000.00
One Wall Street, 19th Floor
New York, NY 10286
Attention: Dennis Pidherny
Facsimile: (212)-635-7923
CRESTAR BANK $ 15,000,000.00
9l9 East Main Street
Richmond, VA 23219
Attention: Christopher Werner
Facsimile: (804)-782-5413
SCHEDULE II
FACILITY FEE/APPLICABLE MARGIN
<TABLE>
<CAPTION>
Level I Level 2 Level 3 Level 4 Level 5
<S> <C> <C> <C> <C> <C>
Senior Secured A/A2 or BBB or BBB-/Baa2
Ratings S&P/Moody's higher A-/A3 BBB+/Baal or Baa3 BBB-/Baa3 or Lower
Facility Fee Rate*
Applicable Margins*
LIBOR
CD Rate
ABR
</TABLE>
* In the event such ratings fall within different Levels, the foregoing will
be based on the Level with the highest rating (i.e., the lower Level number),
except that in the event that the lower of such ratings is more than one
Level below the higher of such ratings, the Facility Fee Rate and the
Applicable Margin will be determined based on the Level one Level above the
lower of such ratings. In the event that there is no Moody's Bond Rating or
S&P Bond Rating available (other than due to both Moody's Investor Services,
Inc. and Standard & Poor's Ratings Group ceasing to be engaged in the
business of rating corporate debt securities), then the Facility Fee Rate
and the Applicable Margin will be determined based on Level 5. In the event
that both Moody's Investor Services, Inc. and Standard & Poor's Ratings
Group cease to be engaged in the business of rating corporate debt
securities, the parties hereto agree to negotiate in good faith to establish
on an equitable basis new Facility Fee Rates and Applicable Margins.
SCHEDULE III
PERMITTED GUARANTEE OBLIGATIONS
1. Guarantee Agreement between Virginia Electric and Power Company and Chemical
Bank dated August 31, 1995
EXHIBIT 23(i)
[Hunton & Williams Letterhead]
March 12, 1996
Virginia Electric and
Power Company
Richmond, Virginia 23261
VIRGINIA ELECTRIC AND POWER COMPANY
FORM 10-K
Gentlemen:
We consent to the incorporation by reference into the Registration
Statements of Virginia Electric and Power Company on Form S-3 (File No. 33-59581
and File No. 33-60271) of the statements, included in this Annual Report on Form
10-K, made in regard to our firm that relate to franchises, title to properties,
and limitations upon the issuance of bonds and preferred stock.
Sincerely,
/s/ HUNTON & WILLIAMS
HUNTON & WILLIAMS
EXHIBIT 23(ii)
[Jackson & Kelly Letterhead]
March 12, 1996
Virginia Electric and Power Company
Richmond, Virginia 23261
RE: VIRGINIA ELECTRIC AND POWER COMPANY
FORM 10-K
Gentlemen:
We consent to the incorporation by reference into the registration
statements of Virginia Electric and Power Company on Form S-3 (File No.
33-59581 and File No. 33-60271) of the statements, included in this Annual
Report on Form 10-K, made in regard to our firm that are governed by the
laws of West Virginia and that relate to franchises, title to properties,
limitations upon the issuance of bonds and preferred stock, rate and other
regulatory matters, and litigation.
Sincerely yours,
/s/ JACKSON & KELLY
Jackson & Kelly
EXHIBIT 23(iii)
[Deloitte & Touche LLP Letterhead]
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements File No.
33-50425, File No. 33-59581 and File No. 33-60271 of Virginia Electric and Power
Company on Forms S-3 of our report dated February 2, 1996, appearing in the
Annual Report on Form 10-K of Virginia Electric and Power Company for the year
ended December 31, 1995.
DELOITTE & TOUCHE LLP
Richmond, Virginia
March 12, 1996
<TABLE> <S> <C>
<ARTICLE> UT
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 9573
<OTHER-PROPERTY-AND-INVEST> 384
<TOTAL-CURRENT-ASSETS> 937
<TOTAL-DEFERRED-CHARGES> 934
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 11,828
<COMMON> 2,737
<CAPITAL-SURPLUS-PAID-IN> 17
<RETAINED-EARNINGS> 1,273
<TOTAL-COMMON-STOCKHOLDERS-EQ> 4,027
180
509
<LONG-TERM-DEBT-NET> 3,889
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 169
<LONG-TERM-DEBT-CURRENT-PORT> 260
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,794
<TOT-CAPITALIZATION-AND-LIAB> 11,828
<GROSS-OPERATING-REVENUE> 4,350
<INCOME-TAX-EXPENSE> 228
<OTHER-OPERATING-EXPENSES> 3,376
<TOTAL-OPERATING-EXPENSES> 3,604
<OPERATING-INCOME-LOSS> 747
<OTHER-INCOME-NET> 7
<INCOME-BEFORE-INTEREST-EXPEN> 753
<TOTAL-INTEREST-EXPENSE> 320
<NET-INCOME> 433
44
<EARNINGS-AVAILABLE-FOR-COMM> 389
<COMMON-STOCK-DIVIDENDS> 394
<TOTAL-INTEREST-ON-BONDS> 216
<CASH-FLOW-OPERATIONS> 1,125
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
