<PAGE 1>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 10-Q
--------------
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
-----
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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 54-0418825
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
701 East Cary Street
Richmond, Virginia 23219 - 3932
(Address of principal executive offices) (Zip Code)
(804) 771-3000
(Registrant's telephone number)
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
--- ---
At October 31, 1998, 171,484 shares of common stock, without par value, of
the registrant were outstanding.
<PAGE>
<PAGE 2>
VIRGINIA ELECTRIC AND POWER COMPANY
INDEX
-----
Page
Number
------
PART I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Statements of Income -
Nine Months Ended September 30, 1998
and 1997 3
Consolidated Balance Sheets -
September 30, 1998 and December 31, 1997 4-5
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1998
and 1997 6
Notes to Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11-21
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 21
PART II. Other Information
Item 1. Legal Proceedings 22
Item 5. Other Information 22
Regulation 22
Rates 22-23
Future Sources of Power 23
Item 6. Exhibits and Reports on Form 8-K 23
<PAGE>
<PAGE 3>
VIRGINIA ELECTRIC AND POWER COMPANY
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
--------- --------- --------- ---------
(Millions) (Millions)
<S> <C> <C> <C> <C>
REVENUES:
Electric service $ 1,253.1 $ 1,236.6 $ 3,092.7 $ 3,233.6
Other 1,358.7 261.7 2,336.9 488.1
--------- --------- --------- ---------
2,611.8 1,498.3 5,429.6 3,721.7
--------- --------- --------- ---------
EXPENSES:
Fuel, net 1,507.7 493.4 2,824.8 1,104.3
Purchased power capacity, net 216.7 198.2 601.0 542.1
Impairment of regulatory assets 28.3 158.6 31.1
Operations and maintenance 223.8 192.9 627.3 615.7
Depreciation and amortization 134.3 130.0 370.7 392.2
Amortization of terminated
construction project costs 8.7 8.6 26.0 25.8
Taxes other than income 87.5 68.1 230.1 202.6
--------- --------- --------- ---------
Total 2,178.7 1,119.5 4,838.5 2,913.8
--------- --------- --------- ---------
Income from operations 433.1 378.8 591.1 807.9
Other income (loss) (34.9) 8.4 (39.3) 18.5
--------- --------- --------- ---------
Income before interest and income taxes 398.2 387.2 551.8 826.4
--------- --------- --------- ---------
Interest and related charges:
Interest expense, net 74.5 75.4 233.7 227.1
Distributions - preferred
securities of subsidiary trust 2.7 2.7 8.2 8.2
--------- --------- --------- ---------
Total 77.2 78.1 241.9 235.3
Income before income taxes 321.0 309.1 309.9 591.1
Income taxes 115.1 108.0 125.4 207.4
--------- --------- --------- ---------
Net income 205.9 201.1 184.5 383.7
Preferred dividends 8.9 9.0 26.7 26.7
--------- --------- --------- ---------
Balance available for Common Stock $ 197.0 $ 192.1 $ 157.8 $ 357.0
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<PAGE 4>
VIRGINIA ELECTRIC AND POWER COMPANY
CONSOLIDATED BALANCE SHEETS
Assets
(Unaudited)
September 30, December 31,
1998 1997*
------------- -------------
(Millions)
CURRENT ASSETS:
Cash and cash equivalents $ 45.5 $ 36.0
Accounts receivable:
Customer accounts receivable, net 502.7 462.4
Other 108.0 105.1
Accrued unbilled revenues 224.5 245.1
Materials and supplies:
Plant and general 143.7 145.2
Fossil fuel 92.5 67.4
Commodity contract assets 158.2 40.6
Other 159.9 134.8
------------- -------------
Total current assets 1,435.0 1,236.6
INVESTMENTS:
Nuclear decommissioning trust funds 618.5 569.1
Other 15.5 15.5
------------- -------------
Total net investments 634.0 584.6
DEFERRED DEBITS AND OTHER ASSETS:
Regulatory assets 624.5 757.4
Unamortized debt issuance costs 27.3 24.2
Commodity contract assets 41.1 .3
Other 30.4 50.2
------------- -------------
Total deferred debits and other assets 723.3 832.1
PROPERTY PLANT AND EQUIPMENT:
Plant (includes $383.4 plant under construction in
1998 and $240.9 in 1997) 15,128.9 14,866.4
Less accumulated depreciation 6,150.5 5,743.9
------------- -------------
8,978.4 9,122.5
Nuclear fuel, net 160.4 149.3
------------- -------------
Net utility plant 9,138.8 9,271.8
------------- -------------
Total assets $ 11,931.1 $ 11,925.1
============= =============
The accompanying notes are an integral part of the consolidated financial
statements.
(*) The consolidated balance sheet at December 31, 1997 has been taken from the
audited consolidated financial statements at that date.
<PAGE>
<PAGE 5>
VIRGINIA ELECTRIC AND POWER COMPANY
CONSOLIDATED BALANCE SHEETS
Liabilities and Stockholders' Equity
(Unaudited)
September 30, December 31,
1998 1997*
------------- ------------
(Millions)
CURRENT LIABILITIES:
Securities due within one year $ 350.0 $ 333.5
Short-term debt 77.5 226.2
Accounts payable, trade 686.8 474.9
Payrolls accrued 67.3 77.5
Interest accrued 82.0 95.1
Taxes accrued 111.1 30.5
Commodity contract liabilities 212.6 52.9
Other 188.1 140.2
------------- ------------
Total current liabilities 1,775.4 1,430.8
------------- ------------
LONG-TERM DEBT 3,356.5 3,514.6
------------- ------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 1,535.3 1,607.0
Deferred investment tax credits 225.7 238.4
Commodity contract liabilities 53.3 1.9
Other 172.6 192.3
------------- ------------
Total deferred credits and other
liabilities 1,986.9 2,039.6
COMMITMENTS AND CONTINGENCIES (See Note (b))
COMPANY OBLIGATED MANDATORILY REDEEMABLE
PREFERRED SECURITIES OF SUBSIDIARY TRUST (**) 135.0 135.0
------------- ------------
PREFERRED STOCK:
Preferred stock subject to mandatory redemption 180.0 180.0
------------- ------------
Preferred stock not subject to mandatory
redemption 509.0 509.0
------------- ------------
COMMON STOCKHOLDERS' EQUITY:
Common stock 2,737.4 2,737.4
Other paid-in capital 16.9 16.9
Earnings reinvested in business 1,234.0 1,361.8
------------- ------------
Total common stockholders' equity 3,988.3 4,116.1
------------- ------------
Total liabilities and stockholders' equity $ 11,931.1 $ 11,925.1
============= ============
The accompanying notes are an integral part of the consolidated financial
statements.
(*) The consolidated balance sheet at December 31, 1997 has been
taken from the audited consolidated financial statements at that date.
(**) As described in Note (c) to CONSOLIDATED FINANCIAL STATEMENTS, the 8.05%
Junior Subordinated Notes totaling $139.2 million principal amount constitute
100% of the Trust's assets.
<PAGE>
<PAGE 6>
VIRGINIA ELECTRIC AND POWER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Sept. 30,
1998 1997
-------------------------
Cash flow from (used in) operating activities: (Millions)
<S> <C> <C>
Net income $ 184.5 $ 383.7
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 455.8 481.3
Deferred income taxes 57.1 19.2
Deferred investment tax credits (12.7) (12.7)
Deferred fuel expenses (25.3) 21.0
Deferred capacity expenses (16.2) (25.9)
Impairment of regulatory assets 158.6 31.1
Change in:
Accounts receivable (43.2) (97.2)
Accrued unbilled revenues 20.6 9.7
Materials and supplies (23.6) 1.6
Accounts payable, trade 211.9 (34.7)
Taxes accrued 80.6 160.8
Accrued expenses (23.3) (39.6)
Other 13.2 15.2
------- -----
Net cash flow from operating activities 1,038.0 913.5
------- -----
Cash flow from (used in) financing activities:
Issuance of long-term debt 150.0 270.0
Repayment of short-term debt (148.7) (185.7)
Repayment of long-term debt (292.5) (309.3)
Common Stock dividend payments (285.7) (283.9)
Preferred stock dividend payments (26.7) (26.8)
Distribution-preferred securities of subsidiary trust (8.2) (8.2)
Other (4.7) (3.1)
------- ------
Net cash used in financing activities (616.5) (547.0)
------ ------
Cash flow from (used in) investing activities:
Utility plant expenditures (excluding AFC-other funds) (300.6) (269.9)
Nuclear fuel (excluding AFC-other funds) (70.2) (71.2)
Nuclear decommissioning contributions (37.5) (27.2)
Purchase of assets (20.0)
Other (3.7) 1.6
------ ------
Net cash flow used in investing activities (412.0) (386.7)
------ ------
Increase (decrease) in cash and cash equivalents 9.5 (20.2)
Cash and cash equivalents at beginning of period 36.0 47.9
------- --------
Cash and cash equivalents at end of period $ 45.5 $ 27.7
======= ========
Cash paid during the period for:
Interest (reduced for the cost of
borrowed funds capitalized as AFC) $ 247.3 $ 237.8
Income taxes 153.7 82.4
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<PAGE 7>
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
transacts business under the name Virginia Power in Virginia and under the name
North Carolina Power in North Carolina. It has retail customers (including
governmental agencies) and wholesale customers such as rural electric
cooperatives, power marketers and municipalities and serves more than 80 percent
of Virginia's population. The Company's wholesale power group engages in
off-system wholesale purchases and sales of electricity and purchases and sales
of natural gas beyond the geographic limits of Virginia Power's retail service
territory. Virginia Power has developed a broad array of "non-traditional"
product and service offerings, including energy-related products and services,
instrumentation equipment services, nuclear management and operations services,
power transmission and distribution related services and telecommunications
services through the Company's existing fiber-optic network.
The Company is a wholly owned subsidiary of Dominion Resources, Inc., a
Virginia corporation.
In the opinion of the management of Virginia Power, the accompanying
unaudited consolidated financial statements contain all adjustments, including
normal recurring accruals, necessary to present fairly the financial position as
of September 30, 1998, the results of operations for the three and nine-month
periods ended September 30, 1998 and 1997, and the cash flows for the nine-month
periods ended September 30, 1998 and 1997. Certain amounts in the 1997
consolidated financial statements have been reclassified to conform to the 1998
presentation. The results of operations for the interim period are not
necessarily indicative of the results to be expected for the full year.
The consolidated financial statements include the accounts of the Company and
its subsidiaries, with all significant intercompany transactions and accounts
being eliminated in consolidation.
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.
These financial statements should be read in conjunction with the financial
statements, and notes thereto, included in the Company's Annual Report on Form
10-K for the year ended December 31, 1997.
<PAGE>
<PAGE 8>
VIRGINIA ELECTRIC AND POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(b) Contingencies
Nuclear Insurance
The Price-Anderson Act limits the public liability of an owner of a nuclear
power plant to $9.9 billion for a single nuclear incident. The Company is a
member of certain insurance programs that provide coverage for property damage
to members' nuclear generating plants, replacement power and liability in the
event of a nuclear incident. The Company may be subject to retrospective
premiums in the event of major incidents at nuclear units owned by covered
utilities (including the Company). For additional information, see Note C to
CONSOLIDATED FINANCIAL STATEMENTS included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
Site Remediation
The Environmental Protection Agency (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 $61.8 million to $69.5
million. The Company's proportionate share of the cost is expected to be in the
range of $1.7 million to $2.3 million, based upon allocation formulas and the
volume of waste shipped to the sites. The Company has accrued adequate reserves
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 generally seeks to recover its costs associated with
environmental remediation from third party insurers. At September 30, 1998, no
pending or possible claims have been recognized as an asset or offset against
recorded obligations of the Company.
For additional information regarding Contingencies, see Note Q to
CONSOLIDATED FINANCIAL STATEMENTS included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
(c) 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
$135.0 million, representing preferred beneficial interests and 97% beneficial
ownership in the assets held by VP Capital Trust.
Virginia Power issued $139.2 million of its 1995 Series A, 8.05% Junior
Subordinated Notes (the Notes) in exchange for the $135.0 million realized from
the sale of the preferred securities and $4.2 million of common securities of VP
Capital Trust. 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.
(d) Preferred Stock
As of September 30, 1998, there were 1,800,000 and 5,090,140 issued and
outstanding shares of preferred stock subject to mandatory redemption and
preferred stock not subject to mandatory redemption, respectively. There is a
total of 10,000,000 authorized shares of the Company's preferred stock.
<PAGE>
<PAGE 9>
VIRGINIA ELECTRIC AND POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(e) Virginia Rates
On June 8, 1998 Virginia Power, the Staff of the Virginia State Corporation
Commission (Virginia Commission), the office of the Virginia Attorney General,
the Virginia Committee for Fair Utility Rates and the Apartment and Office
Building Association of Metropolitan Washington joined in an agreement to settle
the Company's then pending rate proceedings before the Virginia Commission. The
Virginia Commission by Order dated August 7, 1998, adopted the settlement with
only a minor redistribution of the agreed rate reduction among customer classes.
The settlement defines a new regulatory framework for the Company's
transition to electric competition. The major provisions of the settlement are
as follows:
o A two-phased base rate reduction: $100 million per annum beginning March 1,
1998 with one additional $50 million per annum reduction beginning March 1,
1999;
o A base rate freeze through February 28, 2002 unless a change is necessary to
protect the legitimate interests of the Company, its shareholders or
ratepayers;
o An immediate, one-time refund of $150 million for the period March 1, 1997
through February 28, 1998;
o A discontinuation of deferral accounting for purchased power capacity
expenses effective February 28, 1998;
o A write-off of a minimum of $220 million of regulatory assets in addition to
normal amortization thereof during the base rate freeze period;
o An incentive mechanism through February 28, 2002 for earnings above the
following return on equity (ROE) benchmarks: 10.5% in 1998; after 1998 -
30-year Treasury bond rates plus 450 basis points. For rate incentive
mechanism purposes, all earnings up to the ROE benchmark would benefit the
Company's shareholder. Any earnings above the benchmark would be allocated
one-third to the Company's shareholder and two-thirds to the $220 million
write-off of regulatory assets; except that all earnings above the ROE
benchmark plus 270 basis points (initially 13.2%), would be allocated to
the write-off of regulatory assets.
<PAGE>
<PAGE 10>
VIRGINIA ELECTRIC AND POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
As a result of the requirement to write-off a minimum of $220 million of
regulatory assets in addition to normal amortization thereof during the rate
freeze period, the Company performed an impairment review in accordance with
SFAS No. 71, Accounting for the Effects of Certain Types of Regulation. Based on
the uncertainty of the Company's earnings potential during the rate freeze
period, management could no longer conclude that recovery of the $220 million is
probable, i.e., that earnings above its authorized rate of return would be
available to offset the $220 million write-off of regulatory assets.
Accordingly, the Company charged $158.6 million to second quarter 1998 earnings,
which when combined with the reserve for accelerated cost recovery accrued in
1996 and 1997, provides for the impairment of regulatory assets resulting from
the settlement. See Note P to CONSOLIDATED FINANCIAL STATEMENTS included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
Substantially all customer refunds required by the settlement had been made
as of October 31, 1998.
(f) Recently Issued Accounting Standards
During 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive
Income. This statement is effective for fiscal years beginning after December
15, 1997. For the nine-month periods ended September 30, 1998 and 1997, the
Company did not have any material items of other comprehensive income as defined
in SFAS No. 130.
<PAGE>
<PAGE 11>
VIRGINIA ELECTRIC AND POWER COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results
of Operations contains "forward-looking statements" as defined by the Private
Securities Litigation Reform Act of 1995, including (without limitation)
discussions as to expectations, beliefs, plans, objectives and future financial
performance, or assumptions underlying or concerning matters discussed in this
document. These discussions, and any other discussions, including certain
contingency matters (and their respective cautionary statements) discussed
elsewhere in this report, that are not historical facts, are forward-looking
and, accordingly, involve estimates, projections, goals, forecasts, assumptions
and uncertainties that could cause actual results or outcomes to differ
materially from those expressed in the forward-looking statements.
Some important factors that could cause actual results or outcomes to differ
materially from those discussed in the forward-looking statements include
current governmental policies and regulatory actions (including those of the
Federal Energy Regulatory Commission (FERC), the Environmental Protection Agency
(EPA), the Nuclear Regulatory Commission, the Virginia State Corporation
Commission and the North Carolina Utilities Commission, industry and rate
structure, operation of nuclear power facilities, acquisition and disposal of
assets and facilities, operation and storage facilities, recovery of the cost of
purchased power, nuclear decommissioning costs, the ability of the Company, its
suppliers, and its customers to successfully address Year 2000 compliance
issues, and present or prospective wholesale and retail competition. The
business and profitability of Virginia Power are also influenced by economic and
geographic factors including political and economic risks, changes in and
compliance with environmental laws and policies, weather conditions and
catastrophic weather-related damage, competition for retail and wholesale
customers, pricing and transportation of commodities, exposure to changes in the
fair value of commodity contracts, market demand for energy, inflation, capital
market conditions, unanticipated changes in operating expenses and capital
expenditures, competition for new energy development opportunities,
counter-party credit risk and legal and administrative proceedings. All such
factors are difficult to predict, contain uncertainties that may materially
affect actual results, and may be beyond the control of Virginia Power. New
factors emerge from time to time and it is not possible for management to
predict all such factors, nor can it assess the impact of each such factor on
the business of the Company.
Any forward-looking statement speaks only as of the date on which such
statement is made, and Virginia Power undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made.
<PAGE 12>
VIRGINIA ELECTRIC AND POWER COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Liquidity and Capital Resources
Operating activities resulted in $124.5 million increased cash flow for the
nine-month period ended September 30, 1998 as compared to the same period in
1997. This increase was primarily attributable to trading activities of the
Company's wholesale power group. Internal generation of cash exceeded the
Company's capital requirements during the first nine months of 1998 and 1997.
Financing activities for the first nine months of 1998 resulted in a net cash
outflow of $616.5 million as follows:
Nine Months ending September 30,
1998 1997
---- ----
(Millions)
Issuance of long-term debt $ 150.0 $ 270.0
Repayment of short-term debt (148.7) (185.7)
Repayment of long-term debt (292.5) (309.3)
Common Stock dividend payments (285.7) (283.9)
Preferred stock dividend payments (26.7) (26.8)
Distribution-preferred securities of subsidiary
trusT (8.2) (8.2)
Other (4.7) (3.1)
------- --------
Total $ (616.5) $ (547.0)
======= ========
There are currently three shelf registration statements effective with the
Securities and Exchange Commission from which the Company can obtain additional
debt capital. The remaining principal amount of debt that can be issued under
these registrations totals $765 million. An additional capital resource of $100
million in preferred stock also is registered with the Securities and Exchange
Commission.
On June 17, 1998, the Company issued $150 million of its 1998 Series A 7.15%
Senior Notes, due June 30, 2038. The proceeds from the sale of these notes and
cash provided by operating activities were used to fund second quarter 1998
mandatory maturities totaling $217.5 million. Third quarter mandatory maturities
totaled $75 million which were funded using cash provided by operating
activities.
The Company has a commercial paper program that is supported by two credit
facilities totaling $500 million. Proceeds from the sale of commercial paper are
primarily used to provide working capital. Net borrowings under the program were
$77.5 million at September 30, 1998.
<PAGE>
<PAGE 13>
VIRGINIA ELECTRIC AND POWER COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Investing activities for the first nine months of 1998 resulted in a net cash
outflow of $412 million as follows:
<TABLE>
<CAPTION>
Nine Months ending September 30,
1998 1997
---- ----
(Millions)
<S> <C> <C>
Utility plant expenditures (excluding AFC-other funds) $ (300.6) $ (269.9)
Nuclear fuel (excluding AFC-other funds) (70.2) (71.2)
Nuclear decommissioning contributions (37.5) (27.2)
Purchase of assets (20.0)
Other (3.7) 1.6
---------- ----------
Net cash flow used in investing activities $ (412.0) $ (386.7)
========== ==========
</TABLE>
Of the construction expenditures, the Company spent approximately $223.3 million
on transmission and distribution projects, $28.8 million on production projects
and $48.5 million on support equipment and facilities.
Capital Requirements
The Company has filed for approval with the Virginia Commission to construct
six combustion turbines to meet a portion of anticipated load growth beginning
in the year 2000. Each of the combustion turbines would have a generating
capacity of 150 MW for a total combined capacity of 900 MW (summer rating).
Total construction cost for the six units is projected to be in the range of
$280 to $300 million. Four of the units would be built in Fauquier County,
Virginia for use beginning midyear 2000. The remaining two units would be built
in Caroline County, Virginia for use beginning midyear 2001. See Future Sources
of Power under Part II OTHER INFORMATION for information on the regulatory
approval process.
<PAGE>
<PAGE 14>
VIRGINIA ELECTRIC AND POWER COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Results of Operations
Revenues changed from the same period in the prior year primarily due to the
following:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1998 vs. 1997 September 30, 1998 vs. 1997
--------------------------- ---------------------------
(Millions) (Millions)
<S> <C> <C>
Weather $ 50.8 $ 44.7
Customer growth 14.7 32.5
Base rate variance (32.3) (218.3)
Fuel rate variance (43.1) (92.8)
Other retail 18.4 89.0
----------- -----------
Total retail 8.5 (144.9)
Other electric service 8.0 4.0
----------- -----------
Total electric service 16.5 (140.9)
Revenue - Other
Wholesale - power marketing 1,012.5 1,520.2
Natural gas 79.3 318.1
Other, net 5.2 10.5
----------- -----------
Total revenue - other 1,097.0 1,848.8
----------- -----------
Total revenue $ 1,113.5 $ 1,707.9
=========== ===========
</TABLE>
Electric service revenue includes sales to retail customers in our service
territory at rates authorized by the Virginia and North Carolina commissions and
sales to cooperatives and municipalities at wholesale rates authorized by FERC.
The primary factor affecting this revenue in the first nine months of 1998 was a
rate refund and rate reduction arising from settlement of the Company's rate
proceedings before the Virginia Commission. See Virginia Rates under Note (e) to
CONSOLIDATED FINANCIAL STATEMENTS. In addition, this revenue was also affected
by weather, customer growth and fuel rates.
Weather - Sales attributable to weather increased by $50.8 million and $44.7
million for the three and nine-month periods, respectively, in 1998 as
compared to 1997. This increase resulted primarily from increased customer
usage for cooling due to warmer weather during the third quarter of 1998, as
compared to the third quarter of 1997. For the nine month period comparison,
the third quarter increase in weather-related sales was partially offset by
reduced customer usage for heating due to mild weather in the first quarter
of 1998, as compared to the first quarter of 1997.
Customer growth - Sales resulting from new customer connections increased our
revenue by $14.7 million and $32.5 million for the three-month and nine-month
periods ending September 30, 1998 as compared to the same periods in 1997.
Fuel rates - The decrease in fuel rate revenue is attributable to lower fuel
rates that went into effect December 1, 1997 and an additional reduction
effective March 1, 1998. These reductions decreased fuel revenues by
approximately $43.1 million for the three months ended September 30, 1998 and
$92.8 million for the nine months ended September 30, 1998.
<PAGE>
<PAGE 15>
VIRGINIA ELECTRIC AND POWER COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Heating and cooling degree-days for the third quarter were as follows:
1998 1997 Normal
---- ---- ------
Heating degree days 6 10 18
Percentage change compared to
prior year (40.0)% 42.9%
Cooling degree days 1,148 973 1,072
Percentage change compared to
prior year 18.0% 10.4%
Heating and cooling degree-days for the first nine months were as follows:
1998 1997 Normal
---- ---- ------
Heating degree days 2,035 2,334 2,431
Percentage change compared to
prior year (12.8)% (14.0)%
Cooling degree days 1,612 1282 1,521
Percentage change compared to
prior year 25.7% (5.0)%
Customer kilowatt-hour sales changed as follows:
Three Months Nine Months
Ended Ended
September 30, September 30,
1998 vs. 1997 1998 vs. 1997
----------------- ---------------
Residential 12.5% 5.8%
Commercial 6.4% 7.4%
Industrial 2.1% 1.4%
Public street &
highway lighting 1.6% 2.2%
Public authorities .9% 5.1%
Total retail sales 7.1% 5.4%
Wholesale - system 2.6% .8%
Wholesale - power
marketing 249.5% 274.1%
Total electric sales 84.4% 61.2%
The overall increase in kilowatt-hour sales reflects the success of our
wholesale power marketing efforts and increased sales resulting from customer
growth.
Other revenue includes sales of electricity beyond our service territory,
natural gas, nuclear consulting services, energy management services and other
revenue. The increase in revenue for the three and nine-month periods ended
September 30, 1998, as compared to the same periods in 1997, is primarily due to
our marketing of electricity and natural gas beyond our service territory. The
wholesale power marketing revenue reflects an increased volume of transactions
as well as higher electricity prices during the third quarter of 1998. Wholesale
electricity prices were higher during the summer months of 1998 as a result of
seasonal demand and temporary shortage of supply in selected markets in which
the Company participates.
<PAGE>
<PAGE 16>
VIRGINIA ELECTRIC AND POWER COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Expenses changed from the same period in the prior year primarily due to the
following:
Fuel, net increased, as compared to the three-month and nine-month periods
ended September 30, 1997, primarily due to the cost of the power marketing and
natural gas sales which reflects increased purchases of energy from other
wholesale power suppliers and purchases of natural gas.
Purchased power capacity, net increased for the three-month and nine-month
periods ended September 30, 1998, as compared to the same periods in 1997, due
to (1) the discontinuance of deferral accounting for such expenses and (2)
increased expenses associated with the restructuring of certain contracts. The
nine months ended September 30, 1998 was also impacted by the write-off of the
deferred capacity expense balance based on the settlement of the Company's rate
proceedings before the Virginia Commission. See Virginia Rates under Note (e) to
CONSOLIDATED FINANCIAL STATEMENTS.
Impairment of regulatory assets represents the recognition of the Company's
settlement of rate proceedings before the Virginia Commission. See Virginia
Rates under Note (e) to CONSOLIDATED FINANCIAL STATEMENTS. The amount reported
for 1997 represents accelerated cost recovery reserve accruals for expected
adjustments to regulatory assets. See Note P to CONSOLIDATED FINANCIAL
STATEMENTS included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1997.
Operations and maintenance increased for the three-month period ended
September 30, 1998, as compared to the same period in 1997, primarily due to (1)
scheduled maintenance in 1998 at the Company's North Anna Unit 1 nuclear power
station, (2) costs to repair storm damage caused by hurricane Bonnie in 1998,
and (3) recognition of employee severance costs from continuing organizational
changes.
Depreciation and amortization for the nine months ended September 30, 1998
decreased primarily due to adjustments to the provision for depreciation and
decommissioning expenses for the period March 1, 1997 through June 30, 1998, to
reflect terms of the Company's settlement of Virginia rate proceedings. See
Virginia Rates under Note (e) to CONSOLIDATED FINANCIAL STATEMENTS.
Taxes other than income increased for the three-month and nine-month periods
ended September 30, 1998 primarily due to increased taxes associated with the
Company's wholesale power and natural gas marketing business.
Other income decreased for the three-month and nine-month periods ended
September 30, 1998, as compared to the same periods in 1997, primarily due to
unrealized net losses associated with changes in the estimated fair value of
natural gas and electricity commodity contracts held for trading purposes.
Whether such losses will ultimately be realized is dependent on future movement
in commodity prices and the extent to which the Company satisfies sales
commitments using available Company generation and purchased power resources
rather than market purchases.
Income taxes decreased for the nine-month period ended September 30, 1998, as
compared to the same period in 1997, primarily as a result of the income tax
provisions associated with the rate refund and impairment of regulatory assets
resulting from the Company's settlement of Virginia rate proceedings. See
Virginia Rates under Note (e) to CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
<PAGE 17>
VIRGINIA ELECTRIC AND POWER COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Contingencies
For information on contingencies, see Note (b) to CONSOLIDATED FINANCIAL
STATEMENTS.
Future Issues
Competition
With reference to the proceeding at the Virginia Commission regarding the
establishment of independent system operators (ISOs), regional power exchanges
(RPXs) and retail access pilot programs, Virginia Power filed a report on
November 2, 1998, describing the details, objectives and characteristics of its
proposed retail access pilot program.
Utility Rate Regulation
For information about the Company's Virginia jurisdictional rate proceeding
and settlement thereof, see Virginia Rates under Note (e) to CONSOLIDATED
FINANCIAL STATEMENTS.
Clean Air Act Compliance
As a result of periodic evaluation and planning for compliance with the Clean
Air Act's SO2 emissions reduction program, the Company has determined that it
may be appropriate to make additional capital expenditures for SO2 emission
control equipment during the period 1999 through 2002. Whether this strategy is
ultimately adopted could be influenced by near term changes in the regulatory
environment, availability of allowances and emission control technology.
In September 1998, the Environmental Protection Agency (EPA) adopted a rule
which requires 22 states, including Virginia, North Carolina, and West Virginia
to reduce and cap emissions of nitrogen oxides (NOx) beginning in 2003. NOx is a
gaseous by-product of fossil fuel combustion. Significant sources of NOx are
automobiles and industrial processes, including fossil-fired electric
generation.
The rule allows each state to determine how to achieve the required reduction
in emissions. By September 1999, each affected state must develop and submit a
plan to the EPA that details how the state will achieve its emission cap. If
states adopt the approach suggested by the EPA, it is probable the Company would
incur major capital expenditures, in the range of $500 million to $700 million,
to install additional emission control equipment. We will closely monitor the
development of NOx emission cap plans by the various states.
NRC Nuclear Decommissioning Rule
Virginia Power currently meets the Nuclear Regulatory Commission (NRC)
financial assurance requirements for nuclear decommissioning by using external
trusts to collect funds for the ultimate decommissioning of the Company's four
nuclear power reactors (i.e., sinking fund method). On September 22, 1998, the
NRC issued its Final Rule on Financial Assurance Requirements for
Decommissioning Nuclear Power Reactors (the Final Rule) to be effective November
23, 1998. The Final Rule amends current NRC requirements by limiting the use of
the sinking fund method to only that portion of a licensee's collections for
decommissioning that are recovered through either traditional cost of service
regulation or through non-bypassable charges.
<PAGE>
<PAGE 18>
VIRGINIA ELECTRIC AND POWER COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The NRC has identified the following alternative methods of providing
financial assurance where the sinking fund method is not permitted by the Final
Rule:
o Prepayment of a prescribed amount,
o Parent company guarantee,
o Purchase of insurance or a surety instrument (e.g., line of credit or
letter of credit),
o Contractual transfer of the obligation to customers,
o Other mechanisms, as determined by the NRC upon review of the specific
circumstances, that provide equivalent financial assurance.
Virginia Power is assessing the extent to which it will be required to use
alternative methods of financial assurance under the Final Rule and believes
that the sinking fund method will continue to be available for most of its
decommissioning obligation.
Recently Issued Accounting Standards
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. The statement establishes accounting and
reporting standards requiring that derivative instruments (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at fair value. The statement
requires that changes in a derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement and requires that a company
formally document, designate, and assess the effectiveness of transactions that
receive hedge accounting.
SFAS No. 133 is effective for the Company beginning in 2000; however, it may
be adopted earlier. It cannot be applied retroactively to financial statements
of prior periods.
The Company has not yet quantified the impacts of adopting SFAS No. 133 on
its financial statements and has not determined the timing of, or method of,
adoption. However, adoption of the statement could increase volatility in
earnings and other comprehensive income.
Year 2000 Compliance
Virginia Power is preparing its computer systems and computer-driven
equipment and devices for the year 2000. Virtually every computer operation
could be affected in some way by the rollover of the two-digit year value from
99 to 00. Systems or devices that use computer chips that do not properly
recognize date-sensitive information when the year changes to 2000 could
generate erroneous data or fail.
If not properly addressed, the year 2000 problem could result in computer and
other equipment failures both within the Company and at third parties with which
the Company transacts business. Because of the extensive use of technology
throughout our business and the businesses of our suppliers and customers,
failures in any of these areas could impact our business.
The Company's objective is to be year 2000 ready. "Year 2000 ready" means
that critical systems, devices,
<PAGE>
<PAGE 19>
VIRGINIA ELECTRIC AND POWER COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
applications and business relationships have been evaluated and are expected to
be suitable for continued use into and beyond the year 2000.
The Company has organized formal year 2000 project teams to identify, correct
or reprogram and test its systems for year 2000 readiness. These teams are
addressing all critical aspects of our business, including information systems,
embedded systems and external relationships with business partners. Information
systems encompass traditional information technology systems such as financial
reporting, accounting and purchasing systems. Embedded systems primarily
represent specialized computers used to control, monitor or assist the
operations of equipment. External relationships include suppliers and other
service providers. The teams are overseen by company officers who report
regularly to the Board of Directors.
Our year 2000 program involves completing four major phases: (1) inventorying
of computer systems and embedded systems that could potentially be affected by
the year 2000 problem; (2) screening to determine date sensitivity within the
inventoried systems; (3) impact assessment and planning for remediation and
contingencies; and (4) remediation and testing. We have completed the first two
phases. Approximately 83% of our systems identified as critical to Company
operations were year 2000 ready at September 30, 1998. We anticipate that 99% of
such systems will be year 2000 ready in July 1999 with 100% completion scheduled
for October 1999.
In addition to these internal efforts, the Company is assessing the state of
readiness of its major suppliers and service providers. We have implemented
initiatives to prevent the future procurement of non-2000 compliant technology.
We are also meeting with the non-utility power producers who supply us energy
under power purchase contracts to share information about year 2000 readiness.
Based on our efforts to date, we expect year 2000 costs to be within the
range of $40 million to $50 million, of which $7.8 million has been expended to
date. The range is primarily a function of our ongoing evaluation as to whether
certain systems and equipment will be corrected or replaced, which is dependent
on information being obtained and/or assessed from critical suppliers and other
significant external sources. Maintenance and modification costs will be
expensed as incurred, while the costs of new software and hardware will be
capitalized and amortized over the asset's useful life. These costs do not
include capital expenditures for major information systems that were initiated
for normal business reasons without regard to year 2000 issues.
Congress has directed the Department of Energy (DOE) to ascertain the
readiness of all electric utilities for year 2000. DOE has in turn asked the
North American Electric Reliability Council (NERC) to coordinate and monitor
year 2000 activities in the electric industry. NERC is comprised of ten regional
councils whose members represent the major bulk power suppliers of the electric
industry. The Company is actively participating with other NERC members,
including our local regional council, the Southeastern Electric Reliability
Council (SERC). Of primary importance is the reliability of the transmission
network for delivery of energy to customers. This reliability is achieved by
participation of many utilities in the supply to, and control of, their
individually owned portions of the network. The failure of an individual utility
to manage successfully its transmission network could affect this reliability
which could have a material adverse effect on the Company.
Coordinated contingency planning efforts are underway at the Company, at SERC
and at NERC to ensure continuity of operations into and beyond the year 2000.
Contingency planning involves an ongoing evaluation of our internal efforts as
well as the efforts of critical third parties to successfully address the year
2000 issue. As part of this process, the Company must consider and evaluate
reasonably likely worst case scenarios and their impact on critical business
<PAGE>
<PAGE 20>
VIRGINIA ELECTRIC AND POWER COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
processes.
Based on our preliminary evaluations, which include SERC and NERC efforts to
date, reasonably likely worst case scenarios could include:
o minor variations in voltage or frequency with no significant effect
on electric service;
o temporary loss of a portion of generation capacity, including possibly
non-utility generators; however, such loss is not expected to be
sufficient to adversely affect electric service;
o temporary loss of some telecommunications functionality and other
services with no impact expected on electric service; and
o temporary loss of a small portion of commercial and industrial
customer loads.
The Company cannot estimate or predict the potential adverse consequences, if
any, that could result from a third party's failure to effectively address the
year 2000 issue but believes that any impact would be short-term in nature and
would not have a material adverse impact on the Company's business or results of
operations. The objective of the contingency planning process is to mitigate
internal and external risks and assure a continuous and sustained delivery of
electricity to all customers. Based on Company and industry analyses to date, we
do not believe the reasonably likely worst case scenarios identified above will
have a material adverse effect on the Company's business or results of
operations. We plan to have all contingency plans identified and tested prior to
year-end 1999.
The descriptions herein of the elements of the Company's year 2000 effort are
forward-looking statements as defined in the Private Securities Litigation
Reform Act of 1995. Of necessity, this effort is based on estimates of
assessment, remediation, testing and contingency planning activities and
perceived problems not yet identified. There can be no assurance that actual
results will not differ materially from expectations.
Market Risk Sensitive Instruments and Risk Management
Commodity Price Risk
Virginia Power's wholesale power group manages a portfolio of derivative
commodity contracts held for trading purposes. These contracts are sensitive to
changes in the prices of natural gas and electricity. The Company employs
established policies and procedures to manage its risks associated with these
price fluctuations and uses various commodity instruments, such as futures,
swaps and options, to reduce risk by creating offsetting market positions.
One of the techniques commonly used to measure risk in a commodity trading
portfolio is sensitivity analysis, which determines a hypothetical change in the
fair value of the portfolio which would result from an assumed change in the
market prices of the related commodities. The fair value of the portfolio is a
function of the underlying commodity, contract prices and market prices
represented by each derivative commodity contract. For exchange-for-physical
contracts, basis swaps, fixed price forward contracts and options which require
physical delivery of the underlying commodity, market value reflects
management's best estimates considering over-the-counter quotations, time value
and volatility factors of the underlying commitments. Futures contracts and
options on futures contracts are marked to market based on closing exchange
prices.
The Company has determined a hypothetical loss by calculating a hypothetical
fair value for each of the Company's contracts assuming a 10% unfavorable change
in the market prices of the related commodity and comparing it to the
<PAGE>
<PAGE 21>
VIRGINIA ELECTRIC AND POWER COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
fair value of the contracts based on market prices at September 30, 1998. This
hypothetical 10% change in commodity prices would have resulted in a
hypothetical loss of approximately $7.3 million in the fair value of the
Company's natural gas and electricity commodity contracts as of September 30,
1998.
The sensitivity analysis does not include the price risks associated with
utility operations, including those underlying utility fuel requirements. In the
normal course of business, the Company also faces risks that are either
nonfinancial or nonquantifiable. Such risks principally include credit risk,
which is not reflected in the sensitivity analysis above.
Equity Price Risk and Interest Rate Risk
Virginia Power is exposed to fluctuations in interest rates related to debt
securities and prices of marketable equity securities held in its Nuclear
Decommissioning Trusts. In addition, the Company is exposed to interest rate
risk through its use of fixed rate and variable rate debt and preferred
securities as sources of capital. For additional information, see Market Risk
Sensitive Instruments and Risk Management under MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
See Market Risk Sensitive Instruments and Risk Management under MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
<PAGE>
<PAGE 22>
VIRGINIA ELECTRIC AND POWER COMPANY
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
As previously reported, Doswell Limited Partnership filed suits against
Virginia Power in the Circuit Court of the City of Richmond and the United
States District Court for the Eastern District of Virginia alleging Virginia
Power breached two power purchase agreements. These matters have been settled
and the suits dismissed.
Item 5. Other Information
Regulation
Virginia
See Future Issues-Competition under MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS for information on Virginia
Power's filing concerning its retail access pilot program.
On October 30, 1998, the Company and Virginia Power Services, Inc. (VPS)
filed an Application for Approval of Affiliate Transactions with the Virginia
Commission which, among other matters, notified the Commission of the addition
of two of VPS's wholly-owned subsidiaries, Virginia Power Services Energy Corp.,
Inc. (VPSE) and Virginia Power Energy Marketing, Inc. (VPEM) to the Affiliate
Services Agreement approved by the Commission in its Order Granting Approval,
Case No. 970007 dated September 3, 1997. VPS is a wholly-owned subsidiary of the
Company which was formed as a holding company to engage in certain unregulated
businesses. Contemporaneously with the above filing, VPSE and VPEM each filed an
Application for Approval of Affiliate Transactions seeking Commission approval
of certain transfer and operating agreements to be entered into with the
Company.
If approved by the Commission, certain gas and oil inventories currently
held by the Company will be transferred to VPSE together with certain contracts
relating to the transportation and storage of such assets. In addition, VPSE
will provide to the Company certain fuel support services, including
procurement, storage, transportation and risk management services, in connection
with the natural gas and oil inventory used by the Company to fuel its
generation projects (the Fuel Services). VPEM will act as agent for VPSE in
providing the Fuel Services to the Company and will provide similar services to
third parties. Also, upon approval by the Commission, certain gas and oil
inventories currently held by the Company will be transferred to VPEM together
with certain contracts, including contracts governing the purchase, sale,
transportation and storage of fuel and derivative transactions related thereto.
FERC
Regarding the LG&E Westmoreland Southampton (Southampton) proceedings, in
May 1998, FERC denied a rehearing, granted the clarification and accepted
Southampton's 1992 rates subject to a refund to Virginia Power. In June 1998,
Southampton and Virginia Power each filed separate requests for rehearing. On
July 13, 1998, FERC granted both rehearing requests. On August 7, 1998, the
parties reached a settlement in principle. On October 13, 1998, the final
settlement was filed with FERC for its acceptance.
Rates
Virginia
On August 7, 1998, the Virginia Commission approved the settlement of the
consolidated proceeding before the Virginia Commission concerning the Company's
1995 Annual Informational Filing. See Note (e) to CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE 23>
VIRGINIA ELECTRIC AND POWER COMPANY
PART II - OTHER INFORMATION
(Continued)
On September 11, 1998, Virginia Power filed its application with the
Virginia Commission to modify its cogeneration and small power production rates
under Schedule 19. A hearing is scheduled for December 16, 1998.
On October 19, 1998, Virginia Power filed an application with the Virginia
Commission for an increase of $55 million in fuel rates to be effective December
1, 1998. A hearing is scheduled for November 30, 1998.
FERC
In reference to the Standards of Conduct filed in compliance with FERC's
Order No. 889-A, on September 29, 1998, FERC accepted Virginia Power's revised
Standards of Conduct subject to minor modifications, which were agreed to by
Virginia Power.
Future Sources of Power
On August 11, 1998, Virginia Power filed an application with the Virginia
Commission for a Certificate of Public Convenience and Necessity to install five
gas-fired turbine generator units. On October 21, 1998, Virginia Power filed for
approval of another gas-fired turbine generator unit in addition to the five
proposed in August. Four units would be built in Fauquier County for commercial
operation beginning midyear 2000 and the remaining two units would be built in
Caroline County for commercial operation beginning midyear 2001.
The Commission Staff has filed a Motion seeking a ruling as to whether the
Rules Governing the Use of Bidding Programs to Purchase Electricity from Other
Power Suppliers were applicable to Virginia Power's filings. On October 20,
1998, the Commission issued an Order setting a hearing for January 5, 1999 to
decide if the Bidding Rules are applicable and, if so, whether Virginia Power
should be granted an exemption from them.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 -- Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K;
The Company filed a Current Report on Form 8-K dated August 10, 1998,
reporting a final settlement of the consolidated rate proceeding before the
Virginia Commission concerning the Company's transition to electric
competition.
<PAGE 24>
SIGNATURE
Pursuant to the requirements 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
Registrant
November 10, 1998
/S/ J. A. SHAW
-----------------------------
J. A. SHAW
Senior Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> UT
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 9,139
<OTHER-PROPERTY-AND-INVEST> 634
<TOTAL-CURRENT-ASSETS> 1,435
<TOTAL-DEFERRED-CHARGES> 723
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 11,931
<COMMON> 2,737
<CAPITAL-SURPLUS-PAID-IN> 17
<RETAINED-EARNINGS> 1,234
<TOTAL-COMMON-STOCKHOLDERS-EQ> 3,988
180
509
<LONG-TERM-DEBT-NET> 3,356
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 78
<LONG-TERM-DEBT-CURRENT-PORT> 350
0
<CAPITAL-LEASE-OBLIGATIONS> 26
<LEASES-CURRENT> 8
<OTHER-ITEMS-CAPITAL-AND-LIAB> 3,436
<TOT-CAPITALIZATION-AND-LIAB> 11,931
<GROSS-OPERATING-REVENUE> 5,430
<INCOME-TAX-EXPENSE> 125
<OTHER-OPERATING-EXPENSES> 4,839
<TOTAL-OPERATING-EXPENSES> 4,964
<OPERATING-INCOME-LOSS> 466
<OTHER-INCOME-NET> (39)
<INCOME-BEFORE-INTEREST-EXPEN> 427
<TOTAL-INTEREST-EXPENSE> 242
<NET-INCOME> 185
27
<EARNINGS-AVAILABLE-FOR-COMM> 158
<COMMON-STOCK-DIVIDENDS> 286
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 1,038
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
