<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 March 31, 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 April 30, 1998, 171,484 shares of common stock, without par value, of the
registrant were outstanding.
<PAGE 2>
VIRGINIA ELECTRIC AND POWER COMPANY
INDEX
Page
Number
------
PART I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Statements of Income -
Three Months Ended March 31, 1998
and 1997 3
Consolidated Balance Sheets -
March 31, 1998 and December 31, 1997 4-5
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 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 11-16
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 16
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security
Holders 17
Item 5. Other Information 17
Regulation 17
Rates 18
Interconnections 18
Item 6. Exhibits and Reports on Form 8-K 19
<PAGE 3>
<TABLE>
VIRGINIA ELECTRIC AND POWER COMPANY
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
<S> <C>
Three Months Ended
March 31,
1998 1997
----------- --------
(Millions)
Revenues:
Electric service $1,021.4 $1,046.3
Other 414.0 128.5
-------- --------
1,435.4 1,174.8
------- --------
Expenses:
Fuel, net 609.5 329.5
Purchased power capacity, net 180.8 184.4
Operations and maintenance 188.1 200.8
Depreciation and amortization 139.9 131.7
Amortization of terminated
construction project costs 8.6 8.6
Taxes other than income 69.6 71.2
------- --------
Total 1,196.5 926.2
------- --------
Income from operations 238.9 248.6
Other income (4.7) 2.0
-------- --------
Income before interest and income taxes 234.2 250.6
------- --------
Interest and related charges:
Interest expense, net 75.3 77.5
Distributions - preferred
securities of subsidiary trust 2.7 2.7
-------- --------
Total 78.0 80.2
-------- --------
Income before income taxes 156.2 170.4
Income taxes 57.6 60.1
-------- --------
Net income 98.6 110.3
Preferred dividends 8.9 8.8
------- --------
Balance available for Common Stock $ 89.7 $ 101.5
======= ========
The accompanying notes are an integral part of the financial statements.
<PAGE 4>
VIRGINIA ELECTRIC AND POWER COMPANY
CONSOLIDATED BALANCE SHEETS
Assets
(Unaudited)
<CAPTION>
March 31, December 31,
1998 1997
--------- ---------
(Millions)
(*)
CURRENT ASSETS:
Cash and cash equivalents $ 83.3 $ 36.0
Accounts receivable:
Customer accounts receivable, net 431.1 462.4
Other 75.8 108.0
Accrued unbilled revenues 214.8 245.2
Materials and supplies:
Plant and general 148.3 145.2
Fossil fuel 56.7 67.4
Other 128.0 134.7
--------- ---------
Total current assets 1,138.0 1,198.9
--------- ---------
INVESTMENTS:
Nuclear decommissioning trust funds 632.9 569.1
Other 40.9 38.3
--------- ---------
Total net investments 673.8 607.4
--------- ---------
DEFERRED DEBITS AND OTHER ASSETS:
Regulatory assets:
Deferred capacity expenses 69.5 47.3
Other 713.3 729.3
Unamortized debt issuance costs 23.6 24.2
Other 143.7 127.1
--------- ---------
Total deferred debits and other assets 950.1 927.9
--------- ---------
UTILITY PLANT:
Plant (includes $257.3 plant under construction in
1998 and $240.9 in 1997) 14,856.5 14,794.2
Less accumulated depreciation 5,893.4 5,724.3
--------- ---------
8,963.1 9,069.9
Nuclear fuel, net 150.3 149.3
--------- ---------
Net utility plant 9,113.4 9,219.2
--------- ---------
Total assets $11,875.3 $11,953.4
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
(*) The consolidated balance sheet at December 31, 1997 has been derived from
the audited consolidated financial statements at that date.
<PAGE 5>
VIRGINIA ELECTRIC AND POWER COMPANY
CONSOLIDATED BALANCE SHEETS
Liabilities and Stockholders' Equity
(Unaudited)
<CAPTION>
March 31, December 31,
1998 1997
--------- ---------
(Millions)
(*)
CURRENT LIABILITIES:
Securities due within one year $ 373.5 $ 333.5
Short-term debt 79.9 226.2
Accounts payable, trade 417.3 452.0
Customer deposits 45.8 44.6
Payrolls accrued 56.8 77.5
Interest accrued 86.3 95.1
Taxes accrued 95.9 30.5
Other 168.6 160.8
--------- ---------
Total current liabilities 1,324.1 1,420.2
--------- ---------
LONG-TERM DEBT 3,474.9 3,514.6
--------- ---------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 1,607.3 1,607.0
Deferred investment tax credits 234.1 238.4
Deferred fuel expenses 25.9 12.8
Other 279.0 220.3
--------- ---------
Total deferred credits and other liabilities 2,146.3 2,078.5
--------- ---------
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 STOCKHOLDER'S EQUITY:
Common Stock 2,737.4 2,737.4
Other paid-in capital 16.9 16.9
Earnings reinvested in business 1,351.7 1,361.8
--------- ---------
Total common stockholder's equity 4,106.0 4,116.1
--------- ---------
Total liabilities and shareholders' equity $11,875.3 $11,953.4
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
(*) The consolidated balance sheet at December 31, 1997 has been derived 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 6>
VIRGINIA ELECTRIC AND POWER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1998 1997
----------- --------
(Millions)
Cash flow from (to) operating activities:
Net income $ 98.6 $ 110.3
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 168.4 159.5
Allowance for other funds used during construction 0.3 0.4
Deferred income taxes 5.5 13.5
Deferred investment tax credits, net (4.2) (4.2)
Noncash return on terminated construction project costs - pretax (0.7) (1.3)
Deferred fuel expenses 13.1 8.3
Deferred capacity expenses (22.2) (15.8)
Changes in:
Accounts receivable 63.4 (3.9)
Accrued unbilled revenues 30.4 25.9
Materials and supplies 7.6 11.7
Accounts payable, trade (34.7) (60.4)
Accrued expenses 54.1 54.3
Other 45.8 16.4
--------- ---------
Net cash flow from operating activities 425.4 314.7
--------- ---------
Cash flow from (to) financing activities:
Issuance of long-term debt 200.0
Repayment of short-term debt (146.3) (8.6)
Repayment of long-term debt (299.3)
Common Stock dividend payments (99.7) (95.8)
Preferred stock dividend payments (8.8) (8.8)
Distribution-preferred securities of subsidiary trust (2.7) (2.7)
Other 2.4 (2.5)
--------- ---------
Net cash to financing activities (255.1) (217.7)
--------- ---------
Cash flow from (used in) investing activities:
Utility plant expenditures (excluding AFC-other funds) (83.7) (73.9)
Nuclear fuel (excluding AFC-other funds) (20.8) (18.8)
Nuclear decommissioning contributions (21.6) (9.1)
Purchase of assets (20.0)
Other 3.1 1.3
--------- ---------
Net cash flow used in investing activities (123.0) (120.5)
--------- ---------
Increase (Decrease) in cash and cash equivalents 47.3 (23.5)
Cash and cash equivalents at beginning of period 36.0 47.9
--------- ---------
Cash and cash equivalents at end of period $ 83.3 $ 24.4
========= =========
Cash paid during the period for:
Interest (reduced for the net cost of
borrowed funds capitalized as AFC) $ 84.7 $ 78.7
Income taxes 5.3 0.8
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<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 from its operating business units and
subsidiaries, including energy-related products and services, instrumentation
equipment services, nuclear management and operations services, power
distribution related services and telecommunications services through the
Company's existing fiber-optic network.
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 March 31, 1998, the results of operations for the three-month periods ended
March 31, 1998 and 1997, and the cash flows for the three-month periods ended
March 31, 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 on 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 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 $8.9 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.
Virginia Jurisdictional Rates
In March 1997, the Virginia Commission issued an order that Virginia
Power's base rates be made interim and subject to refund as of March 1, 1997.
This order was the result of the Commission Staff's report on its review of
Virginia Power's 1995 Annual Informational Filing (AIF), which concluded that
Virginia Power's present rates would cause Virginia Power to earn in excess of
its authorized return on equity. The Staff found that, for purposes of
establishing rates prospectively, a rate reduction of $95.6 million (including a
one-time adjustment of $29.7 million to Virginia Power's deferred capacity
balance at December 31, 1996) may be necessary in order to realign rates to the
authorized level. Virginia Power filed its alternative regulatory plan (ARP) in
March 1997, based on 1996 financial information. Subsequently, the Commission
consolidated the proceeding concerned with the AIF with the proceeding that
includes the ARP proposed by the Company.
In December 1997, Virginia Power sought to withdraw its ARP, having
concluded that resolution of the cost recovery issues raised by the ARP was
unlikely without General Assembly action. The Commission has agreed that the
Company may withdraw its support of the ARP but has reserved the right to
continue consideration of the ARP as well as other regulatory alternatives. In
addition, the Commission will continue to consider the issues arising out of the
AIF.
On March 24, 1998, the Commission Staff filed its testimony in the
consolidated ARP/AIF proceeding. The Staff recommended a rate reduction of $277
million and proposed an alternative ratemaking plan. The Staff proposed plan
would allow Virginia Power to retain a portion of its earnings above an
authorized return on equity in a reserve account for recovery of stranded costs
when Virginia begins its transition to a competitive market. The Staff proposal
retains the fuel factor as well as deferral accounting for capacity payments.
Other opposing parties in the proceeding have made filings recommending rate
reductions in excess of $200 million. Virginia Power's previous filings in this
proceeding support maintaining rates at current levels. On April 30 1998 the
Virginia Commission issued an order delaying filing of rebuttal testimony to May
18, 1998. Surrebuttal testimony is due June 12 1998, and the hearing is
scheduled to begin on July 9, 1998.
Virginia Power believes that it is extremely important to have a regulatory
plan in place that addresses transition cost issues and other matters
potentially impacting the Company's ability to prepare for a competitive market
and is willing to negotiate with other parties to achieve that result. Virginia
Power, the Staff of the Virginia Commission and the Virginia Attorney General
are engaged in discussions exploring the potential for reaching an acceptable
settlement in the Company's rate proceeding. At this time the Company is unable
to predict whether or not a settlement will be reached.
On May 12, 1998, the Staff of the Virginia Commission filed a Report and
Motion with the Virginia Commission. In its filing, the Staff stated that the
current status of discussions warrant continued efforts to attempt to reach
agreement on significant issues in the proceeding and moved for an order
extending the dates for filing of rebuttal testimony to May 26, 1998, for filing
surrebuttal testimony to June 19, 1998, and for the scheduled public hearing to
begin on July 10, 1998.
Based on pre-filed testimony and settlement discussions to date, it appears
that either a negotiated settlement or further litigation could result in some
level of reduction in the Company's Virginia jurisdictional rates. At this time
the Company is unable to predict the amount of such a reduction or its impact on
the Company's results of operations, cash flows or financial position.
<PAGE 9>
VIRGINIA ELECTRIC AND POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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 a reserve of $1.7
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, Inc. 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, two civil actions have
been instituted against the City of Norfolk and Virginia Power by property
owners who allege that their property has been contaminated by toxic pollutants
originating from one of the coal tar sites now owned by the City of Norfolk and
formerly owned by the Company. The first civil action reached settlement without
trial in September 1997. The remaining plaintiff is seeking compensatory damages
of $2 million and punitive damages of $1 million. It is too early in this case
for the Company to predict the outcome. The Company has filed answers denying
liability. No trial date has been set.
The Company generally seeks to recover its costs associated with
environmental remediation from third party insurers. At March 31, 1998, any
pending or possible claims were not 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 March 31, 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 are a
total of 10,000,000 authorized shares of the Company's preferred stock.
<PAGE 10>
VIRGINIA ELECTRIC AND POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(e) Virginia Fuel Factor
On October 31, 1997, Virginia Power filed with the Virginia Commission its
application for a reduction of $45.6 million in its fuel cost recovery factor
for the period December 1, 1997 through November 30, 1998. The reduction became
effective on an interim basis on December 1, 1997. Subsequently, as a result of
amendments to two non-utility generation contracts, the Company proposed two
additional reductions of approximately $30.2 million and $18 million for the
same period, bringing the total proposed fuel factor reduction to $93.8 million.
Both additional reductions were approved on an interim basis, effective March 1,
1998.
On April 16, 1998, the Virginia Commission completed its annual review of
Virginia Power's fuel factor, providing an additional reduction to the Company's
fuel recovery rate to become effective May 1, 1998. The new fuel factor of 1.050
cents per kWh represents an additional annual fuel factor revenue decrease of
$19.2 million, bringing the total fuel factor revenue reduction to $113 million.
On April 24, 1998, the Commission entered an Order Establishing Fuel Factor
affirming the new fuel factor.
(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 three-month periods ended March 31, 1998 and
1997, the Company did not have any material items of other comprehensive income
as defined in SFAS No. 130.
<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 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, 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, market demand
for energy, inflation, capital market conditions, unanticipated changes in
operating expenses and capital expenditures, competition for new energy
development opportunities 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 or statements to reflect events or circumstances after
the date on which such statement is made.
Liquidity and Capital Resources
Operating activities resulted in $110.7 million increased cash flow for the
three-month period ended March 31, 1998 as compared to the same period in 1997.
This increase was primarily attributable to trading activities of the Company's
wholesale power group, offset in part by the impact of mild weather on our
traditional retail electricity business. Internal generation of cash exceeded
the Company's capital requirements during the first quarters of 1998 and 1997.
Financing activities for the first three months of 1998 resulted in a net
cash outflow of $255.1 million.
Cash from (to) financing activities was as follows:
<TABLE>
<CAPTION>
<S> <C>
Three Months Ended
March 31,
1998 1997
---------- --------
(Millions)
Issuance of long-term debt $ 200.0
Repayment of short-term debt $(146.3) (8.6)
Repayment of long-term debt and preferred stock (299.3)
Payment of dividends (108.5) (104.6)
Other (0.3) (5.2)
-------- --------
Total $(255.1) $(217.7)
======== ========
</TABLE>
<PAGE 12>
VIRGINIA ELECTRIC AND POWER COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
We currently have three shelf registration statements effective with the
Securities and Exchange Commission from which we can obtain additional debt
capital. The remaining principal amount of debt that can be issued under these
registrations totals $915 million. An additional capital resource of $100
million in preferred stock also is registered with the Securities and Exchange
Commission.
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
$79.9 million at March 31, 1998.
Investing activities for the first three months of 1998 resulted in a net
cash outflow of $123 million primarily due to $83.7 million of construction
expenditures, $20.8 million of nuclear fuel expenditures and approximately $21.6
million of contributions to nuclear decommissioning trusts. Of the construction
expenditures, the Company spent approximately $54.8 million on transmission and
distribution projects, $9.9 million on production projects and $19 million on
general support facilities.
Cash from (used in) investing activities was as follows:
<TABLE>
<CAPTION>
<S> <C>
Three Months Ended
March 31,
1998 1997
---------- --------
(Millions)
Utility plant expenditures (excluding AFC-other funds) $ (83.7) $ (73.9)
Nuclear fuel (excluding AFC-other funds) (20.8) (18.8)
Nuclear decommissioning contributions (21.6) (9.1)
Purchase of assets (20.0)
Other 3.1 1.3
------- -----
Net cash flow used in investing activities $(123.0) $(120.5)
======== ========
Results of Operations
Revenue changed from the same period in the prior year primarily due to the
following:
<CAPTION>
Three Months Ended March 31,
1998 vs. 1997
(Millions)
Revenue - Electric Service
Customer growth $ 10.9
Weather (24.4)
Base rate variance (4.1)
Fuel rate variance (14.2)
Other retail, net 22.4
------
Total retail (9.4)
Other electric service (15.5)
Total electric service (24.9)
Revenue - Other
Wholesale - power marketing 134.5
Natural gas 150.9
Other, net 0.1
------
Total revenue - other 285.5
Total revenue $260.6
</TABLE>
<PAGE 13>
VIRGINIA ELECTRIC AND POWER COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Electric service revenue consists of 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 factors affecting this revenue in the first
three months of 1998 were customer growth, weather and fuel rates.
Customer growth - There were 50,701 new customer connections in the twelve
months ended March 31, 1998. These additional customers increased our
revenue by $10.9 million in the first quarter of 1998 compared to the same
period in 1997.
Weather - The mild weather in the first quarter of 1998 caused customers to
use less electricity for heating, which reduced retail revenue by $24.4
million from the previous year. Heating degree days were as follows:
<TABLE>
<CAPTION>
1998 1997 Normal
---- ---- ------
<S> <C>
Heating degree days 1,739 1,856 2,105
Percentage change compared to prior year (6.3)% (20.5)%
Fuel rates - The decrease in fuel rate revenue is attributable to lower
fuel rates which went into effect December 1, 1997 and an additional
reduction effective March 1, 1998. These reductions decreased recovery of
fuel costs by approximately $14.2 million in the first quarter of 1998.
Customer kilowatt-hour sales changed as follows:
<CAPTION>
Three Months Ended March 31,
1998 vs. 1997
----------------------------
Residential (2.7)%
Commercial 4.2
Industrial 4.6
Public authorities 2.8
Total retail sales 1.3
Wholesale - system (27.0)
Wholesale - power marketing 171.8
Total sales 26.8
</TABLE>
The overall increase in kilowatt-hour sales reflects the success of our
wholesale power marketing efforts, offset in part by the impact of mild weather
on residential sales.
Other revenue includes sales of electricity beyond our service territory,
natural gas, nuclear consulting services, energy management services and other
revenue. The growth in power marketing and natural gas sales revenue for the
three-month period ended March 31, 1998, as compared to the same period in 1997,
is primarily due to our success at marketing electricity and natural gas beyond
our service territory.
Fuel, net increased as compared to the first quarter of 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.
<PAGE 14>
VIRGINIA ELECTRIC AND POWER COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Operations and maintenance decreased for the three-month period ended March
31, 1998, as compared to the same period in 1997, as a result of scheduled
maintenance in 1997 at the Company's Surry Unit 1 nuclear power station and also
due to reductions in expenses attributable to the Company's strategic
initiatives.
Contingencies
For information on contingencies, see Note (b) to CONSOLIDATED FINANCIAL
STATEMENTS.
Future Issues
Competition
In the 1998 Session, the Virginia General Assembly passed House Bill No.
1172 (HB1172) to establish a schedule for Virginia's transition to retail
competition in the electric utility industry. The Company actively supported
HB1172, which passed both houses of the General Assembly in amended form and was
signed into law by Virginia's Governor in April 1998. The law, which becomes
effective July 1, 1998, requires the following:
o establishment of one or more independent system operators (ISO) and one
or more regional power exchanges (RPX) for Virginia by January 1, 2001;
o deregulation of generating facilities beginning January 1, 2002;
o transition to retail competition to begin on January 1, 2002, with retail
o competition to begin on January 1, 2004;
o recovery of just and reasonable net stranded costs; and,
o appropriate consumer safeguards related to stranded costs and
consideration of stranded benefits.
While the bill establishes a timeline for the transition to competition in
Virginia, a detailed plan to implement that transition must be developed through
future legislative and regulatory action. The Company is unable at this time to
predict the timing or details of such a plan.
For additional information, see Future Issues-Competition 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.
Utility Rate Regulation
In March 1997, the Virginia Commission issued an order that Virginia
Power's base rates be made interim and subject to refund as of March 1, 1997.
This order was the result of the Commission Staff's report on its review of
Virginia Power's 1995 Annual Informational Filing (AIF), which concluded that
Virginia Power's present rates would cause Virginia Power to earn in excess of
its authorized return on equity. The Staff found that, for purposes of
establishing rates prospectively, a rate reduction of $95.6 million (including a
one-time adjustment of $29.7 million to Virginia Power's deferred capacity
balance at December 31, 1996) may be necessary in order to realign rates to the
authorized level. Virginia Power filed its alternative regulatory plan (ARP) in
March 1997, based on 1996 financial information. Subsequently, the Commission
consolidated the proceeding concerned with the AIF with the proceeding that
includes the ARP proposed by the Company.
In December 1997, Virginia Power sought to withdraw its ARP, having
concluded that resolution of the cost recovery issues raised by the ARP was
unlikely without General Assembly action. The Commission has agreed that the
Company may withdraw its support of the ARP but has reserved the right to
continue consideration of the ARP as well as other regulatory alternatives. In
addition, the Commission will continue to consider the issues arising out of the
AIF.
<PAGE 15>
VIRGINIA ELECTRIC AND POWER COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
On March 24, 1998, the Commission Staff filed its testimony in the
consolidated ARP/AIF proceeding. The Staff recommended a rate reduction of $277
million and proposed an alternative ratemaking plan. The Staff proposed plan
would allow Virginia Power to retain a portion of its earnings above an
authorized return on equity in a reserve account for recovery of stranded costs
when Virginia begins its transition to a competitive market. The Staff proposal
retains the fuel factor as well as deferral accounting for capacity payments.
Other opposing parties in the proceeding have made filings recommending rate
reductions in excess of $200 million. Virginia Power's previous filings in this
proceeding support maintaining rates at current levels. On April 30 1998 the
Virginia Commission issued an order delaying filing of rebuttal testimony to May
18, 1998. Surrebuttal testimony is due June 12 1998, and the hearing is
scheduled to begin on July 9, 1998.
Virginia Power believes that it is extremely important to have a regulatory
plan in place that addresses transition cost issues and other matters
potentially impacting the Company's ability to prepare for a competitive market
and is willing to negotiate with other parties to achieve that result. Virginia
Power, the Staff of the Virginia Commission and the Virginia Attorney General
are engaged in discussions exploring the potential for reaching an acceptable
settlement in the Company's rate proceeding. At this time the Company is unable
to predict whether or not a settlement will be reached.
On May 12, 1998, the Staff of the Virginia Commission filed a Report and
Motion with the Virginia Commission. In its filing, the Staff stated that the
current status of discussions warrant continued efforts to attempt to reach
agreement on significant issues in the proceeding and moved for an order
extending the dates for filing of rebuttal testimony to May 26, 1998, for filing
surrebuttal testimony to June 19, 1998, and for the scheduled public hearing to
begin on July 10, 1998.
Based on pre-filed testimony and settlement discussions to date, it appears
that either a negotiated settlement or further litigation could result in some
level of reduction in the Company's Virginia jurisdictional rates. At this time
the Company is unable to predict the amount of such a reduction or its impact on
the Company's results of operations, cash flows or financial position.
Market Risk Sensitive Instruments and Risk Management
Commodity Price Risk
Virginia Power's wholesale power group is engaged in off-system wholesale
purchases and sales of electricity and purchases and sales of natural gas;
accordingly, it manages a portfolio of derivative commodity instruments 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 contracts, such as futures, swaps and options, to reduce risk
by essentially creating offsetting market exposures.
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.
<PAGE 16>
VIRGINIA ELECTRIC AND POWER COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
At December 31, 1997, the fair value of such contracts was not material to
the Company's financial position. During the first quarter of 1998, the number
of contracts held for trading purposes has increased significantly. The
estimated fair values of contract assets and contract liabilities at March 31,
1998, were as follows:
(millions)
Estimated fair value of contract assets $176.3
Estimated fair value of contract liabilities 173.8
-----
Estimated net fair value $ 2.5
=====
Management has determined that any potential near term losses in future
earnings, fair values or cash flows, resulting from reasonably possible near
term changes in market prices for such contracts are not anticipated to be
material to the Company's results of operations, financial position or cash
flows.
Our evaluation of market risk does not include the price risks associated
with utility operations and utility fuel requirements, since these costs are
generally recovered through regulated cost of service, nor does it include risks
that are either nonfinancial or nonquantifiable, such as credit risk.
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 17>
VIRGINIA ELECTRIC AND POWER COMPANY
PART II. - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) By consent in lieu of an Annual Meeting, Dominion Resources, Inc., the sole
holder of all the voting Common Stock of the Company, on April 17, 1998,
elected the following persons to serve as Directors of the Company for the
a term expiring in 2001:
John B. Adams, Jr. Norman Askew John W. Harris
Benjamin J. Lambert, III Richard L. Leatherwood Frank S. Royal
(b) The following incumbent Directors will continue on the Board with terms
expiring in the year listed:
Name Year Name Year
---- ---- ---- ----
Harvey L. Lindsay, Jr. 1999 Thos. E. Capps 2000
Kenneth A. Randall 1999 John B. Bernhardt 2000
William T. Roos 1999 James F. Betts 2000
Judith B. Sack 1999 Jean E. Clary 2000
William G. Thomas 1999 S. Dallas Simmons 2000
David A. Wollard 1999 Robert H. Spilman 2000
Item 5. Other Information
Regulation
Virginia
On March 20, 1998 the Virginia Commission issued an Order Establishing
Investigation with regard to independent system operators (ISOs), regional power
exchanges (RPXs) and retail access pilot programs. The order directed all
investor-owned electric utilities doing business in Virginia, in conjunction
with the Commission Staff and other interested stakeholders, to begin work
immediately to develop one or more ISOs and RPXs to serve the public interest in
Virginia. The order also required those utilities to file a report with the
Virginia Commission on or before April 15, 1998, concerning their previous and
present activities, and future plans, concerning ISOs and RPXs. Subsequent
monthly reports are also required. Virginia Power filed its initial report on
April 15, 1998. The Commission's order further directed Virginia Power and
AEP-Virginia, which together serve 85% of retail electric customers in Virginia,
to begin work immediately, in conjunction with the Staff, to implement at least
one retail access pilot program and study. Proposed pilot programs must be filed
with the Virginia Commission by August 1, 1998.
FERC
LG&E Westmoreland Southampton (Southampton) owns a cogeneration facility in
Franklin, Virginia, and sells output to Virginia Power. Southampton sought a
waiver of FERC operating requirements for Qualifying Facilities (QF's) under
PURPA for its 1992 operating year only; however, FERC refused to grant such a
waiver. In 1996 Southampton sought rehearing and clarification, and initiated a
separate rate proceeding seeking approval of the contract rates paid to it by
the Company for 1992 only. On May 13, 1998, FERC denied the rehearing, granted
the clarification and accepted Southampton's 1992 rates subject to a refund to
the Company due to Southampton's failure to meet the QF operating requirements
in 1992.
<PAGE 18>
VIRGINIA ELECTRIC AND POWER COMPANY
PART II. - OTHER INFORMATION
(Continued)
Rates
Virginia
In reference to the consolidated Alternative Regulatory Plan (ARP) and the
1995 Annual Informational Filing (AIF) proceeding before the Virginia
Commission, on March 24, 1998, the Commission Staff filed its testimony in the
consolidated ARP/AIF proceeding. The Staff recommended a rate reduction of $277
million and proposed an alternative ratemaking plan. The plan proposed by the
Staff would allow Virginia Power to retain a portion of its earnings above an
authorized return on equity in a reserve account for recovery of stranded costs
when Virginia begins its transition to a competitive market. The Staff proposal
retains the fuel factor as well as deferral accounting for capacity payments. On
April 30, 1998, the Virginia Commission issued an order delaying the filing of
rebuttal testimony to May 18, 1998. Surrebuttal testimony is due on June 12, and
the hearing is scheduled to begin on July 9, 1998.
On May 12, 1998, the Staff of the Virginia Commission filed a Report and
Motion with the Virginia Commission. In its filing, the Staff stated that the
current status of discussions warrant continued efforts to attempt to reach
agreement on significant issues in the proceeding and moved for an order
extending the dates for filing of rebuttal testimony to May 26, 1998, for filing
surrebuttal testimony to June 19, 1998, and for the scheduled public hearing to
begin on July 10, 1998.
In the proceeding before the Virginia Commission involving a decrease in
Virginia Power's recovery of fuel expenses, on April 24, 1998, the Commission
approved a decrease in the fuel factor from 1.322 cents per kWh to 1.050 cents
per kWh effective May 1, 1998. For additional information, see Note (e) to the
Consolidated Financial Statements.
FERC
In reference to the Standards of Conduct filed in compliance with FERC's
Order No. 889-A, FERC issued an order directing the Company to file certain
revisions to its Standards of Conduct. On March 16, 1998, the Company made the
changes directed by the FERC order, and also sought rehearing on the order. On
April 15, 1998 FERC granted rehearing for purposes of further consideration of
the matters raised in rehearing. The Company is awaiting further FERC action on
the Company's rehearing request.
On March 27, 1998 the Company requested that FERC suspend the procedural
schedule in the proceeding on market-based rates due to a settlement in
principle reached by the participants in the proceeding. The Presiding
Administrative Law Judge suspended the procedural schedule and directed the
Company to file a formal Offer of Settlement by May 11, 1998. A formal Offer of
Settlement was filed as directed, and the Company is awaiting further FERC
action on the Offer of Settlement.
Interconnections
In reference to the Company's participation in the experimental test of
principles developed by the General Agreement on Parallel Paths (GAPP), on March
3, 1998, the Company notified FERC that it had withdrawn from the GAPP Agreement
and on March 31, 1998, FERC accepted the Company's notice.
<PAGE 19>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1* -- Employment Agreement dated March 16, 1998 between Virginia Power and
John A. Shaw (filed herewith).
10.2* -- Dominion Resources, Inc. Directors' Stock Compensation Plan effective
April 9, 1998 (filed herewith).
10.3* -- Form of an Employment Agreement dated June 23, 1994 between Virginia
Power and certain executive officers, including James P.O'Hanlon
Lawrence E. DeSimone and Larry M. Girvin (Exhibit 10(xxi), Form 10-K
for the fiscal year ended December 31, 1996 File No. 1-2255,
incorporated by reference). [The only material respect in which the
particular employment agreeements differ is the base salary set forth
therein.]
27 -- Financial Data Schedule (filed herewith).
* Indicates management contract or compensatory plan or arrangement
(b) Reports on Form 8-K;
NONE
<PAGE 20>
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
May 14, 1998
/S/ J. A. SHAW
--------------------------
J. A. SHAW
Senior Vice President and
Chief Financial Officer
Exhibit 10.1
February 16, 1998
Mr. John A. Shaw
2410 White Horse Road
Berwyn, PA 19312
Dear John:
It is with great pleasure that we welcome you to Virginia Power. As we have
discussed, your employment will begin March 16, 1998, based on the Board of
Directors electing you as an officer on February 20, 1998. Your title will be
Senior Vice President and Chief Financial Officer for Virginia Power.
The terms of your employment agreement are as follows:
Duties
Both you and the Company agree that you will serve in a senior management
position. You agree to (i) devote your knowledge, skill and best efforts on a
full-time basis to performing your duties and obligations to the Company (with
the exceptions of absences on the account of illness or vacation in accordance
with the Company's policies and civic and charitable commitments not involving a
conflict with the Company's business), and (ii) comply with the lawful and non
arbitrary directions and orders of the Board of Directors and Chief executive
Officer of the Company with respect to the performance of your duties.
EXECUTIVE DIRECT COMPENSATION
Your total direct compensation will consist of three components: base salary,
annual incentive, and long-term incentive.
Base Salary
Your initial base salary will be $240,000, paid monthly on or about the 25th of
the month. Each fall, officer's salaries are normally reviewed by the Virginia
Power Board of Directors and any changes will take effect on the following March
1. You will participate in the base salary program on the same terms as all
other elected officers.
<PAGE>
Mr. Shaw
Page 2
Annual Incentive
Your annualized incentive target for 1998 is $114,100 and is based on meeting
corporate and business goals for the calendar year 1998. For 1998, you will
receive a pro-rata award of one-twelfth for every full month of employment
during 1998, or a target of $85,575. Annual incentive awards are approved by the
Board and are paid during the first quarter of the following year (e.g., awards
for 1998 will be paid in the first quarter of 1999). The Board reviews the
program each February, and approves the current year targets at that time. You
will participate in the annual incentive program on the same terms as all other
elected officers.
Long - Term Incentive
Every year we begin a new three-year plan cycle. For each partial cycle in which
you participate you will receive a pro rata distribution from the plan. For
example, when you complete the 1998 - 2000 three-year cycle, you will receive
33/36 of the final award distribution (representing your participation from
April 1, 1998 through December 31, 2000). Your 100% target for the 1998 - 2000
cycle is $157,000, which will be prorated to $143,917. Shares of stock will be
issued at the completion of the cycle based on the then-current value per share
and in compliance with the guidelines of the long-term plan. These plans will
continue at the discretion of the Virginia Power Board of Directors. Your
participation in the long-term incentive plan will be on the same terms as all
other elected officers.
EXECUTIVE INDIRECT COMPENSATION
Qualified Pension Plan
As stated in your offer letter, you will be credited with 20 years of service
upon attaining age 55 and 30 years of service at age 60.
Executive Supplement Retirement Plan (ESRP)
Officers who retire with a minimum of five years of service as a company
employee receive additional payments for 10 years. The annual benefit is payable
on a monthly basis and is equal to 25% of final annual compensation. Final
annual compensation is defined as the base salary at the time of retirement plus
a percentage (currently 95%) of the annual incentive target. The plan also
provides for payments to begin if you die or become disabled before retirement.
If you die after retirement, but before receiving ten years of benefits, your
beneficiary will receive the remaining payments. At retirement, you may elect to
receive an actuarially reduced payment for up to 16 years. There is a
<PAGE>
Mr. Shaw
Page 3
separate calculation for participants having a minimum of five years service but
retiring before age 55.
Executive Retirement Benefit Restoration Plan
Since the company sets base salaries below market, and since the qualified
pension is based on actual base salaries, executive pensions are calculated
using an "adjusted base salary for pension purposes." The increased pension
benefit cannot, by law, be paid out of the qualified pension plan. The Benefit
Restoration Plan makes up for the portion of the pension which cannot be paid
from the qualified plan. Federal law also limits the qualified pension coverage
to the first $160,000 of base salary. The restoration plan is also used to make
up for base salary which exceeds the $160,000 cap.
Rabbi Trust
From time to time, the company makes discretionary payments into a Rabbi Trust.
This account is used to fund the payment of benefits payable under the Executive
Supplemental Retirement Plan and/or the Executive Retirement Benefit Restoration
Plan. The funds in the trust can only be used for the executive's benefit, and
cannot revert to the company under any circumstances. Benefits funded in the
Rabbi Trust are subject to claims of the company's creditors. The amount of the
company's contribution to the trust fund is not taxable to the executive until
actual payments are made to the executive from the trust.
EXECUTIVE PERQUISITES
Executive Continuity Agreement
This "Golden Parachute" provides three years of protection for salary and
incentives in case of a hostile takeover.
Company Car and Phone
A company car, with cellular phone, is furnished. The value of personal use is
reported as taxable income.
Executive Accidental Death and Dismemberment
All executives and spouses are provided $200,000 coverage for business travel
aboard company aircraft. However, as a senior executive, you are provided
$200,000 coverage for all accidents. Your spouse receives all accident coverage
at the lesser rate of $150,000. These benefit amounts are payable for loss of
life, hands, feet or eyes. Half the benefit is payable for loss of one hand,
foot, or eye. Coverage ends at age 70.
<PAGE>
Mr. Shaw
Page 4
Executive Deferred Compensation
Executives may elect to defer part or all of base salary and/or annual incentive
awards. The election must take place before the period in which the compensation
is earned. Deferred compensation is subject to Social Security and Medicare tax,
but federal and state income taxes are deferred. No funds or assets are
specifically set aside for the deferred amount. Deferred compensation is carried
as a liability on the company books and the executive has the status of an
unsecured creditor of the company. The deferred amount accumulates "earnings" as
if it were invested in the executive's choice of an interest bearing account or
Dominion Resources, Inc. Common Stock.
Executive Physical Examinations
Employee Health Services schedules executives for annual physical examinations.
Executive Estate and Tax Planning
The company pays for an initial educational consultation with a local attorney
(Louis Mezzullo) specializing in estate planning. Subsequently, the executive
may choose Mr. Mezzullo or any qualified professional to aid in the development
of an initial estate plan. The company will reimburse up to $1,000 toward the
initial estate plan, and $500 per year, thereafter, for an annual review and
update. These taxable reimbursements are paid through payroll.
STANDARD BENEFITS
Health: Medical, Drugs, Dental & Vision
Employees may choose among three deductible/co-pay options for medical coverage
(Blue Cross/Blue Shield Preferred Provider Plan) or one of several HMOs. Dental
and vision coverage is available. All are subsidized and may include eligible
dependents.
Group Life Insurance
Up to three times annual salary coverage is available on a subsidized basis. An
additional two times annual salary is available on a non-subsidized basis.
$10,000 coverage is available for a spouse; $4,000 for children.
Accidental Death and Dismemberment
Up to three times base salary (as selected for group life) is available for
employees at no extra charge.
<PAGE>
Mr. Shaw
Page 5
Long-Term Disability
Subsidized coverage of 60% or 65% of salary is available after eligibility is
established. There is a maximum benefit of $10,000 per month.
Qualified Pension Plan
At age 65, the normal benefit for 30 years of service is approximately 60% of
your final five years average salary, subject to a Social Security offset. It is
non-contributory. Your coverage under Virginia Power's Retirement Plan will
begin after six (6) months of employment.
401(k) Plan and Savings Plan
Both pre- and post-tax options are available. The company matches 50% on the
first 6% of salary contributed by the employee, limited to the first $160,000 of
salary.
We believe that this is an excellent opportunity for Virginia Power to benefit
from your skills and background, and we look forward to you joining our team.
To indicate your acceptance of this offer, please sign below and return a copy
to me.
Sincerely yours,
Norman Askew
President and Chief Executive Officer
Acknowledged: /s/ John A. Shaw Dated: February 18, 1998
Exhibit 10.2
DOMINION RESOURCES, INC.
DIRECTORS STOCK COMPENSATION PLAN
<PAGE>
TABLE OF CONTENTS
Page
----
1. PURPOSE................................................................2
2. DEFINITIONS............................................................2
3. PARTICIPATION IN THE PLAN..............................................3
4. STOCK RESERVED FOR THE PLAN............................................3
5. DEFERRALS OF ANNUAL STOCK RETAINER ....................................3
6. EFFECT OF STOCK DIVIDENDS AND OTHER CHANGES TO COMPANY STOCK...........4
7. INTERPRETATION AND ADMINISTRATION OF THE PLAN..........................4
8. TERM OF THE PLAN.......................................................4
9. AMENDMENT OF THE PLAN..................................................4
10. RIGHTS UNDER THE PLAN..................................................4
11. BENEFICIARY............................................................4
12. NOTICE.................................................................5
13. CONSTRUCTION...........................................................5
<PAGE>
1. Purpose.
The Dominion Resources, Inc. Directors Stock Compensation Plan (the
"Plan") provides a mechanism for the Board of Directors of Dominion Resources,
Inc. and certain subsidiaries to pay a portion of their non-employee directors'
compensation in the Company's common stock. It also allows such director to
defer receipt of such stock until a future date, if desired.
2. Definitions.
As used in the Plan, the following terms have the meanings indicated:
(a) "Annual Meeting" means, for the Dominion Resources Board,
the annual meeting of shareholders at which a class of members of the Dominion
Resources Board is routinely elected. The Annual Meeting for any other Board
shall be the same as for the Dominion Resources Board unless that Board
establishes a different date as an Annual Meeting date.
(b) "Annual Stock Retainer" means that portion of an Eligible
Director's annual retainer paid in Company Stock.
(c) "Board" means the Dominion Resources Board or the board of
directors of any wholly-owned subsidiary of the Company that is designated by
the Dominion Resources Board as a Board eligible to participate in this plan.
(d) "Change of Control" means an event described in (i) or
(ii):
(i) any person, including a "group" as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended, becomes the owner or beneficial owner of Dominion
Resources securities having 20% or more of the combined voting
power of the then outstanding Dominion Resources securities
that may be cast for the election of Dominion Resources'
directors (other than as a result of an issuance of securities
initiated by Dominion Resources, or open market purchases
approved by the Dominion Resources Board, as long as the
majority of the Dominion Resources Board approving the
purchases is also the majority at the time the purchases are
made); or
(ii) as the direct or indirect result of, or in
connection with, a cash tender or exchange offer, a merger or
other business combination, a sale of assets, a contested
election, or any combination of these transactions, the
persons who were directors of Dominion Resources before such
transactions cease to constitute a majority of the Dominion
Resources Board, or any successor's board, within two years of
the last of such transactions.
(e) "Company" means Dominion Resources, Inc., or any successor
business by merger, purchase, or otherwise that maintains the Plan.
(f) "Company Stock" means the common stock of Dominion
Resources, Inc. In the event of a change in the capital structure of the
Company, the shares resulting from such a change shall be deemed to be the
Company Stock (as provided in Section 6) within the meaning of the Plan.
(g) "Dominion Resources Board" means the Board of Directors of
Dominion Resources, Inc.
(h) "Eligible Director" means a member of a Board who is not
an employee of the Company or any subsidiary of the Company.
2
<PAGE>
(i) "Plan Year" for any Board means the period beginning on
the date of an Annual Meeting of that Board and ending on the day before the
next Annual Meeting of that Board.
3. Participation in the Plan.
At each Annual Meeting, Eligible Director may receive an Annual Stock
Retainer. The Board on which the Eligible Director is a member shall determine
the Annual Stock Retainer, if any, subject to approval by the Dominion Resources
Board. An Eligible Director whose service terminates at an Annual Meeting shall
not receive an Annual Stock Retainer. An Eligible Director also may elect to
defer receipt of an Annual Stock Retainer as provided in Section 5.
4. Stock Reserved for the Plan.
The aggregate number of shares of Company Stock authorized for
distribution to Eligible Directors under Section 3 is 1,000,000, subject to
adjustment pursuant to Section 6.
5. Deferrals of Annual Stock Retainer.
(a) An Eligible Director may elect to defer the payment of
some or the entire Annual Stock Retainer by completing a deferral election (a
"Deferral Election"). A Deferral Election must be in writing and delivered to
the Corporate Secretary of the Company before the Annual Meeting for the Plan
Year to which the Deferral Election pertains. For the first year of the Plan's
operation, the election must be made before the first Annual Meeting occurring
after adoption of the Plan. A Deferral Election shall be irrevocable in respect
to the Plan Year to which it pertains. A Deferral Election must specify the
applicable number or percentage of the shares of Company Stock that the Eligible
Director wishes to defer. A Deferral Election may be made for a single Plan Year
or may be made applicable to all future Plan Years until revoked. Any revocation
shall be effective as of the first day of the next Plan Year after the
revocation is made.
(b) With respect to all shares of Company Stock for which a
Deferral Election is made, the Company shall issue shares of Company Stock to a
trust. The Corporate Secretary of the Company shall be the trustee of the trust
unless the Board designates another person or entity as trustee. The trust shall
secure the Company's obligation to pay shares of Company Stock to the Eligible
Director. The trust and its assets shall remain subject to the claims of the
Company's creditors. Any interest that the Eligible Director may be deemed to
have in the trust may not be sold, hypothecated or transferred (including,
without limitation, transfer by gift), except by will or the laws of descent and
distribution. Shares issued to the trust shall be issued in the name of the
trustee and the trustee shall maintain a separate account for each Eligible
Director. The trustee shall invest all cash dividends on Company Stock in
additional shares of Company Stock to be held in the separate account of the
Eligible Director. The Eligible Director shall have the right to direct the
trustee as to the voting of the shares of Company Stock held in the Eligible
Director's account.
(c) A Deferral Election shall provide for distribution of the
Company Stock held in such director's account at a future date or dates elected
by the Eligible Director and provided on the Deferral Election Form.
(d) Before a Change of Control, an Eligible Director may elect
to receive a single lump sum transfer of the Company Stock in his or her account
upon a Change of Control. The trustee shall distribute the Company Stock as soon
as practicable after the Change of Control occurs unless the Eligible Director
elects a later date for distribution.
3
<PAGE>
(e) Upon the death of an Eligible Director, the Eligible
Director's Beneficiary will receive the balance of any undistributed Company
Stock held in such director's account in a single lump sum transfer as soon as
practicable after the death.
6. Effect of Stock Dividends and Other Changes to Company Stock.
In the event of a stock dividend, stock split or combination of shares,
recapitalization or merger in which the Company is the surviving corporation or
other change in the Company's capital stock, the number and kind of shares of
stock of the Company to be subject to the Plan and the maximum number of shares
which are authorized for distribution under the Plan shall be appropriately
adjusted by the Dominion Resources Board, whose determination shall be binding
on all persons.
7. Interpretation and Administration of the Plan.
The Dominion Resources Board shall administer, construe and interpret
the Plan. Any decision of the Dominion Resources Board with respect to the Plan
shall be final, conclusive and binding upon all Eligible Directors. The Dominion
Resources Board may act by a majority of its members. The Dominion Resources
Board may authorize any member of the Board or any officer of the Company to
execute and deliver documents on behalf of the Dominion Resources Board. The
Dominion Resources Board may consult with counsel, who may be counsel to the
Company, and shall not incur any liability for action taken in good faith in
reliance upon the advice of counsel. The Corporate Secretary of the Company
shall be authorized to take or cause to be taken such actions of a ministerial
nature as necessary to effectuate the intent and purposes of the Plan, including
issuing Company Stock for the Plan, maintaining records of the trust accounts of
Eligible Directors and arranging for distributions of such accounts.
8. Term of the Plan.
The Plan shall become effective when adopted by the Dominion Resources
Board. The Plan shall continue until terminated at any time by action of the
Dominion Resources Board or until there are no remaining shares available for
the Plan under Section 4. Any termination of the Plan by the Dominion Resources
Board shall not alter or impair any of the rights or obligations for Company
Stock previously deferred.
9. Amendment of the Plan.
The Dominion Resources Board may suspend or terminate the Plan or
revise or amend the Plan in any respect; provided, any amendment or termination
of the Plan shall not adversely affect an Eligible Director with respect to any
Company Stock previously deferred.
10. Rights Under the Plan.
The Plan shall not constitute or be evidence of any agreement or
understanding, express or implied, that the Company or any subsidiary will
retain any person as a director for any period of time.
4
<PAGE>
11. Beneficiary.
An Eligible Director may designate in writing delivered to the Company,
one or more beneficiaries (which may include a trust) to receive any
distributions under the Plan after the death of the Eligible Director. If an
Eligible Director fails to designate a beneficiary, or no designated beneficiary
survives the Eligible Director, any payments to be made with respect to the
Eligible Director after death shall be made to the personal representative of
the Eligible Director's estate.
12. Notice.
All notices and other communications required or permitted to be given
under this Plan shall be in writing and shall be deemed to have been duly given
if delivered personally or mailed first class, postage prepaid, as follows: (a)
if to the Company - at its principal business address to the attention of the
Corporate Secretary; (b) if to any Eligible Director - at the last address of
the Eligible Director known to the sender at the time the notice or other
communication is sent.
13. Construction.
The Plan shall be construed and enforced according to the laws of the
Commonwealth of Virginia. Headings and captions are for convenience only and
have no substantive meaning. Reference to one gender includes the other, and
references to the singular and plural include each other.
5
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