<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
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 23219-3932
Richmond, Virginia (Zip Code)
(Address of principal executive
offices)
(804) 771-3000
(Registrant's telephone number, including area code)
----------------
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of Each Exchange Name of Each Exchange
Title of Each Class on Which Registered Title of Each Class on Which Registered
------------------- --------------------- ------------------- ---------------------
<S> <C> <C> <C>
Preferred Stock New York Stock Senior Notes $25 New York Stock
(cumulative) $100 Exchange redemption value: Exchange
liquidation value: 7.15% securities rate
$5.00 dividend
Trust Preferred New York Stock Senior Notes $25 New York Stock
Securities $25 Exchange redemption value: Exchange
liquidation value: 6.70% securities rate
8.05% dividend
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of January 31, 2000, was zero.
As of January 31, 2000, there were issued and outstanding 171,484 shares of
the registrant's common stock, without par value, all of which were held,
beneficially and of record, by Dominion Resources, Inc.
DOCUMENTS INCORPORATED BY REFERENCE.
None
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
PART I
<TABLE>
<CAPTION>
Page
Item Number Number
- ----------- ------
<S> <C>
1. Business............................................................ 2
The Company.......................................................... 2
Competition.......................................................... 3
Organizational Changes............................................... 3
Regulation............................................................. 4
General.............................................................. 4
Virginia............................................................. 4
Federal.............................................................. 5
North Carolina....................................................... 5
Environmental........................................................ 6
Nuclear Generation................................................... 6
Rates.................................................................. 8
Virginia............................................................. 8
North Carolina....................................................... 8
Capital Requirement and Financing Program.............................. 9
Construction and Nuclear Fuel Expenses............................... 9
Financing Program.................................................... 9
Sources of Power....................................................... 10
Virginia Power Generating Units...................................... 10
Net Purchases........................................................ 10
Non-Utility Generation............................................... 10
Sources of Energy Used, Fuel Costs and Operations...................... 11
Nuclear Operations and Fuel Supply................................... 11
Fossil Operations and Fuel Supply.................................... 11
Purchases and Sales of Energy........................................ 11
Future Sources of Power................................................ 12
Interconnections....................................................... 12
2. Properties.......................................................... 13
3. Legal Proceedings................................................... 13
4. Submission of Matters to a Vote of Security Holders................. 14
PART II
5. Market for the Registrant's Common Equity and Related Stockholder
Matters............................................................... 15
6. Selected Financial Data............................................. 15
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................. 16
Liquidity and Capital Resources...................................... 16
Capital Requirements................................................. 18
Results of Operations................................................ 18
Future Issues........................................................ 22
Market Risk Sensitive Instruments and Risk Management................ 28
7A. Quantitative and Qualitative Disclosures About Market Risk......... 30
8. Financial Statements and Supplementary Data......................... 31
9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure..................................................
PART III
10. Directors and Executive Officers of the Registrant................. 62
11. Executive Compensation............................................. 65
12. Security Ownership of Certain Beneficial Owners and Management..... 70
13. Certain Relationships and Related Transactions..................... 71
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8K.... 72
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
THE COMPANY
Virginia Electric and Power Company was incorporated in 1909 as a Virginia
public service corporation. Its principal office is located at 701 East Cary
Street, Richmond, Virginia 23219-3932. The telephone number is (804) 771-3000.
All of our common stock is held by Dominion Resources, Inc., a Virginia
corporation (Dominion).
Virginia Electric and Power Company is a public utility engaged in the power
generation and electric service delivery business within a 30,000 square-mile
service territory in Virginia and northeastern North Carolina. We supply energy
at retail to approximately two million customers. In addition, we sell
electricity at wholesale to rural electric cooperatives, power marketers and
certain municipalities. Within this document the terms "Virginia Power" and the
"Company" refer to the entirety of Virginia Electric and Power Company,
including our Virginia and North Carolina operations and all of our
subsidiaries.
In Virginia we trade under the name "Virginia Power." The Virginia service
area comprises about 65 percent of Virginia's total land area, but accounts for
over 80 percent of its population. In North Carolina we trade under the name
"North Carolina Power" and serve retail customers located in the northeastern
region of the state, excluding certain municipalities. We also engage in off-
system wholesale purchases and sales of electricity and purchases and sales of
natural gas and are developing trading relationships beyond the geographic
limits of our retail service territory. The Federal Energy Regulatory
Commission (FERC), the State Corporation Commission of Virginia (the Virginia
Commission) and the North Carolina Utilities Commission (the North Carolina
Commission) are the principal regulators of our electric operations.
Various factors are currently affecting the electric utility industry,
including increasing competition and related regulatory changes, costs to
comply with environmental regulations, and the potential for new business
opportunities outside of traditional rate-regulated operations. To meet the
challenges of this new competitive environment, we continue to consider new
business opportunities, particularly those which allow us to use the expertise
and resources developed through our regulated utility experience. Over the past
several years we have developed a broad array of "non-traditional" products and
services. Examples of non-traditional services include wholesale power
marketing and telecommunications. We also market our services to other
utilities in areas such as nuclear consulting and management and power
distribution (i.e., transmission, distribution, engineering and metering
services). We are continuing to focus on new and existing programs to enhance
customer satisfaction and energy efficiency.
In preparation for transition to competition for electric generation in
Virginia, we have begun to evaluate operating and financial information in the
following business segments:
. generation related operations (referred to as the Generation Business).
The Generation Business encompasses our generation portfolio, trading and
marketing activities, nuclear consulting services and energy services
activities.
. regulated electric transmission and distribution services (referred to as
the Delivery Business). The Delivery Business includes bulk power
transmission, distribution and metering services, and customer service
and continues to be subject to cost-based regulation.
Notwithstanding our use of the business segments above, we continue to own
and operate all of the Company's historical assets. See Note T to the
consolidated financial statements for selected financial information about our
business segments.
We had 9,065 full-time employees on December 31, 1999. A total of 3,534 of
our employees are represented by the International Brotherhood of Electrical
Workers under a contract extending to April 1, 2001.
2
<PAGE>
However on February 1, 2000, approximately 900 of our employees were
transferred to a service company called Dominion Resources Services, Inc.
(Services), a wholly-owned subsidiary of Dominion, in connection with the
merger transaction between Dominion and Consolidated Natural Gas Company (CNG)
see ORGANIZATIONAL CHANGES below.
COMPETITION
The structure of the electric industry in our service territory and
throughout the United States has been relatively stable for many years.
Recently, however, there have been both federal and state developments
restructuring regulation and increasing competition. Electric utilities are
required to open up their transmission systems for non-discriminatory use by
wholesale competitors. In addition, non-utility power marketers now compete
with electric utilities in the wholesale generation market. At the federal
level, retail competition is under consideration. Some states, including
Virginia, have enacted legislation requiring retail competition.
Currently, as in the past, there is no general retail competition in our
principal service area. Today our competition for retail sales arises when
certain of our business customers move into another utility service territory,
use other energy sources instead of electric power, or generate their own
electricity. However, Virginia has adopted legislation requiring retail
competition beginning in 2002 and North Carolina is considering retail
competition. To the extent that competition is permitted, our ability to sell
power at prices that will allow us to recover our prudently incurred costs may
be an issue. Additionally, we are in the process of developing a retail access
pilot program for implementation in Virginia that we expect to implement in the
summer of 2000.
We continue to participate actively in both the legislative and regulatory
processes relating to industry restructuring in an effort to ensure an orderly
transition from a regulated environment. We have also responded to the trends
toward competition by cutting costs, re-engineering our core business processes
and pursuing innovative approaches to serving traditional and future markets.
In addition, we are developing certain "non-traditional" products and services
as described above in an effort to provide growth in future earnings.
For a more thorough review of our changing industry environment see Future
Issues--Competition under MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (MD&A).
ORGANIZATIONAL CHANGES
On January 28, 2000, our parent company Dominion completed its merger
transaction with CNG. CNG and its subsidiaries have become wholly-owned
subsidiaries of Dominion and, as a result, Dominion has become a registered
public utility holding company subject to regulation under the Public Utility
Holding Company Act of 1935 (1935 Act). In connection with the merger, a number
of organizational changes will be implemented within the Company. Some of these
changes will be required as a result of Dominion's new status as a registered
public utility holding company under the 1935 Act and some will be based on
business decisions relating to the integration of the merged companies.
Dominion has established Services, a service company, to satisfy regulatory
requirements and provide administrative and support services to all of
Dominion's subsidiaries, including Virginia Power. CNG, which is also a
registered public utility holding company, will maintain its existing service
company CNG Services, Inc. (CNG Services) for approximately one year. Virginia
Power may purchase services from either service company during such period
under the terms and conditions set forth in the DRI Services Agreement
effective January 1, 2000 between Virginia Power, Services and CNG Services. In
addition, we may provide certain administrative and support services to
Services under the Virginia Power Support Agreement between Virginia Power and
Services effective January 1, 2000. Certain employees of Virginia Power, who
have been performing administrative and support service functions, have been
transferred to Services and will continue to provide services to Virginia Power
as well as to other Dominion affiliates.
3
<PAGE>
REGULATION
General
Many aspects of Virginia Power's business are presently subject to
regulation by the Virginia Commission, the North Carolina Commission, FERC, the
Environmental Protection Agency (EPA), Department of Energy (DOE), Nuclear
Regulatory Commission (NRC), the Army Corps of Engineers and other federal,
state and local authorities. Furthermore, with Dominion becoming a registered
Public Utility Holding Company under the Act of 1935 both our Generation
Business and Delivery Business are now subject to regulation by the Securities
and Exchange Commission (SEC).
Virginia Power holds certificates of public convenience and necessity issued
by the Virginia Commission and the North Carolina Commission authorizing us to
construct and operate the electric facilities now in operation for which
certificates are required, and to sell electricity to retail customers.
However, we may not construct, or incur financial commitments for construction
of, any substantial generating facilities or large capacity transmission lines
without the prior approval of various state and federal governmental agencies.
The Virginia Commission and the North Carolina Commission regulate the
bundled rates of our Generation Business and Delivery Business for retail
electric sales and FERC approves our rates for electric sales to wholesale
customers.
The following sections discuss various regulatory proceedings in which we
are or have recently been involved. Rate specific proceedings are discussed
separately in the RATES section below.
Virginia
Virginia Power is subject to the jurisdiction of the Virginia Commission,
which has broad powers of supervision and regulation over public utilities,
including rates, service regulations and sales of securities. The following is
a description of recent Virginia proceedings.
In March 1998, the Virginia Commission issued an Order Establishing
Investigation with regard to independent system operators (ISO's), regional
power exchanges (RPX's) and retail access pilot programs. The Order directed
all investor-owned electric utilities to begin, in conjunction with the
Virginia Commission Staff and other interested parties, to develop one or more
ISO's and RPX's to serve the public interest in Virginia. The Virginia Electric
Utility Restructuring Act (Act), signed into law in 1999, requires that
Virginia's incumbent electric utilities join or establish a regional
transmission entity (RTE) by January 1, 2001, and seek authorization from the
Virginia Commission to transfer operational control of their transmission
facilities to such RTE. In May 1999, the Virginia Commission issued an Order
Establishing Investigation and invited comments concerning the development of
the rules required by the Act. Virginia Power submitted comments in June 1999
and reply comments in July 1999. In January 2000, the Virginia Commission
issued an Order giving notice of, and requesting comments to, proposed rules
and regulations establishing the elements of RTE structures to be applied by
the Virginia Commission in determining whether to authorize the transfer of
operational control of the transmission facilities to the RTE. We submitted
comments on the proposed rules and regulations in February 2000. Under the
proposed rules, we will be required to seek authorization to transfer
operational control of our transmission facilities to a RTE on or before May 1,
2000.
In addition, the March 1998 Order instructed Virginia Power and American
Electric Power-Virginia (AEP), as the Commonwealth's two largest investor-owned
utilities, each to design and file a retail access pilot program. In response,
we filed a report describing the details, objectives and characteristics of our
proposed retail access pilot program and a hearing was held. We are currently
awaiting a Final Order. For more details on the proposed retail access pilot
program, see Future Issues--Competition --Regulatory Initiatives under MD&A.
4
<PAGE>
In December 1999, the Virginia Commission issued orders approving the
addition of two wholly-owned subsidiaries of Virginia Power Services, Inc.,
namely Evantage, Inc. (Evantage) and VP Property, Inc. (VP Property), to the
Affiliate Services Agreement approved by the Virginia Commission in its
September 1997 Order. In connection with the organization of Evantage and VP
Property, the Virginia Commission issued two related orders approving our
transfer of certain contracts and assets from Virginia Power to these
subsidiaries.
In December 1999, in connection with the merger transaction between Dominion
and CNG, the Virginia Commission issued an order approving the DRI Service
Agreement and the Virginia Power Support Agreement. These agreements provide
for administrative, management and other services for Dominion and its
subsidiaries.
In January 2000, we filed an application with the Virginia Commission to
build and operate two 160 MW combustion turbine units in Caroline County,
Virginia for additional peaking capacity. We have obtained the applicable
zoning permits for the construction of the generators and have applied for
other required environmental permits. The Virginia Commission set a hearing
date in May 2000 to consider the application.
Federal
The Federal Power Act subjects Virginia Power to regulation by FERC as a
company engaged in the transmission or sale of wholesale electric energy in
interstate commerce. The Energy Policy Act of 1992 (EPACT) and FERC's
subsequent rulemaking activities allow FERC to order access for third parties
to transmission facilities owned by another entity. This authority is limited,
however, and does not permit FERC to issue orders requiring transmission access
to retail customers. FERC has also issued a number of rules of general
applicability for third-party transmission service including Orders 888 and
889.
Pursuant to FERC's final rules, we established an open access same-time
information system (OASIS) which became operational January 1997. In addition,
in July 1997 we filed amendments to our existing rate tariff with FERC so that
we could make wholesale power sales at market-based rates. Under a FERC order
conditionally accepting our market-based rate schedule, we began making market-
based sales of wholesale power in 1997. FERC set for hearing the issue of
whether transmission constraints limiting the transfer of power into our
service territory would provide us with generation dominance in local markets.
This issue was resolved through FERC's acceptance of an offer of settlement in
which we agreed to refrain from making sales under our market-based tariff to
loads located within our service territory. This settlement did not preclude us
from requesting FERC authorization of such sales in the future. However until
such authorization has been granted by FERC, agreements by Virginia Power to
sell wholesale power to loads located within our service territory are to be at
cost-based rates accepted by FERC. We filed an application with FERC in
February 2000 to make sales under our market based rate tariff to retail loads
within our service territory under our retail access pilot program. Also in
February 2000, we filed an application with FERC to amend our open access
transmission tariff to accommodate the retail access pilot program.
In June 1999, Virginia Power, along with AEP, First Energy Corp., Consumers
Energy Company and The Detroit Edison Company, on behalf of themselves and
their respective public utility operating company subsidiaries, filed with FERC
applications under Sections 205 and 203 of the Federal Power Act for approval
of a proposed regional transmission organization. For more detail on the
application, see the INTERCONNECTIONS section below.
North Carolina
The 1997 session of the North Carolina General Assembly created a study
commission on the Future of Electric Service in North Carolina. In October
1999, Duke Energy Corp. and Carolina Power and Light Company submitted a
proposal to the study commission addressing certain municipal debt issues that
must be resolved before a comprehensive restructuring plan can be developed.
The North Carolina Commission continues to study the subject of deregulation in
anticipation that the 2000 session of the General Assembly will consider the
issue when it convenes in May of 2000.
5
<PAGE>
Environmental
We face substantial regulation and compliance costs with respect to
environmental matters predominantly in our Generation Business. For discussion
of significant aspects of these matters, including current and planned capital
expenditures relating to environmental compliance, see Future Issues--
Environmental Matters, Environmental Protection and Monitoring Expenditures,
Clean Air Act Compliance, and Global Climate Change under MD&A.
From time to time we may be identified as a potentially responsible party
(PRP) with respect to a superfund site. EPA (or a state) can either (a) allow
such a party to conduct and pay for a remedial investigation, feasibility study
and remedial action or (b) conduct the remedial investigation and action and
then seek reimbursement from the parties. Each party can be held jointly,
severally and strictly liable for all costs, but the parties can then bring
contribution actions against each other and seek reimbursement from their
insurance companies. As a result of the Superfund Act or other laws or
regulations regarding the remediation of waste, we may be required to expend
amounts on remedial investigations and actions. We do not believe that any
currently identified sites will result in significant liabilities. For a
discussion of certain remediation efforts in which we are involved, see
Environmental Matters, Note R to CONSOLIDATED FINANCIAL STATEMENTS.
In accordance with applicable Federal and state environmental laws, we have
applied for or obtained the necessary environmental permits material to the
operation of our generating stations. Many of these permits are subject to re-
issuance and continuing review.
In April 1999, we were notified by the Department of Justice of alleged
noncompliance with EPA's oil spill prevention, control and countermeasures
(SPCC) plans and facility response plan (FRP) requirements at one of our power
stations. If, in a legal proceeding, such instances of noncompliance are deemed
to have occurred, we may be required to remedy any alleged deficiencies and pay
civil penalties. Settlement of this matter is currently in negotiation and is
not expected to have a material impact on our financial condition or results of
operations.
In August 1999, we identified matters at certain other power stations that
EPA might view as not in compliance with the SPCC and FRP requirements. We
reported these matters to EPA and in December 1999 submitted revised FRP and
SPCC plans. Presently, EPA has not assessed any penalties against the Company,
pending its review of our disclosure information. Future resolution of these
matters is not expected to have a material impact on our financial condition or
results of operations.
In November and September 1999, Virginia Power received notices from the
Attorney Generals of Connecticut and New York, respectively, of their intention
to file suit against the Company for alleged violations of the Clean Air Act.
The notices question whether modifications at certain Virginia Power generating
facilities were properly permitted under the Clean Air Act and allege that
emissions from these facilities have damaged public health and the environment
in the Northeast. To date, no suits have been filed. We believe that we are one
of a number of companies with fossil fuel power generating stations in the
southeast and central U.S. to have received such notifications. We believe that
we have obtained the permits necessary in connection with its generating
facilities and that any suits filed by the Attorney Generals will not have a
material impact on our financial condition or results of operations.
Nuclear Generation
All aspects of the operation and maintenance of our nuclear power stations,
which are a part of our Generation Business, are regulated by the NRC.
Operating licenses issued by the NRC are subject to revocation, suspension or
modification, and operation of a nuclear unit may be suspended if the NRC
determines that the public interest, health or safety so requires.
6
<PAGE>
From time to time, the NRC adopts new requirements for the operation and
maintenance of nuclear facilities. In many cases, these new regulations require
changes in the design, operation and maintenance of existing nuclear
facilities. If the NRC adopts such requirements in the future, it could result
in substantial increases in the cost of operating and maintaining our nuclear
generating units.
One of the issues associated with the operation and decommissioning of
nuclear facilities is disposal of spent nuclear fuel (SNF). The Nuclear Waste
Policy Act of 1982 required the Federal Government to make available by January
31, 1998 a permanent repository for high-level radioactive waste and spent
nuclear fuel. The federal government has not made such a repository available.
In July 1995, the Virginia Commission instituted an investigation regarding
SNF disposal. As directed, Virginia Power and others filed comments on legal
and public policy issues related to spent nuclear fuel storage and disposal. In
February 1996, the Virginia Commission Staff filed its Report recommending that
adoption of a definitive policy on SNF disposal issues be delayed pending the
outcome of litigation against the DOE concerning spent nuclear fuel acceptance,
the outcome of proposed federal legislation concerning development of an
interim storage facility and development of a vision of the likely outcome of
the electric utility industry's restructuring efforts. The Virginia Commission
consolidated the proceeding with our pending fuel cost recovery proceeding in
October 1996. On March 20, 1997, the Virginia Commission returned the SNF
disposal issue to a separate proceeding. No procedural order has been issued,
but the proceeding is pending.
In response to DOE's insufficient progress towards providing a permanent
repository for SNF, in January 1997, we and numerous other electric utilities
requested the United States Court of Appeals for the District of Columbia
Circuit (the DC Circuit) to order the DOE to begin accepting the utilities' SNF
for disposal by January 31, 1998. In November 1997, the DC Circuit found that
DOE's obligation to begin accepting SNF by the deadline is "unconditional" and
that DOE may not excuse its delay on the grounds that delays were unavoidable.
In February 1998, we and other electric utilities requested the DC Circuit to
require DOE to begin moving SNF, prohibit DOE from using the Nuclear Waste Fund
(NWF) to pay damages and relieve utilities of their obligation to pay NWF fees
unless and until DOE complies with its obligations. In May 1998, the DC Circuit
refused to require DOE to begin moving SNF and found that utilities should
pursue their remedies under their SNF contracts with DOE. In November 1998 the
U.S. Supreme Court denied DOE's request for review of the DC Circuit's
decisions. We are considering whether to seek other remedies.
When our nuclear units cease to operate, we will be obligated to
decontaminate the facilities. This process is referred to as decommissioning,
and we are required by the NRC to prepare for it financially. For information
on our compliance with the NRC financial assurance requirements, see Note E to
CONSOLIDATED FINANCIAL STATEMENTS.
We initiated the license renewal process for our nuclear power plants in
mid-1999 with expected submission to the NRC in late 2003. If successful, NRC
renewed licenses will extend the operation of our four nuclear units to 2032,
2033, 2038 and 2040 for Surry Units 1 and 2 and North Anna Units 1 and 2
respectively.
7
<PAGE>
RATES
The majority of our revenue is provided through bundled rate tariffs.
Accordingly, the following discussion applies to both our Generation Business
and Delivery Business. Our 1999 electric service sales included 70 million
megawatt-hours of retail sales and 4.1 million megawatt-hours of sales to
wholesale requirements contract customers and were composed of the following:
<TABLE>
<CAPTION>
1999
------------------
Percent Of
Electric Service
------------------
Revenues Kwh Sales
<S> <C> <C> <C>
Virginia retail:
Non-Governmental
customers................ Virginia Commission 81% 77%
Governmental customers.... Negotiated Agreements 10 13
North Carolina retail....... North Carolina Commission 5 4
Wholesale*.................. FERC 4 6
--- ---
100% 100%
=== ===
</TABLE>
- --------
* Excludes power marketing sales which are also subject to FERC regulation.
Substantially all of our electric service sales are currently subject to
recovery of changes in fuel costs either through fuel adjustment factors or
periodic adjustments to base rates, each of which requires prior regulatory
approval.
Where cost-based rates are in effect, each of these jurisdictions has the
authority to disallow recovery of costs it determines to be excessive or
imprudently incurred. Various cost items may be reviewed on occasion, including
costs of constructing or modifying facilities, on-going purchases of capacity
or providing replacement power during generating unit outages.
Virginia
Recent Virginia proceedings related to our rates include the following:
. In June 1998, Virginia Power, the Staff of the 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 agreed to settle our pending rate proceedings
before the Virginia Commission. In August 1998, the Virginia Commission
approved the settlement with only a minor redistribution of the agreed
rate reduction among customer classes. For provisions of the settlement,
see Note Q to CONSOLIDATED FINANCIAL STATEMENTS.
. In August 1998, we filed an application with the Virginia Commission to
modify our cogeneration and small power production rates under Schedule
19. An evidentiary hearing was held on this matter in February 1999. The
Chief Hearing Examiner's report was issued in February 2000. We filed
comments to the Chief Hearing Examiner's report in March 2000.
. In December 1999, we filed an application with the Virginia Commission
for an increase in annual fuel revenues of approximately $104 million. A
hearing was held in February 2000.
North Carolina
In support of Dominion's request for approval by the North Carolina
Commission of its proposed merger with CNG, the Company and Dominion reached an
agreement with the North Carolina Utilities Commission whereby we agreed not to
request an increase in North Carolina retail electric base rates for both our
Generation Business and Delivery Business until after December 31, 2005, except
for certain events that would have a significant financial impact on the
Company. Such events could include any governmental action or an occurrence
that is beyond our control and not attributable to our fault or negligence.
8
<PAGE>
However fuel rates are still subject to change under the annual fuel cost
adjustment procedures. The North Carolina Commission approved the merger
subject to conditions agreed to by Dominion and Virginia Power in October 1999.
In September 1999, we filed an application with the North Carolina
Commission for a $5.2 million increase in fuel rates for our Generation
Business. In December 1999, the North Carolina Commission approved our request.
This increases the annual fuel rates and charges paid by the retail customers
of North Carolina Power effective on January 1, 2000.
CAPITAL REQUIREMENTS AND FINANCING PROGRAM
Construction And Nuclear Fuel Expenditures
Our estimated construction and nuclear fuel expenditures for the three-year
period 2000-2002 total $1.1 billion for the Generation Business and $1.3
billion for the Delivery Business. The estimated 2000 construction and nuclear
fuel expenditures amount to $856 million consisting of $462 million for the
Generation Business and $394 million for the Delivery Business.
Financing Program
We currently have three shelf registration statements on file with the SEC
and the Virginia Commission providing us with a remaining aggregate amount of
$740 million of capital resources for both our Generation Business and Delivery
Business.
We intend to issue securities from time to time to meet our capital
requirements, which include $375 million of long-term debt and preferred stock
maturities due in 2000.
See Liquidity and Capital Resources section of MD&A for details about our
financing program.
9
<PAGE>
SOURCES OF POWER
Virginia Power Generating Units
<TABLE>
<CAPTION>
Type Summer
Years Of Capability
Installed Fuel MW
--------- -------------- ----------
Name of Station, Units and Location
-----------------------------------
<S> <C> <C> <C>
Nuclear:
Surry Units 1 & 2, Surry, Va.............. 1972-73 Nuclear 1,602
North Anna Units 1 & 2, Mineral, Va....... 1978-80 Nuclear 1,790(a)
------
Total nuclear stations.................. 3,392
------
Fossil Fuel:
Steam:
Bremo Units 3 & 4, Bremo Bluff, Va...... 1950-58 Coal 227
Chesterfield Units 3-6, Chester, Va..... 1952-69 Coal 1,250
Clover Units 1 & 2, Clover, Va.......... 1995-96 Coal 882(b)
Mt. Storm Units 1-3, Mt. Storm, W. Va... 1965-73 Coal 1,587
Chesapeake Units 1-4, Chesapeake, Va.... 1953-62 Coal 595
Possum Point Units 3 & 4, Dumfries, Va.. 1955-62 Coal 322
Yorktown Units 1 & 2, Yorktown, Va...... 1957-59 Coal 326
Possum Point Units 1, 2, & 5, Dumfries,
Va..................................... 1948-75 Oil 929
Yorktown Unit 3, Yorktown, Va........... 1974 Oil & Gas 818
North Branch Unit 1, Bayard, W. Va...... 1994 Waste Coal 74(c)
Combustion Turbines:
33 units (7 locations).................... 1967-70 Oil & Gas 975
Combined Cycle:
Bellmeade, Richmond, Va................... 1991 Oil & Gas 230
Chesterfield Units 7 & 8, Chester, Va..... 1990-92 Oil & Gas 397
------
Total fossil stations................... 8,612
------
Hydroelectric:
Gaston Units 1-4, Roanoke Rapids, N.C..... 1963 Conventional 225
Roanoke Rapids Units 1-4, Roanoke Rapids,
N.C...................................... 1955 Conventional 99
Other..................................... 1930-87 Conventional 3
Bath County Units 1-6, Warm Springs, Va... 1985 Pumped Storage 1,260(d)
------
Total hydro stations.................... 1,587
------
Total generating unit capability........ 13,591
Net Purchases .............................. 1,245
Non-Utility Generation ..................... 3,273
------
Total Capability........................ 18,109
======
</TABLE>
- --------
(a) Includes an undivided interest of 11.6 percent (208 MW) owned by Old
Dominion Electric Cooperative (ODEC).
(b) Includes an undivided interest of 50 percent (441 MW) owned by ODEC.
(c) This unit was returned to service in May 1999.
(d) Reflects Virginia Power's 60 percent undivided ownership interest in the
2,100 MW station. A 40 percent undivided interest in the facility is owned
by Allegheny Generating Company, a subsidiary of Allegheny Energy, Inc.
(AE).
Virginia Power's highest one-hour integrated service area summer and all-
time peak demand was 16,216 MW on July 6, 1999, and an all-time high one-hour
integrated winter peak demand of 15,072 MW was reached on January 28, 2000.
10
<PAGE>
SOURCES OF ENERGY USED, FUEL COSTS AND OPERATIONS
For information as to energy supply mix and the average fuel cost of energy
supply, see Results of Operations under MD&A.
Generation Business
Nuclear Operations and Fuel Supply
. In 1999, our four nuclear units achieved a combined capacity factor
of 95.2 percent.
. We utilize both long-term contracts and spot purchases to support our
needs for nuclear fuel. We continually evaluate worldwide market
conditions in order to ensure a range of supply options at reasonable
prices. Current agreements, inventories and spot market availability
will support our current and planned fuel supply needs for fuel
cycles into the early 2000's. Beyond that period, additional fuel
will be purchased as required to ensure optimum cost and inventory
levels.
. In March 1999, Virginia Power, along with a consortium of companies,
was awarded a contract by DOE for mixed oxide (MOX) fuel fabrication
and reactor irradiation services. We have determined that MOX fuel
can be used safely and can potentially lower fuel costs. Futhermore,
this program will improve international security by reducing
plutonium stockpiles. Certain plant and site/facility modifications
must be implemented to receive and utilize MOX fuel. DOE will
reimburse Virginia Power for all plant and site/facility
modifications as well as other MOX fuel implementation costs. We
expect to provide irradiation services beginning September 2007.
. The DOE did not begin the acceptance of SNF in 1998 as specified in
our contract with the DOE. However, on-site SNF pool and dry
container storage at the Surry and North Anna Power Stations is
expected to be adequate for our needs until the DOE begins accepting
SNF.
For details on the issues of decommissioning and nuclear insurance, see Note
E to CONSOLIDATED FINANCIAL STATEMENTS.
Fossil Operations and Fuel Supply
The fuel mix utilized by our Generation Business fossil operations consists
of coal, oil and natural gas. During 1999, we burned approximately 14 million
tons of coal. We utilize both long-term contracts and spot purchases to support
our coal needs. We presently anticipate sufficient supplies of coal will be
available at reasonable prices for the next 5 to 10 years. A sufficient supply
of oil and natural gas is expected over the same period with stable prices.
We use natural gas as needed throughout the year primarily for three
combined-cycle units and at several combustion turbine units. For winter usage
at the combined-cycle sites, gas is purchased and stored during the summer and
fall and consumed during the colder months when gas supplies may not be
available. We have firm transportation contracts for the delivery of gas to the
Chesterfield combined-cycle units.
Purchases and Sales of Energy
Our Generation Business purchases electricity under contracts with other
suppliers to meet a portion of our own system capacity requirements, and makes
other wholesale electric power transactions in the eastern United States. In
addition to wholesale electric power transactions, we also actively participate
in the purchase and sale of natural gas in the open market.
11
<PAGE>
From the mid-1980's until the start of the 1990's, we entered into a number
of long-term purchase contracts for electricity now associated with our
Generation Business. At the end of 1999, 900 MW of these purchases from other
utilities ended, and by the end of the first quarter of 2000, an additional
200 MW of diversity exchange transactions will be suspended. However, we
continue to have contracts with 56 non-utility generators with a combined
dependable summer capacity of 3,273 MW. During 1998, we entered into a long-
term agreement to purchase 566 MW of electricity for sale to the wholesale
market from two of three generating units at a plant constructed in
Mississippi. For information on the financial obligations under these
agreements, see Purchased Power Contracts, Note R to CONSOLIDATED FINANCIAL
STATEMENTS.
In a continuing effort to mitigate our exposure to above-market long-term
purchased power contracts, we are evaluating our long-term purchased power
contracts and negotiating modifications to their terms, including
cancellations, where it is determined to be economically advantageous to do so.
In 1997, we executed three agreements associated with both our Generation
Business and Delivery Business with ODEC which provide for the amendment of the
parties' Interconnection and Operating Agreement (I&O Agreement). The first
agreement provides for the transition from cost-based rates for capacity and
energy purchases by ODEC to market-based rates by 2002. The second two
agreements are the Service and Operating Agreements for Network Integration
Transmission Service, which unbundled the transmission services provided to
ODEC under the I&O Agreement.
FUTURE SOURCES OF POWER
Both the Hoosier 400 MW long-term purchase contract and the AEP 500 MW long-
term purchase contract expired on December 31, 1999. We presently anticipate
adding peaking capacity beginning in the year 2000 to meet our anticipated
annual load growth of 2 percent. In addition, work was completed and the North
Branch unit was returned to full operational capacity on in May 1999.
On May 14, 1999, the Virginia Commission approved our construction of four
gas-fired combustion turbine generator units in Fauquier County, Virginia. A
Petition to Appeal the approved units, filed by an opposing party in July 1999,
was dismissed by the Virginia Supreme Court in December 1999; however, the
opposing party filed a request for rehearing on December 31, 1999. The same
party appealed the air permit issued to us by the Virginia Department of
Environmental Quality; however, such appeal was withdrawn on January 18, 2000.
In January 2000, we filed an application with the Virginia Commission to
build and operate two 160 MW combustion turbine units in Caroline County,
Virginia for additional peaking capacity. We have obtained the applicable
zoning permits for the construction of the generators and have applied for
other required environmental permits. The Virginia Commission has set a hearing
date in May 2000 to consider our request. Commercial operation is planned to
begin June 2001.
INTERCONNECTIONS
Our Delivery Business maintains major interconnections with Carolina Power
and Light Company, AEP, AE and the utilities in the Pennsylvania-New Jersey-
Maryland Power Pool. Through this major transmission network, we have
arrangements with these utilities for coordinated planning, operation,
emergency assistance and exchanges of capacity and energy.
In June 1999, Virginia Power, together with AEP, Consumers Energy Company,
The Detroit Edison Company and First Energy Corporation, on behalf of
themselves and their public utility operating company subsidiaries (Alliance
Companies), filed with FERC applications under Sections 205 and 203 of the
Federal Power Act for approval of the proposed Alliance Regional Transmission
Organization (Alliance RTO).
12
<PAGE>
In December 1999, FERC issued an Order under Section 203 of the Federal
Power Act granting the application, subject to certain conditions and
requirements discussed in the Order and directing the Alliance Companies to
submit a compliance filing as discussed in the Order. On January 19, 2000, the
Alliance Companies filed an application seeking rehearing of certain conditions
and requirements of the Order. In February 2000, the Alliance Companies filed
amendments to the Alliance RTO documents to comply with certain conditions and
requirements of the Order.
Also in December 1999, FERC issued Order 2000 which amended its regulations
to advance the formation of Regional Transmission Organizations (RTOs). The
regulations require that each public utility that owns, operates, or controls
transmission facilities make certain filings with respect to forming and
participating in an RTO. FERC also codified minimum characteristics and
functions that a transmission entity must satisfy in order to be considered an
RTO. In January 2000, the Alliance Companies filed an application seeking
rehearing of certain provisions of the Order.
See REGULATION--Virginia above for a discussion of that state's laws and
proceedings relating to the establishment of regional transmission entities.
ITEM 2. PROPERTIES
We own our principal properties in fee (except as indicated below), subject
to defects and encumbrances that do not interfere materially with their use.
Substantially all of Virginia Power's property is subject to the lien of a
mortgage securing our First and Refunding Mortgage Bonds.
In connection with our Delivery Business, right-of-way grants from the
apparent owners of real estate have been obtained for most of our electric
lines, but underlying titles have not been examined except for transmission
lines of 69 Kv or more. Where rights of way have not been obtained, they could
be acquired from private owners by condemnation, if necessary. Many electric
lines are on publicly owned property, as to which permission for use is
generally revocable. Portions of our transmission lines cross national parks
and forests under permits entitling the federal government to use, at specified
charges, surplus capacity in the line if any exists.
Our Generation Business and Delivery Business share certain leased buildings
and equipment.
See Virginia Power Generating Units- SOURCES OF POWER under Item 1. BUSINESS
for a list of the principal facilities utilized by our Generation Business.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are alleged to be in violation or in default under
orders, statutes, rules or regulations relating to the environment, compliance
plans imposed upon or agreed to by us, or permits issued by various local,
state and federal agencies for the construction or operation of facilities.
From time to time, there may be pending administrative proceedings on these
matters. In addition, in the normal course of business, we are involved in
various legal proceedings. We believe that the ultimate resolution of these
proceedings will not have a material adverse effect on our financial position,
liquidity or results of operations.
See REGULATION and RATES under Item 1. BUSINESS for information on various
regulatory proceedings to which we are a party.
Environmental Matters
In April 1999, we were notified by the Department of Justice of alleged
noncompliance with the EPA's oil spill prevention, control and countermeasures
(SPCC) plans and facility response plan (FRP) requirements at one of our power
stations. If, in a legal proceeding, such instances of noncompliance are deemed
to have
13
<PAGE>
occurred, we may be required to remedy any alleged deficiencies and pay civil
penalties. Settlement of this matter is currently in negotiation and is not
expected to have a material impact on our Company's financial condition or
results of operations.
In August 1999, we identified matters at certain other power stations that
the EPA might view as not in compliance with the SPCC and FRP requirements. We
reported these matters to the EPA and our plan for correction thereof.
Presently, the EPA has not assessed any penalties against us, pending its
review of the disclosure information. Future resolution of these matters is not
expected to have a material impact on the Company's financial condition or
results of operations.
Clean Air Act Matters
On November 8, 1999 and September 21, 1999, we received notices from the
Attorney Generals of Connecticut and New York, respectively, of their intention
to file suit against the Company for alleged violations of the Clean Air Act.
The notices question whether modifications at certain Virginia Power generating
facilities were properly permitted under the Clean Air Act and allege that
emissions from these facilities have contributed to damage to public health and
the environment in the Northeast. To date, no suits have been filed. We
believe, based on newspaper reports and other sources, that we are one of a
number of companies with fossil fuel power generating stations in the southeast
and central U.S. to have received such notifications. We believe that we have
obtained the permits necessary in connection with our generating facilities and
that suits, if any, filed by the Attorney Generals will not have a material
impact on our Company's financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On January 21, 2000, by consent in lieu of a meeting, Dominion Resources,
Inc., the sole holder of all the voting Common Stock of Virginia Power, elected
the following persons to serve as Directors of the Company: Thos. E. Capps,
Jean E. Clary, Thomas F. Farrell, II, Edgar M. Roach, Jr., William G. Thomas.
14
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Dominion Resources, Inc. (Dominion) owns all of the Company's common stock.
The Company paid quarterly cash dividends on its common stock as follows:
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
---- --- --- ---
(Millions)
<S> <C> <C> <C> <C>
1999........................................................... $ 99 $95 $92 $97
1998........................................................... 100 91 95 92
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1999(***) 1998(**) 1997(*) 1996(*) 1995(*)
--------- -------- ------- ------- -------
(Millions, except percentages)
<S> <C> <C> <C> <C> <C>
Revenue............................. $ 4,591 $ 4,280 $ 4,664 $ 4,382 $ 4,352
Income from operations.............. 1,007 681 1,015 1,000 972
Income before extraordinary item.... 485 230 469 457 433
Extraordinary item (net of income
taxes of $197)..................... 255
Net income.......................... 230 230 469 457 433
Balance available for Common Stock.. 193 194 433 422 389
Total assets........................ 11,765 11,985 11,925 11,828 11,828
Total net property, plant and
equipment.......................... 9,079 9,082 9,272 9,434 9,573
Long-term debt, noncurrent capital
lease obligations, preferred stock
subject to mandatory redemption and
preferred securities of subsidiary
trust.............................. 3,716 3,805 3,854 3,916 4,228
Plant expenditures (including
nuclear fuel)...................... 737 532 482 484 578
Capitalization ratios (percent):
Debt.............................. 47.7 46.0 45.4 46.4 47.2
Preferred stock................... 7.9 7.8 7.6 7.5 7.5
Preferred securities.............. 1.5 1.5 1.5 1.5 1.5
Common equity..................... 42.9 44.7 45.5 44.6 43.8
Embedded cost (percent):
Long-term debt.................... 7.31 7.39 7.60 7.68 7.73
Preferred stock................... 6.13 5.19 5.25 5.14 5.29
Preferred securities.............. 8.73 8.72 8.72 8.72 8.72
Weighted average.................. 7.17 7.10 7.29 7.34 7.41
</TABLE>
- --------
(*) Revenue for 1995, 1996, and the first eight months of 1997 includes
revenue associated with power marketing and gas sales with related cost
of sales of such operations recorded as a component of fuel, net. The
Company experienced significant growth in its power marketing operations
in 1997 relative to prior years. Beginning in September 1997, the Company
recorded the results of its power marketing and gas sales operations, not
subject to cost-based rate regulation, as a component of other revenue
net of related cost of sales.
(**) Revenue for 1998 reflects the Company's settlement of base rate
proceedings which included a one-time rate refund of $150 million and a
base rate reduction of $100 million beginning in March 1998. Net income
for 1998 reflects the aforementioned base rate refund and rate reduction
as well as an impairment charge of $159 million to write-off net
regulatory assets no longer considered recoverable as a result of the
rate settlement. See Note Q to CONSOLIDATED FINANCIAL STATEMENTS.
(***) In 1999, the Company discontinued the application of Statement of
Financial Accounting Standards (SFAS) No. 71, Accounting for the Effects
of Certain Types of Regulation, to its generation operations in
connection with the deregulation of these operations in Virginia. The
discontinuance of SFAS No. 71 for generation resulted in a $255 million
after-tax charge recorded in the first quarter of 1999. See Note B to
CONSOLIDATED FINANCIAL STATEMENTS.
15
<PAGE>
ITEM 7. 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.
Our business and financial condition are influenced by a number of factors
including political and economic risks, market demand for energy, inflation,
capital market conditions, governmental policies, legislative and regulatory
actions (including those of FERC, EPA, DOE, NRC, Virginia Commission and North
Carolina Commission), industry and rate structure and legal and administrative
proceedings. Some other important factors that could cause actual results or
outcomes to differ materially from those discussed in the forward-looking
statements include changes in and compliance with environmental laws and
policies, weather conditions and catastrophic weather-related damage, present
or prospective wholesale and retail competition, competition for new energy
development opportunities, pricing and transportation of commodities, operation
of nuclear power facilities, acquisition and disposition of assets and
facilities, nuclear decommissioning costs, exposure to changes in the fair
value of commodity contracts, counter-party credit risk and unanticipated
changes in operating expenses and capital expenditures. 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 to predict all such factors, nor can
we assess the impact of each such factor on Virginia Power.
Any forward-looking statement speaks only as of the date on which such
statement is made, and we undertake no obligation to update any forward-looking
statement or statements to reflect events or circumstances after the date on
which such statement is made.
Business Segments
We manage our operations in a manner that requires disclosure of two
business segments--the Generation Business and the Delivery Business. The
Generation Business includes our portfolio of generating facilities and
purchased power contracts, trading and marketing activities, nuclear consulting
services, and energy services activities. The Delivery Business includes bulk
power transmission, distribution and metering services, and customer service
and continues to be subject to cost-based regulation.
The majority of our revenue is provided through bundled rate tariffs. Such
revenue is allocated between the Generation Business and Delivery Business for
internal reporting purposes and discussion herein. Certain activities discussed
in Liquidity and Capital Resources are not managed currently at the segment
level; however, specific references to segments are made as appropriate. Our
discussion of trends and variations generally applies to the Company as a
whole.
Liquidity And Capital Resources
Operating activities continue to be a strong source of cash flow, providing
approximately $1.1 billion in each of the years 1999, 1998, and 1997,
respectively. Over the past three years, cash flow from operating activities,
after dividend payments, has, on average, covered 120 percent of our total
construction requirements and provided 77 percent of our total cash
requirements. Cash requirements not met by the timing or amount of cash flow
from operations are generally satisfied with proceeds from the sale of
securities and short-term borrowings.
16
<PAGE>
Financing activities have represented a net outflow of cash in recent years
as strong cash flow from operating activities have reduced our need for debt or
equity financing.
Cash flow from (used in) financing activities was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
(Millions)
<S> <C> <C> <C>
Issuance of long-term debt.......................... $ 305 $ 270 $ 270
Issuance (repayment) of short-term debt............. 156 (4) (86)
Repayment of long-term debt......................... (345) (334) (311)
Dividend payments................................... (420) (414) (416)
Other............................................... (16) (17) (14)
----- ----- -----
Total............................................. $(320) $(499) $(557)
===== ===== =====
</TABLE>
During 1999, we issued $305 million in aggregate principal of unsecured debt
securities. In June 1999, we issued $150 million in aggregate principal of
unsecured Senior Notes, Series 1999-A, with an annual coupon rate of 6.7%, due
June 2009; and $80 million of Medium-Term Notes, Series G, with an annual
coupon rate of 6.3%, due June 2001. In November 1999, we issued $75 million in
aggregate principal of unsecured Senior Notes, Series 1999-B, with an annual
coupon rate of 7.2%, due 2004.
During 1999, we retired $321 million in aggregate principal amount of
mandatory debt maturities. In July 1999, we repurchased $24 million in
aggregate principal amount of First and Refunding Mortgage Bonds that became
available through the open market.
As of December 31, 1999, we have $740 million of securities under effective
shelf registrations with the Securities and Exchange Commission available for
our use to meet capital requirements.
We have 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 $378 million at December 31, 1999.
Cash flow used in investing activities was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
(Millions)
<S> <C> <C> <C>
Plant and equipment expenditures.................... $(673) $(451) $(397)
Nuclear fuel........................................ (64) (81) (85)
Nuclear decommissioning contributions............... (35) (37) (36)
Other............................................... (3) (13) (28)
----- ----- -----
Total............................................. $(775) $(582) $(546)
===== ===== =====
</TABLE>
Plant and equipment expenditures for generation-related projects were
approximately $327 million in 1999 and included significant expenditures for
additional capacity and environmental upgrades--See Capital Requirements below.
Transmission and distribution-related projects accounted for approximately $282
million of our total plant and equipment expenditures. These projects included
routine capital improvements and expenditures associated with new connections.
Remaining plant and equipment expenditures of $64 million reflect general
projects and information technology enhancements. Our information technology
projects include development of remote metering and dispatch technology and
continued improvements to our financial systems.
17
<PAGE>
Capital Requirements
Capacity--We anticipate that peak demand will grow approximately 2 percent a
year through 2002. We expect to complete construction of four 150 MW combustion
turbines in Fauquier County, Virginia by midyear 2000. We anticipate spending
an estimated $190 million on the total project of which approximately $145
million has been incurred through December 31, 1999. In January 2000, we filed
for approval from the Virginia Commission for the construction of two
combustion turbines in Caroline County, Virginia. The Virginia Commission has
set a hearing date in May 2000 to consider this request. We expect that any
future additional capacity and energy requirements will be met through a
combination of market purchases and Company-constructed generation.
Plant and equipment--Our construction and nuclear fuel expenditures during
2000, 2001 and 2002 are expected to total $856 million, $822 million and $760
million, respectively. We expect these construction and nuclear fuel
expenditures to be met through cash flow from operations, sales of securities
and short-term borrowings.
We are installing sulfur dioxide (SO\\2\\) emission control equipment at two
coal-fired generating units. The total cost for this project is estimated to be
$126 million of which $33 million has been incurred as of December 31, 1999. We
believe the installation of scrubbers on these two units will provide the most
cost effective means of complying with the Clean Air Act.
In response to a rule adopted by the EPA in September 1998, we plan to
install nitrogen oxide (NOx) reduction equipment on some of our generating
units at an estimated capital cost of $454 million over the next five years.
Whether these costs are actually incurred is dependent on the implementation
plans adopted by the states in which we operate. No significant costs have been
incurred as of December 31, 1999. See Future Issues--Clean Air Act Compliance.
Maturities--We will require $375 million to meet maturities of securities in
2000.
We expect to fund our capital requirements and maturities with cash flow
from operations and a combination of sales of securities and short-term
borrowings.
Results Of Operations
General
This section provides a general discussion of factors that affect revenue of
both our Generation and Delivery Businesses and a discussion of fluctuations in
certain expenses, which are not allocated separately to the Generation and
Delivery Businesses.
Total Revenue for fiscal years 1999, 1998, and 1997 was allocated to the
Generation and Delivery Businesses as follows:
<TABLE>
<CAPTION>
Year Ended December
31,
---------------------
1999 1998 1997
------ ------ ------
(Millions)
<S> <C> <C> <C>
Revenue:
Generation Business...................................... $3,393 $3,292 $3,574
Delivery Business........................................ 1,166 1,111 1,098
Other*................................................... 32 (123) (8)
------ ------ ------
Total Revenue.......................................... $4,591 $4,280 $4,664
====== ====== ======
</TABLE>
- --------
* See Note T to CONSOLIDATED FINANCIAL STATEMENTS for discussion of the nature
of this line item.
18
<PAGE>
The following factors contributed to the increase in Electric service
revenue in 1999 over 1998 and the decrease in 1998 over 1997:
<TABLE>
<CAPTION>
1999 vs. 1998 1998 vs. 1997
------------- -------------
(Millions)
<S> <C> <C>
Increase (decrease) in electric service revenue due
to:
Customer growth.................................. $ 68 $ 60
Weather.......................................... 2 (7)
Base rate refund................................. 154 (154)
Base rate variance............................... (57) (88)
Fuel rate variance............................... 24 (121)
Other retail, net................................ 31 99
---- -----
Total retail................................... 222 (211)
Other electric service revenue................... 39 (6)
---- -----
Total increase (decrease) in electric service
revenue....................................... $261 $(217)
==== =====
</TABLE>
Electric service revenue consists primarily of sales to retail customers in
our service territory at rates authorized by the Virginia Commission and North
Carolina Commission, and sales to cooperatives and municipalities at wholesale
rates authorized by FERC. Also included in electric service revenue are amounts
received from others for use of our transmission system to transport electric
energy under tariffs authorized by FERC. The primary factors affecting electric
service revenue in both fiscal years 1999 and 1998 were customer growth and
changes in rates.
Retail customer growth--Our retail customer base increased by approximately
39,000 in 1999 and 35,000 in 1998 over the respective prior year periods. These
additional customers increased our electric service revenue by an estimated $68
million in 1999 compared to 1998, and an estimated $60 million in 1998 compared
to 1997.
Weather--Weather typically has a significant impact on our electric service
revenue. However, for the comparative periods presented, weather did not have a
significant impact.
Base rate refund and base rate reduction--Electric service revenue in 1998
was less than electric service revenue in both 1999 and 1997 as a result of the
one-time base rate refund of $150 million recorded in 1998 as part of our
settlement to resolve then outstanding rate proceedings. In addition, we agreed
to a two-phased rate reduction, $100 million effective March 1, 1998 and an
additional $50 million effective March 1, 1999. This two-phased rate reduction
reduced 1999 electric service revenue by $57 million compared to 1998, and it
reduced 1998 revenue by $88 million compared to 1997. See Note Q to
CONSOLIDATED FINANCIAL STATEMENTS. As a result of Virginia law enacted in 1999,
our Virginia jurisdictional base rates will remain unchanged until July 2007.
See Note B to CONSOLIDATED FINANCIAL STATEMENTS.
Fuel rates--Currently, we are permitted to recover the cost of fuel used in
generating electricity through fuel rates approved by regulatory authorities.
The decrease in 1998 fuel rate revenue, as compared to 1997, was primarily
attributable to lower fuel rates that became effective in December 1997, March
1998 and May 1998. These reductions recognized savings from negotiated changes
to power supply contracts in December 1998, our annual fuel case resulted in an
increase in fuel rates. This increase partially offset the aforementioned fuel
rate reductions in 1998 and favorably affected electric service revenue in 1999
as our overall fuel rates in 1999 exceeded those in 1998.
Other electric service revenue increased in 1999, as compared to 1998, due
to increased revenue for electric transmission services. The decrease in other
electric service revenue in 1998, as compared to 1997, reflected reduced
revenue associated with certain renegotiated long-term wholesale requirements
contracts partially offset by increased revenue for electric transmission
services.
19
<PAGE>
Certain expenses, which are not allocated separately to the Generation
Business and Delivery Business, changed as follows when compared to the
respective prior years:
1999 Compared to 1998
Impairment of regulatory assets in 1998 was a write down of regulatory
assets as a result of our settlement of the Virginia rate proceeding. See Note
Q to the CONSOLIDATED FINANCIAL STATEMENTS.
Interest expense, net decreased in 1999, as compared to 1998, due in part to
the interest cost associated with the one-time base rate refund paid in 1998 as
part of the settlement of our Virginia rate proceeding. See Note Q to
CONSOLIDATED FINANCIAL STATEMENTS. In addition, upon discontinuance of SFAS No.
71, we began capitalizing interest in accordance with SFAS No. 34,
Capitalization of Interest Cost, as part of our generation-related construction
projects.
Extraordinary item--This extraordinary item was recorded in connection with
the passage of new legislation in 1999 establishing a detailed plan to
restructure the electric utility industry in Virginia. The legislation's
deregulation of generation was an event that required discontinuation of SFAS
No. 71 for our generation operations. Generation-related assets and liabilities
not expected to be recovered through cost-based rates were written off in March
1999, resulting in an after-tax charge of $255 million. See Note B to
CONSOLIDATED FINANCIAL STATEMENTS.
1998 Compared to 1997
Impairment of regulatory assets In 1998 there was a write down of regulatory
assets on the result of our settlement of the Virginia rate proceeding. See
Note Q to CONSOLIDATED FINANCIAL STATEMENTS. The 1997 amount represented a
reserve for potential adjustments to regulatory assets.
Depreciation and amortization decreased in 1998 as compared to 1997 due to
adjustments to the provision for depreciation and decommissioning expenses to
reflect terms of the settlement of our Virginia rate proceeding. See Note Q to
CONSOLIDATED FINANCIAL STATEMENTS.
Generation Business
Net income for our Generation Business increased in 1999 as compared to
1998. This increase was primarily attributable to changes in the composition
and the fair value of our portfolio of commodity contracts as well as the
settlement of commodity contract liabilities using Company resources rather
than market purchases. The decrease in our Generation Business net income in
1998, as compared to 1997, reflected primarily the impact of base rate
reductions, as noted in our general discussion of electric service revenue
above, and increased operating expenses. Selected financial information
relevant to our Generation Business is as follows:
<TABLE>
<CAPTION>
Year ended
December 31,
--------------------
1999 1998 1997
------ ------ ------
(Millions)
<S> <C> <C> <C>
Electric service revenue.................................. $3,129 $3,075 $3,150
Other revenue............................................. 264 217 424
Fuel, net................................................. 986 953 1,204
Purchased power capacity, net............................. 809 806 718
Operations and maintenance................................ 518 449 442
Income before interest and income taxes................... 580 545 613
Net income................................................ 292 245 285
</TABLE>
20
<PAGE>
Other revenue includes sales of electricity beyond our service territory and
sales of natural gas, nuclear consulting services, energy management services
and other revenue. The increase in other revenue in 1999 over 1998 reflects
primarily changes in the composition and fair value of our portfolio of
commodity contracts. Other revenue decreased in 1998 as compared to 1997 due to
electricity trading revenue being reported net of purchased energy for the
entirety of 1998 and only for the last four months of 1997. Such revenue was
reported gross for the first eight months of 1997 as a result of being subject
to cost of service rate regulation during that time.
Fuel, net increased in 1999, as compared to 1998, primarily due to increased
fuel costs resulting from higher production from our generating units and
increased energy purchases. Fuel, net decreased in 1998, as compared to 1997,
primarily due to the inclusion of the cost of power marketing purchases for the
first eight months of 1997. The cost of power marketing purchases since
September 1997 and the entirety of 1998 is reported net of related revenue in
other revenue. Prior to September 1997, this activity was subject to cost of
service rate regulation.
System energy output by energy source and the average fuel cost for each are
shown below. Fuel cost is presented in mills (one tenth of one cent) per
kilowatt hour.
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
Source Cost Source Cost Source Cost
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Nuclear(*)............................... 35% 4.59 33% 4.71 34% 4.52
Coal(**)................................. 38 13.73 42 13.21 40 13.54
Oil...................................... 4 20.47 3 22.52 1 26.32
Purchased power, net..................... 19 23.95 19 21.85 23 21.54
Other.................................... 4 28.98 3 27.27 2 30.65
--- --- ---
Total.................................. 100% 100% 100%
=== === ===
Average fuel cost...................... 13.34 12.71 12.67
</TABLE>
- --------
(*) Excludes Old Dominion Electric Cooperative's (ODEC) 11.6 percent ownership
interest in the North Anna Power Station.
(**) Excludes ODEC's 50 percent ownership interest in the Clover Power Station.
Purchased power capacity, net increased in 1998 as compared to 1997
primarily due to increased expenses associated with the restructuring of
certain contracts and the discontinuance of deferral accounting for such
expenses. See Note Q to CONSOLIDATED FINANCIAL STATEMENTS.
Operations and maintenance increased in 1999 as compared to 1998, primarily
as a result of: increased maintenance activities performed during planned
outages at our fossil plants; adjustments to inventories related to the planned
disposal of identified obsolete and excess materials and supplies; and the
effect of certain accounting policy changes that resulted from the
discontinuance of SFAS No. 71, including the recognition of losses on
retirement of equipment and related removal costs. See Note A to CONSOLIDATED
FINANCIAL STATEMENTS.
21
<PAGE>
Delivery Business
Overall, net income associated with our Delivery Business increased in 1999,
as compared to 1998, primarily due to an increase in revenue for electric
transmission services and from retail electric service customer growth, offset
in part by increased expenses associated with storm damage. The decrease in
Delivery Business net income in 1998, as compared to 1997, reflects primarily
the excess of increased storm damage costs and routine operational expenses
over the increase in revenue for electric transmission services. Selected
financial information relevant to our Delivery Business is as follows:
<TABLE>
<CAPTION>
Year ended
December 31,
--------------------
1999 1998 1997
------ ------ ------
(Millions)
<S> <C> <C> <C>
Electric service revenue.................................. $1,148 $1,092 $1,080
Operations and maintenance................................ 313 286 266
Income before interest and income taxes................... 449 440 459
Net income................................................ 193 185 209
</TABLE>
Electric service revenue increased in 1999 and 1998, as compared to the
respective prior years, due to increased revenue for electric transmission
services and from retail customer growth.
Operations and maintenance increased in 1999 and 1998, as compared to
respective prior years, primarily due to increased service restoration costs
associated with storm damage.
Future Issues
Competition--General
We have recently seen federal and state developments toward increased
competition. Electric utilities have been required to open their transmission
systems for use by potential wholesale competitors. In addition, non-utility
power producers now compete with electric utilities in the wholesale generation
market. At the federal level, retail competition is under consideration. Some
states, including Virginia, have already enacted legislation requiring the
introduction of retail competition.
Today, we face competition in the wholesale market. There is no general
retail competition in our principal service area at this time. However, during
its 1998 session, the Virginia legislature passed a law that requires a
transition to retail competition between January 1, 2002 and January 1, 2004.
See Competition--Retail and Competition--Legislative Initiatives below. We
actively supported this restructuring legislation, which provided the necessary
details to implement the legislation passed in 1998.
We have responded to the trend toward competition by cutting costs, re-
engineering our core business processes, and pursuing innovative approaches to
serving traditional markets and future markets. Our strategy also includes the
development of non-traditional products and services with an objective of
providing growth in future earnings. These products and services include
electric energy and capacity in the emerging wholesale market; natural gas and
other energy-related products and services; nuclear management and consulting
services; power distribution and transmission related services, including
engineering and metering; and telecommunication services. In addition, we may
from time to time, identify and investigate opportunities to expand our markets
through strategic alliances with partners whose strengths, market position and
strategies complement those of Virginia Power.
Competition--Wholesale
We sell electricity in the wholesale market under our market based sales
tariff authorized by FERC, but have agreed not to make wholesale power sales
under this tariff to loads located within our service territory. However, we
filed in February 2000 an application with FERC to make sales under our
22
<PAGE>
market-based sales tariff to loads within our service territory to facilitate
our retail access pilot program. Also, we filed in February 2000, an
application with FERC to amend our open access transmission tariff to
accommodate the retail access pilot program proposed in Virginia. See
Competition-Regulatory Initiatives below. Until such authorization has been
granted by FERC, any agreements which allow us to sell wholesale power to loads
located within our service territory are to be at cost-based rates accepted by
FERC.
During 1999, sales to wholesale customers under requirements contracts
represented approximately 4 percent of our total electric service revenue.
Since FERC issued its Order 888 requiring open access to transmission service,
we have faced increased competitive pressures on sales to wholesale customers
served under requirements contracts. In response, we have renegotiated long-
term contracts with wholesale customers. We have also implemented a new
arrangement with our largest wholesale customer that provides for a transition
from cost-based rates to market-based rates.
Competition--Retail
Currently, we have the exclusive right to provide electricity at retail
within our assigned service territories in Virginia and North Carolina. As a
result, our Company now faces competition for retail sales to the extent our
business customers move into another utility service territory, use other
energy sources instead of electric power, or generate their own electricity.
However, in 1998, the Virginia General Assembly passed legislation that
established a timeline for deregulation of retail electric service but left the
details regarding implementation to future enabling legislation. In March 1999,
the Governor of Virginia signed into law new legislation establishing a
detailed plan to restructure the electric utility industry in Virginia which
provides for customer choice beginning in 2002. Under this legislation, our
base rates will remain unchanged until July 2007 and recovery of generation-
related costs will continue to be provided through capped rates and a wires
charge assessed to those customers opting for alternate suppliers. See Note B
to CONSOLIDATED FINANCIAL STATEMENTS. For a discussion of the Company's pilot
program for customer choice beginning in 2000, see Competition-Regulatory
Initiatives below.
Competition--Legislative Initiatives
Virginia
As discussed above, the Governor of Virginia signed into law legislation
establishing a detailed plan to restructure the electric utility industry.
Under the legislation, the generation portion of the Company's Virginia
jurisdictional operations will no longer be subject to cost-based rate
regulation beginning in 2002.
Under the legislation, a transition task force has been charged to work with
the Virginia Commission during the phase-in of retail competition. The task
force has been charged with specific assignments including the monitoring of
possible over or under-recovery of stranded costs by incumbent utilities. This
monitoring begins at the onset of customer choice, and the task force will
submit annual reports to the Governor and the General Assembly offering
recommendations as it deems necessary.
The legislation also addressed divestiture, functional separation and other
corporate relationships. Although mandatory divestiture is prohibited,
functional separation is required and must be completed by January 1, 2002.
Utilities must submit their plans to the Virginia Commission by January 1,
2001, outlining steps to be taken to functionally separate generation,
transmission and distribution.
We are currently supporting certain technical amendments to the
restructuring legislation being considered by the 2000 General Assembly.
North Carolina
The 1997 session of the North Carolina General Assembly created a study
commission on the future of electric service in North Carolina. In October
1999, Duke Energy Corp. and Carolina Power and Light Company submitted a
proposal to the study commission addressing certain municipal debt issues that
must be
23
<PAGE>
resolved before a comprehensive restructuring plan can be developed. The North
Carolina Commission continues to study the subject of deregulation in
anticipation that the 2000 session of the General Assembly will consider the
issue when it convenes in May of 2000.
Federal
The U.S. Congress is expected to consider federal legislation in the near
future authorizing or requiring retail competition. Virginia Power cannot
predict what, if any, definitive actions the Congress may take.
Competition--Regulatory Initiatives
Virginia
In March 1998, the Virginia Commission issued an order instructing Virginia
Power and AEP-Virginia as Virginia's two largest investor-owned utilities, each
to design and file a retail access pilot program. We filed a report in November
1998, describing the details, objectives and characteristics of our proposed
retail access pilot program. In August 1999, the Virginia Commission's hearing
examiner issued a report interim rules for the introduction of electric and
natural gas retail competition in Virginia. In September 1999, the Company, the
Virginia Commission and two other parties entered into a stipulated agreement
which resolved the size and scope of the proposed pilot program and the
methodology for determining the market price of electricity used in calculating
the wires charge assessed to those customers opting for alternate suppliers.
The pilot program will initially give approximately 35,000 customers the
ability to choose their electric supplier. The scope of the program will be
expanded to include approximately 70,000 customers by year end 2000. A hearing
was held in September 1999. The Hearing Examiner's Report was issued in
November 1999, recommending certain changes to our pilot plan and a
modification of the stipulated market price methodology. We filed comments and
exceptions in December 1999. A Final Order from the Virginia Commission is
anticipated in early 2000.
In March 1998, the Virginia Commission issued an Order Establishing
Investigation with regard to independent system operators (ISO's), regional
power exchanges (RPX's) and retail access pilot programs. The Order directed
all investor-owned electric utilities to begin work, in conjunction with the
staff of the Virginia Commission and other interested parties, to develop one
or more ISO's and RPX's to serve the public interest in Virginia. The Virginia
Electric Utility Restructuring Act (Act), signed into law in 1999, requires
that Virginia's incumbent electric utilities join or establish regional
transmission entities (RTE's) by January 1, 2001, and seek authorization from
the Virginia Commission to transfer ownership or operational control of their
transmission facilities to such RTE's. In May 1999, the Virginia Commission
issued an Order Establishing Investigation and invited comments concerning the
development of the rules required by the Act. We submitted comments in June
1999 and reply comments in July 1999. In January 2000, the Virginia Commission
issued an Order giving notice of, and requesting comments to, the proposed
rules and regulations establishing the elements of RTE structures. We submitted
comments on the proposed rules and regulations in February 2000. Under the
proposed rule, we will be required to seek authorization to transfer
operational control of our transmission facilities on or before May 1, 2000.
Federal
Our Delivery Business maintains major interconnections with Carolina Power
and Light Company, AEP, Allegheny Energy and the utilities in the Pennsylvania-
New Jersey-Maryland Power Pool. Through this major transmission network, we
have arrangements for coordinated planning, operation, emergency assistance and
exchanges of capacity and energy.
In June 1999, Virginia Power, together with AEP, Consumers Energy Company,
The Detroit Edison Company and First Energy Corporation, on behalf of
themselves and their public utility operating company subsidiaries (Alliance
Companies), filed with FERC applications under Sections 205 and 203 of the
Federal Power Act for approval of the proposed Alliance Regional Transmission
Organization (Alliance RTO).
24
<PAGE>
In December 1999, FERC issued an Order under Section 203 of the Federal
Power Act granting the application, subject to certain conditions and
requirements discussed in the Order and directing the Alliance Companies to
submit a compliance filing as discussed in the Order. In January 2000, the
Alliance Companies filed an application seeking rehearing of certain conditions
and requirements of the Order. In February 2000, the Alliance Companies filed
amendments to the Alliance RTO documents to comply with certain conditions and
requirements of the Order.
Also, in December 1999, FERC issued Order 2000 which amended its regulations
to advance the formation of Regional Transmission Organizations (RTO's). The
regulations require that each public utility that owns, operates or controls
transmission facilities make certain filings with respect to forming and
participating in an RTO. FERC also codified minimum characteristics and
functions that a transmission entity must satisfy in order to be considered an
RTO. In January 2000, the Alliance Companies filed an application seeking
rehearing of certain provisions of the Order.
Competition--Exposure To Potentially Stranded Costs
Under traditional cost-based regulation, utilities have generally had an
obligation to serve, supported by an implicit promise of the opportunity to
recover prudently incurred costs. The most significant potential impact of
transitioning from a regulated to a competitive environment is "stranded
costs." Stranded costs are those costs incurred or commitments made by
utilities under cost-based regulation that may not be reasonably expected to be
recovered in a competitive market. If no recovery mechanism is provided during
the transition, the financial position of a utility could be materially
adversely affected.
At December 31, 1999, our exposure to potentially stranded costs was
comprised of the following:
. long-term purchased power contracts that could ultimately be determined
to be above market (see Purchased Power Contracts, Note R to the
CONSOLIDATED FINANCIAL STATEMENTS);
. generating plants that could possibly become uneconomic in a
deregulated environment; and
. unfunded obligations for nuclear plant decommissioning and
postretirement benefits not yet recognized in the financial statements
(see Note E and Note P to CONSOLIDATED FINANCIAL STATEMENTS).
We believe capped rates provided under the 1999 deregulation legislation
present a reasonable opportunity to recover a substantial portion of our
potentially stranded costs. In the absence of capped rates, we would have
otherwise been exposed, on a pre-tax basis, to an estimated $3.2 billion of
potential losses related to long-term power purchase commitments. See Note B to
CONSOLIDATED FINANCIAL STATEMENTS. Recovery of our potentially stranded costs
is subject to numerous risks including, among others, exposure to long-term
power purchase commitment losses, future environmental compliance requirements,
changes in tax laws, decommissioning costs, inflation, increased capital costs,
and recovery of certain other items.
Rate Matters
In support of Dominion's request for approval by the North Carolina
Commission of its merger with Consolidated Natural Gas Company (CNG), we and
Dominion reached an agreement with the Public Staff of the North Carolina
Commission whereby we agreed not to request any increase in our North Carolina
retail electric base rates until after December 31, 2005, except for certain
events that would have a significant financial impact on our Company. Such
events could include any governmental action or an occurrence that is beyond
our control and not attributable to our fault or negligence. However, fuel
rates are still subject to change under the annual fuel cost adjustment
proceedings. The North Carolina Utilities Commission approved the merger,
subject to conditions agreed to by Dominion and Virginia Power, in October
1999.
25
<PAGE>
Establishment of a Service Company
On January 28, 2000, Dominion completed its merger with CNG. CNG and its
subsidiaries have become wholly-owned subsidiaries of Dominion. As a result of
the merger, Dominion has become a registered public utility holding company
subject to regulation under the 1935 Public Utility Holding Company Act (1935
Act). In accordance with certain requirements of the 1935 Act, Dominion created
a subsidiary service company, Dominion Resources Services, Inc., Services which
will provide certain administrative and support services to Dominion
subsidiaries, including Virginia Power. Employees of Dominion and Virginia
Power who will perform those functions became employees of Services effective
February 1, 2000. CNG also has a service company. Virginia Power may elect to
purchase services from either service company; however, service company
functions are expected to be moved into a single service company by March 31,
2001.
In addition, our business operations are being reviewed in conjunction with
the merger of Dominion and CNG to identify opportunities for operational
efficiencies. As a result of the formation of Services and this operational
review, restructuring charges for items such as employee severance and other
special termination benefits and the elimination of duplicate facilities, are
likely to be incurred during 2000 and 2001 as we implement management's
reorganization plans.
Environmental Matters
Virginia Power is subject to rising costs resulting from a steadily
increasing number of federal, state and local laws and regulations designed to
protect human health and the environment. These laws and regulations affect
future planning and existing operations. They can result in increased capital,
operating and other costs as a result of compliance, remediation, containment
and monitoring obligations. Historically, we recovered these costs from
customers through utility rates. However, to the extent environmental costs are
incurred during the period ending June 30, 2007 in excess of the level
currently included in Virginia jurisdictional rates, our results of operations
will decrease. After that date, we may seek recovery for only those
environmental costs related to transmission and distribution operations through
regulated utility rates.
Environmental Protection And Monitoring Expenditures
We incurred approximately $78 million, $72 million, and $71 million
(including depreciation) during 1999, 1998 and 1997, respectively, in
connection with the use of environmental protection facilities, and we expect
these expenses to be approximately $79 million in 2000. In addition, capital
expenditures to limit or monitor hazardous substances were $74 million, $22
million, and $25 million for 1999, 1998 and 1997, respectively. The amount
estimated for 2000 for these expenditures is $148 million.
Clean Air Act Compliance
The Clean Air Act, as amended in 1990, requires the Company to reduce its
emissions of SO\\2\\ and NO\\x\\ which are gaseous by-products of fossil fuel
combustion. The Clean Air Act also requires us to obtain operating permits for
all major emissions-emitting facilities. Permit applications have been
submitted for the Company's power stations.
The Clean Air Act's SO\\2\\ reduction program is based on the issuance of a
limited number of SO\\2\\ emission allowances, each of which may be used as a
permit to emit one ton of SO\\2\\ into the atmosphere or may be sold to someone
else. The EPA administers the program. Our compliance plans are reviewed
periodically and may include switching to lower sulfur coal, purchasing
emission allowances and installing of SO\\2\\ control equipment. In December
1998 we initiated a capital project to install SO\\2\\ control equipment on two
units at our Mt. Storm power station at an estimated cost of $126 million.
These SO\\2\\ controls are expected to be operational by January 2002.
26
<PAGE>
We began complying with Clean Air Act Phase I NOx limits at eight of our
units in Virginia in 1997, three years earlier than otherwise required. As a
result, the units will not be subject to more stringent Phase II limits until
2008. We have established a plan to comply with the Phase II limits at the
remaining eight coal-fired units in Virginia subject to the Phase II limits.
In September 1998, the EPA adopted a rule requiring 22 states, including
Virginia, West Virginia and North Carolina, to reduce and cap ozone season (May-
September) NO\\x\\ emissions beginning in May 2003. The affected states were to
submit a compliance plan to the EPA by September 1999, but a May 1999 ruling by
the U.S. District Court of Appeals in the DC Circuit has granted an indefinite
stay of the states' submittal requirements. However, in December 1999, the EPA
issued a finding in support of petitions filed by several Northeastern states
seeking relief from long-range pollutant transport from utility and large
industrial sources that essentially enforces the same NOx emission caps
beginning in May 2003 for 12 of the 22 states, including Virginia, West
Virginia and North Carolina. In response to these requirements, we plan to
install NOx reduction equipment at our coal-fired generating facilities at an
estimated capital cost of approximately $454 million over the next several
years. Whether these costs are actually incurred is dependent on both the
outcome of pending litigation of these rules and on the implementation plans
adopted by the states in which we operate.
Evaluation and planning on future projects to comply with SO\\2\\ and NOx
reduction requirements are ongoing and will be influenced by changes in the
regulatory environment, availability of SO\\2\\ allowances and emission control
technology.
Global Climate Change
In 1993, the United Nation's Global Warming Treaty became effective. The
objective of the treaty is the stabilization of greenhouse gas concentrations
at a level that would prevent man-made emissions from interfering with the
climate system.
As a continuation of the effort to limit man-made greenhouse emissions, an
international Protocol was formulated in December 1997, in Kyoto, Japan. This
Protocol calls for the United States to reduce greenhouse emissions by 7
percent from 1990 baseline levels by the period 2008-2012. The Protocol has
been signed by the United States but will not constitute a binding commitment
unless submitted to and approved by the United States Senate. Emission
reductions of the magnitude included in the Protocol, if adopted, would likely
result in a substantial financial impact on companies that consume or produce
fossil fuel-derived electric power, including Virginia Power.
Recently Issued Accounting Standards
The Financial Accounting Standards Board (FASB) recently issued SFAS No.
137, Accounting for Derivative Instruments and Hedging Activities--Deferral of
the Effective Date of FASB Statement No. 133, which defers the effective date
of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities
(SFAS No. 133) from January 1, 2000 to January 1, 2001. SFAS No. 133 requires
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. This statement requires that changes in a
derivative's fair value be recognized in current earnings unless specific hedge
accounting criteria are met.
We have tentatively determined that our long-term purchased power contracts
would not be subject to SFAS No. 133. Our trading portfolio of commodity
contracts is currently marked to fair value and would not be affected by this
statement. We are in the process of assessing the impact, method, and period of
adoption of SFAS No. 133 and have not estimated the financial impact of
adoption. To the extent that any of the contracts are subject to fair value
accounting, implementing appropriate hedging strategies could possibly mitigate
the potential impact on earnings volatility.
27
<PAGE>
Year 2000 Readiness
We experienced a successful transition to the Year 2000. Immediately after
the rollover and throughout the rollover weekend, our transmission and
distribution systems and our generating units continued to operate smoothly.
Our customers did not lose power as a result of a Year 2000 problem.
We are continuing to monitor systems for any Year 2000 issues through the
transition to February 29, 2000. However, as with the rollover to January 1,
2000, no significant problems are expected.
We expect total Year 2000 costs to be approximately $28 million. Actual Year
2000 costs of $26 million have been expended as of December 31, 1999.
We cannot estimate or predict the potential adverse consequences that could
result from a third party's failure to effectively address remaining Year 2000
issues, if any, but believe that any impact would be short-term in nature and
would not have a material adverse impact on results of operations.
Market Risk Sensitive Instruments and Risk Management
We are exposed to market risk because we utilize financial instruments,
derivative financial instruments and derivative commodity instruments. The
market risks inherent in these instruments are represented by the potential
loss due to adverse changes in commodity prices, equity security prices and
interest rates as described below. Interest rate risk generally is related to
our outstanding debt, preferred stock and trust-issued securities. We are
exposed to equity price risk primarily as a result of equity securities held in
nuclear decommissioning trusts. Commodity price risk is experienced in our
power generation and commodity marketing and trading business due to the
exposure to market shifts in the prices received and paid for natural gas and
electricity.
We are using sensitivity analysis to disclose quantitative information about
our exposure to commodity price and interest rate risks. Our sensitivity
analysis estimates the potential loss of future earnings that may result from
market risk sensitive instruments over a selected time period due to
hypothetical changes in interest rates and commodity prices. The tabular
presentation methodology continues to be used to disclose equity price market
risk.
Commodity Price Risk
As part of our strategy to market energy from our generation capacity and to
manage related risks, we manage a portfolio of derivative commodity contracts
held for trading purposes. These contracts are sensitive to changes in the
prices of natural gas and electricity. We employ established policies and
procedures to manage the risks associated with these price fluctuations and use
various commodity instruments, such as futures, swaps and options, to reduce
risk by creating offsetting market positions. In addition, we seek to use our
generation capacity, when not needed to serve customers in our service
territory, to satisfy commitments to sell energy.
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 swaps, forward contracts
and options, market value reflects our best estimates considering over-the-
counter quotations, time value and volatility factors of the underlying
commitments. Exchange-traded futures and options are marked to market based on
closing exchange prices.
We have determined a hypothetical loss by calculating a hypothetical fair
value for each contract assuming a 10% unfavorable change in the market prices
of the related commodity and comparing it to the fair value of the contracts
based on market prices at December 31, 1999 and 1998. This hypothetical 10%
change in commodity prices would have resulted in a hypothetical loss of
approximately $5 million and $13 million in
28
<PAGE>
the fair value of our commodity contracts as of December 31, 1999 and 1998,
respectively. The commodity contracts' sensitivity to unfavorable price changes
decreased in 1999 primarily due to reduced price exposure from options included
in the portfolio at December 31, 1999 as compared to December 31, 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, we also face risks that are either nonfinancial
or nonquantifiable. Such risks principally include credit risk, which is not
reflected in the sensitivity analysis above.
Interest Rate Risk
We manage our exposure to interest rate risk by maintaining a portfolio of
both fixed and variable-rate debt instruments. In addition, we participate in
interest rate sensitive derivatives, such as interest rate swaps, to manage
this risk. As part of our risk management policies, we may participate in
similar types of derivatives in the future.
Our sensitivity analysis estimates the impact of a hypothetical change in
interest rates on our variable-rate long-term and short-term financial
instruments and interest rate sensitive derivatives. For financial instruments
outstanding at December 31, 1999, a hypothetical 10% increase in market
interest rates would decrease annual earnings by approximately $8 million. A
similar hypothetical increase in market interest rates, as determined at
December 31, 1998, resulted in a decrease in annual earnings of $4 million.
Equity Price Risk
The following table presents a description of marketable equity securities
held at December 31, 1999 and 1998. In accordance with SFAS No. 115, Accounting
For Certain Investments In Debt And Equity Securities, these securities are
reported on the balance sheet at fair value.
<TABLE>
<CAPTION>
At December 31,
---------------------
1999 1998
---------- ----------
Fair Fair
Cost Value Cost Value
---- ----- ---- -----
(Millions)
<S> <C> <C> <C> <C>
Nuclear decommissioning trust investments................. $274 $565 $252 $470
</TABLE>
29
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
ITEM 7A. 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.
30
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
<TABLE>
<CAPTION>
Page
No.
----
<S> <C>
Report of Management..................................................... 32
Report of Independent Auditors........................................... 33
Consolidated Statements of Income for the years ended December 31, 1999,
1998 and 1997........................................................... 34
Consolidated Balance Sheets at December 31, 1999 and 1998................ 36
Consolidated Statements of Earnings Reinvested in Business for the years
ended December 31, 1999, 1998 and 1997.................................. 38
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997..................................................... 39
Notes to Consolidated Financial Statements............................... 40
</TABLE>
31
<PAGE>
REPORT OF MANAGEMENT
The Company's management is responsible for all information and
representations contained in the Consolidated Financial Statements and other
sections of the Company's annual report on Form 10-K. The Consolidated
Financial Statements, which include amounts based on estimates and judgments of
management, have been prepared in conformity with generally accepted accounting
principles. Other financial information in the Form 10-K is consistent with
that in the Consolidated Financial Statements.
Management maintains a system of internal accounting controls designed to
provide reasonable assurance, at a reasonable cost, that the Company's assets
are safeguarded against loss from unauthorized use or disposition and that
transactions are executed and recorded in accordance with established
procedures. Management recognizes the inherent limitations of any system of
internal accounting control and, therefore, cannot provide absolute assurance
that the objectives of the established internal accounting controls will be
met. This system includes written policies, an organizational structure
designed to ensure appropriate segregation of responsibilities, careful
selection and training of qualified personnel and internal audits. Management
believes that during 1999 the system of internal control was adequate to
accomplish the intended objective.
The Consolidated Financial Statements have been audited by Deloitte & Touche
LLP, independent auditors, who have been engaged by the Board of Directors.
Their audits were conducted in accordance with generally accepted auditing
standards and included a review of the Company's accounting systems, procedures
and internal controls, and the performance of tests and other auditing
procedures sufficient to provide reasonable assurance that the Consolidated
Financial Statements are not materially misleading and do not contain material
errors.
The Audit Committee of the Board of Directors of Dominion Resources, Inc.,
composed entirely of directors who are not officers or employees of Dominion
Resources, Inc. or its subsidiaries, meets periodically with the independent
auditors, the internal auditors and management to discuss auditing, internal
accounting control and financial reporting matters of the Company and to ensure
that each is properly discharging its responsibilities. Both the independent
auditors and the internal auditors periodically meet alone with the Audit
Committee and have free access to the Committee at any time.
Management recognizes its responsibility for fostering a strong ethical
climate so that the Company's affairs are conducted according to the highest
standards of personal and corporate conduct. This responsibility is
characterized and reflected in the Company's Code of Ethics, which is
distributed throughout the Company. The Code of Ethics addresses, among other
things, the importance of ensuring open communication within the Company;
potential conflicts of interest; compliance with all domestic and foreign laws,
including those relating to financial disclosure; the confidentiality of
proprietary information; and full disclosure of public information.
VIRGINIA ELECTRIC AND POWER COMPANY
/s/ J.A. Shaw /s/ M.S. Bolton, Jr.
Senior Vice President, Senior Vice President
Chief Financial -Financial Management
Officer and Treasurer
(Principal Accounting Officer)
32
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of Virginia Electric and Power Company:
We have audited the accompanying consolidated balance sheets of Virginia
Electric and Power Company (a wholly owned subsidiary of Dominion Resources,
Inc.) and subsidiaries (the Company) as of December 31, 1999 and 1998, and the
related consolidated statements of income, earnings reinvested in business, and
cash flows for each of the three years in the period ended December 31, 1999.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of the Company at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Richmond, Virginia
January 28, 2000
33
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For The Years Ended
December 31,
--------------------
1999 1998 1997
------ ------ ------
(Millions)
<S> <C> <C> <C>
Revenue:
Electric service........................................ $4,274 $4,013 $4,230
Other................................................... 317 267 434
------ ------ ------
Total................................................. 4,591 4,280 4,664
------ ------ ------
Expenses:
Fuel, net............................................... 986 953 1,204
Purchased power capacity, net........................... 809 806 718
Impairment of regulatory assets......................... 159 38
Operations and maintenance.............................. 959 854 819
Depreciation and amortization........................... 548 537 584
Taxes other than income................................. 282 290 286
------ ------ ------
Total................................................. 3,584 3,599 3,649
------ ------ ------
Income from operations.................................... 1,007 681 1,015
Other income.............................................. 25 23 18
------ ------ ------
Income before interest and income taxes................... 1,032 704 1,033
------ ------ ------
Interest and related charges:
Interest expense........................................ 278 306 304
Distributions--preferred securities of subsidiary
trust.................................................. 11 11 11
------ ------ ------
Total................................................. 289 317 315
------ ------ ------
Income before income taxes................................ 743 387 718
Income tax expense........................................ 258 157 249
------ ------ ------
Income before extraordinary item.......................... 485 230 469
Extraordinary item (net of income taxes of $197).......... 255
------ ------ ------
Net income................................................ 230 230 469
Preferred dividends....................................... 37 36 36
------ ------ ------
Balance available for common stock........................ $ 193 $ 194 $ 433
====== ====== ======
</TABLE>
The Company had no other comprehensive income reportable in accordance with
Statement of Financial Accounting Standards (SFAS) No. 130, Reporting
Comprehensive Income.
The accompanying notes are an integral part of the financial statements.
34
<PAGE>
[THIS PAGE LEFT INTENTIONALLY BLANK]
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
At December 31,
---------------
1999 1998
------- -------
(Millions)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................................... $ 62 $ 49
Accounts receivable:
Customers (less allowance for doubtful accounts of $12 in
1999
and $5 in 1998)........................................... 664 778
Other...................................................... 67 76
Materials and supplies at average cost or less:
Plant and general.......................................... 124 142
Fossil fuel................................................ 111 95
Commodity contract assets.................................... 362 180
Other........................................................ 145 150
------- -------
Total current assets....................................... 1,535 1,470
------- -------
INVESTMENTS:
Nuclear decommissioning trust funds.......................... 818 705
Other........................................................ 52 46
------- -------
Total investments.......................................... 870 751
------- -------
DEFERRED DEBITS AND OTHER ASSETS:
Regulatory assets............................................ 221 620
Unamortized debt issuance costs.............................. 31 28
Other........................................................ 29 34
------- -------
Total deferred debits and other assets..................... 281 682
------- -------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment................................ 15,688 15,208
Less accumulated depreciation................................ 6,746 6,279
------- -------
8,942 8,929
Nuclear fuel, net............................................ 137 153
------- -------
Net property, plant and equipment.......................... 9,079 9,082
------- -------
Total assets............................................... $11,765 $11,985
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
36
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
At December 31,
---------------
1999 1998
------- -------
(Millions)
<S> <C> <C>
CURRENT LIABILITIES:
Securities due within one year............................... $ 375 $ 321
Short-term debt.............................................. 378 221
Accounts payable, trade...................................... 534 566
Customer deposits............................................ 49 46
Payrolls accrued............................................. 88 79
Interest accrued............................................. 97 94
Taxes accrued................................................ 52 48
Commodity contract liabilities............................... 347 266
Other........................................................ 116 133
------- -------
Total current liabilities.................................. 2,036 1,774
------- -------
LONG-TERM DEBT................................................. 3,551 3,465
------- -------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes............................ 1,452 1,564
Deferred investment tax credits.............................. 146 221
Other........................................................ 193 204
------- -------
Total deferred credits and other liabilities............... 1,791 1,989
------- -------
COMMITMENTS AND CONTINGENCIES (See Note R)
COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED
SECURITIES OF SUBSIDIARY TRUST(*).............................. 135 135
------- -------
PREFERRED STOCK:
Preferred stock subject to mandatory redemption.............. 180
------- -------
Preferred stock not subject to mandatory redemption.......... 509 509
------- -------
COMMON STOCKHOLDER'S EQUITY:
Common stock, no par, 300,000 shares authorized, 171,484
shares outstanding at December 31, 1999 and 1998............ 2,738 2,738
Other paid-in capital........................................ 17 17
Earnings reinvested in business.............................. 988 1,178
------- -------
Total common stockholder's equity.......................... 3,743 3,933
------- -------
Total liabilities and shareholder's equity................. $11,765 $11,985
======= =======
</TABLE>
- --------
(*) As described in Note J to CONSOLIDATED FINANCIAL STATEMENTS, the 8.05%
Junior Subordinated Notes totaling $139 million principal amount constitute
100% of the Trust's assets.
The accompanying notes are an integral part of the financial statements.
37
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS REINVESTED IN BUSINESS
<TABLE>
<CAPTION>
For The Years Ended
December 31,
--------------------
1999 1998 1997
------ ------ ------
(Millions)
<S> <C> <C> <C>
Balance at beginning of year............................... $1,178 $1,362 $1,309
Net income................................................. 230 230 469
------ ------ ------
Total.................................................. 1,408 1,592 1,778
------ ------ ------
Cash dividends:
Preferred stock subject to mandatory redemption.......... 11 11 11
Preferred stock not subject to mandatory redemption...... 26 25 25
Common Stock............................................. 383 378 380
------ ------ ------
Total dividends........................................ 420 414 416
------ ------ ------
Balance at end of year..................................... $ 988 $1,178 $1,362
====== ====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
38
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For The Years Ended
December 31,
----------------------
1999 1998 1997
------ ------ ------
(Millions)
<S> <C> <C> <C>
Cash Flow From (Used in) Operating Activities:
Net income............................................ $ 230 $ 230 $ 469
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization........................ 629 613 665
Deferred income taxes................................ 38 (6) 36
Deferred investment tax credits...................... (17) (17) (17)
Deferred fuel expenses, net.......................... (35) (34) 9
Deferred capacity expenses........................... (16) (41)
Extraordinary item, net of income taxes.............. 255
Impairment of regulatory assets...................... 159 38
Changes in:
Accounts receivable................................. 123 (41) (200)
Materials and supplies.............................. 2 (24) 13
Accounts payable, trade............................. (32) 91 83
Accrued expenses.................................... 16 18 (14)
Commodity contract assets and liabilities........... (92) 66 14
Other................................................ (9) 55 36
------ ------ ------
Net Cash Flow From Operating Activities............ 1,108 1,094 1,091
------ ------ ------
Cash Flow From (Used in) Financing Activities:
Issuance of long-term debt........................... 305 270 270
Issuance (repayment) of short-term debt.............. 156 (4) (86)
Repayment of long-term debt.......................... (345) (334) (311)
Common stock dividend payments....................... (383) (378) (380)
Preferred stock dividend payments.................... (37) (36) (36)
Distribution-preferred securities of subsidiary
trust............................................... (11) (11) (11)
Other................................................ (5) (6) (3)
------ ------ ------
Net Cash Flow Used in Financing Activities......... (320) (499) (557)
------ ------ ------
Cash Flow Used in Investing Activities:
Plant and equipment expenditures..................... (673) (451) (397)
Nuclear fuel......................................... (64) (81) (85)
Nuclear decommissioning contributions................ (35) (37) (36)
Other................................................ (3) (13) (28)
------ ------ ------
Net Cash Flow Used in Investing Activities......... (775) (582) (546)
------ ------ ------
Increase (decrease) in cash and cash equivalents...... 13 13 (12)
Cash and cash equivalents at beginning of year........ 49 36 48
------ ------ ------
Cash and cash equivalents at end of year.............. $ 62 $ 49 $ 36
====== ====== ======
Cash paid during the year for:
Interest............................................. $ 278 $ 309 $ 277
Income taxes......................................... 232 184 230
</TABLE>
The accompanying notes are an integral part of the financial statements.
39
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Significant Accounting Policies
General
Virginia Electric and Power Company is a regulated public utility engaged in
the generation, transmission, distribution and sale of electric energy within a
30,000 square-mile area in Virginia and northeastern North Carolina. It sells
electricity to retail customers (including governmental agencies) and to
wholesale customers such as rural electric cooperatives, municipalities, power
marketers and other utilities. The Virginia service area comprises about 65
percent of Virginia's total land area, but accounts for over 80 percent of its
population. The Company engages in off-system wholesale purchases and sales of
electricity and purchases and sales of natural gas, and is developing trading
relationships beyond the geographic limits of its retail service territory.
Within this document, the terms "Virginia Power" and the "Company" shall refer
to the entirety of Virginia Electric and Power Company, including, without
limitation, its Virginia and North Carolina operations, and all of its
subsidiaries.
The Company's accounting practices are in accordance with generally accepted
accounting principles. The financial statements include the accounts of the
Company and its subsidiaries, with all significant intercompany transactions
and accounts being eliminated on consolidation.
The Company is a wholly-owned subsidiary of Dominion Resources, Inc.
(Dominion), a Virginia corporation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent liabilities at the date of the financial statements
and revenue and expenses during the reporting period. Actual results could
differ from those estimates.
As discussed in Form 8-K, filed March 29, 1999, Virginia Power discontinued
the application of SFAS No. 71, Accounting for the Effects of Certain Types of
Regulation, to its generation operations. The effect thereof was an after-tax
charge of $255 million. See Note B.
In connection with the discontinuance of SFAS No. 71 to its generation-
related utility operations, Virginia Power prospectively changed certain of its
accounting policies to those used by non-regulated entities. These policy
changes primarily relate to the capitalization of interest on and depreciation
of generation-related property. The Company reevaluated the economic useful
life estimates of its generation-related property in light of the scheduled
deregulation of the generation business in Virginia. In addition, Virginia
Power no longer provides for the cost of removal in its provision for
depreciation of generation-related utility property, as prescribed by
regulatory accounting practices. Effective April 1999, such costs are expensed
as incurred. Also, Virginia Power no longer records retirements of generation-
related utility property by charging accumulated depreciation. Rather, Virginia
Power records gains and losses upon retirement of such property based upon the
difference between proceeds received, if any, and the property's undepreciated
basis at the retirement date. The overall impact of these changes was not
material to the Company's results of operations and financial condition.
Revenue
Revenue is recorded on the basis of services rendered, commodities delivered
or contracts settled and includes amounts yet to be billed to customers.
Revenue from trading activities includes realized commodity contract revenue,
net of related cost of sales, amortization of option premiums and unrealized
gains and losses resulting from marking to market those commodity contracts not
yet settled.
40
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fuel, Net
Fuel, net represents fuel costs subject to rate regulation. It includes the
cost of fossil fuel, nuclear fuel and purchased energy used to serve electric
sales. It also includes the cost of purchased energy associated with power
marketing sales subject to cost of service rate regulation.
Approximately 95 percent of rate regulated fuel costs are subject to
deferral accounting. Deferral accounting provides that the difference between
reasonably incurred actual expenses and the level of expenses included in
current rates is deferred and matched against future revenue. Fuel, net
includes the effect of this deferral accounting and may therefore show expenses
that are marginally higher or lower than the actual cost of fuel consumed
during the period.
Property, Plant and Equipment
Property, plant and equipment is recorded at original cost, which includes
labor, materials, services, capitalized interest, and other indirect costs. The
cost of maintenance and repairs is charged to the appropriate operating expense
accounts. The cost of additions and replacements is charged to the appropriate
utility plant account, except that the cost of minor additions and replacements
is charged to maintenance expense.
Depreciation and Amortization
Depreciation of property, plant, and equipment (other than nuclear fuel) is
computed on the straight-line method based on projected useful service lives.
The cost of depreciable transmission and distribution property retired and
related cost of removal, less salvage, are charged to accumulated depreciation.
For generation-related property, cost of removal is charged to expense as
incurred. The Company records gains and losses upon retirement of generation-
related property based upon the difference between proceeds received, if any,
and the property's undepreciated basis at the retirement date. The composite
weighted-average depreciation rate, excluding nuclear fuel, was approximately
3.2% for 1999, 1998 and 1997.
Operating expenses include amortization of nuclear fuel, which is provided
on a unit of production basis sufficient to fully amortize, over the estimated
service life, the cost of the fuel plus permanent storage and disposal costs.
Federal Income Taxes
The Company files a consolidated federal income tax return with Dominion.
Deferred investment tax credits are being amortized over the service lives
of the property giving rise to such credits.
Regulatory Assets
The Company's financial statements reflect assets and costs in accordance
with SFAS No. 71. This accounting standard provides that certain expenses
normally reflected in income are deferred on the balance sheet as regulatory
assets. Regulatory assets represent probable future revenue associated with
certain costs that will be recovered from customers through the ratemaking
process. At December 31, 1999, the Company's transmission and distribution
operations continue to satisfy the requirements of SFAS No. 71. In addition, at
41
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, regulatory assets included certain generation-related
regulatory assets that continue to be recognized in accordance with Emerging
Issues Task Force (EITF) Issue No. 97-4, "Deregulation of the Pricing of
Electricity Issues Related to the Application of FASB Statements No. 71,
Accounting for the Effects of Certain Types of Regulation, and No. 101,
Regulated Enterprises--Accounting for the Discontinuance of Application of FASB
Statement No. 71" (EITF Issue 97-4). See Note B and Note H for information on
the discontinuance of the application of SFAS No. 71 to the Company's
generation-related operations and the Company's regulatory assets.
Amortization of Debt Issuance Costs
The Company defers and amortizes expenses incurred in connection with the
issuance of long-term debt, including premiums and discounts associated with
such debt, over the lives of the respective issues. As permitted by appropriate
regulatory jurisdictions, gains or losses resulting from the redemption of debt
are deferred and amortized over the remaining lives of the redeemed issues. In
the case of a refinancing, the Company amortizes such gains and losses over the
lives of the new issues of long-term debt. Effective April 1999, gains or
losses resulting from the retirement or refinancing of debt allocable to
generation-related operations will be recorded in accordance with SFAS No. 4,
Reporting Gains and Losses From Extinguishment of Debt.
Cash and Cash Equivalents
Current banking arrangements generally do not require checks to be funded
until actually presented for payment. At December 31, 1999 and 1998, the
Company's accounts payable included the net effect of checks outstanding but
not yet presented for payment of $52 million and $49 million, respectively. For
purposes of the Consolidated Statements of Cash Flows, the Company considers
cash and cash equivalents to include cash on hand and temporary investments
purchased with an initial maturity of three months or less.
Commodity Contracts
As part of Virginia Power's strategy to market energy from its generation
capacity and to manage the risks related thereto, the Company enters into
contracts for the purchase and sale of energy commodities. The trading
activities of Virginia Power's wholesale power group include fixed-price
forward contracts and the purchase and sale of over-the-counter options that
require physical delivery of the underlying commodity. Furthermore, in order to
manage price risk associated with natural gas sales and fuel requirements for
utility operations, the Company uses basis swaps and exchange-traded futures
and options.
Swaps, futures, and options are marked to market with resulting gains and
losses reported in earnings, unless such instruments are designated as hedges
of fuel requirements for utility operation for accounting purposes. Forward
contracts, initiated for trading purposes, also are marked to market with
resulting gains and losses reported in earnings. For swaps, forward contracts
and options, market value reflects management's best estimates considering
over-the-counter quotations, time value and volatility factors of the
underlying commitments. Exchange-traded futures and options are marked to
market based on closing exchange prices.
Commodity contracts representing unrealized gain positions are reported as
commodity contract assets; commodity contracts representing unrealized losses
are reported as commodity contract liabilities. In addition, purchased options
and options sold are reported as commodity contract assets and commodity
contract liabilities, respectively, at estimated market value until exercise or
expiration. Realized commodity contract revenue, net of related cost of sales,
settlement of futures contracts, amortization of option premiums and unrealized
gains and losses resulting from marking positions to market are included in
other revenue. Cash flows from trading activities are reported as operating
activities in the Consolidated Statements of Cash Flow.
42
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Interest Rate Swaps
The net of amounts paid and amounts received under interest rate swaps is
reported as interest expense on the Consolidated Statements of Income.
Reclassification
Certain amounts in the 1998 and 1997 financial statements have been
reclassified to conform to the 1999 presentation.
B. Extraordinary Item--Discontinuance of SFAS No. 71
During its 1998 session, the Virginia legislature passed a law that required
a transition to retail competition between January 1, 2002 and January 1, 2004,
but left the details as to how that would be accomplished to future enabling
legislation.
In March 1999, the Governor of Virginia signed into law legislation
establishing a detailed plan to restructure the electric utility industry in
Virginia. The major elements of the bill included:
. Phase-in of retail customer choice beginning in 2002 with full retail
customer choice by 2004; the schedule is to be determined by the State
Corporation Commission of Virginia (Virginia Commission), which has the
authority to accelerate or delay implementation under certain
conditions; however, the phase-in of retail customer choice may not be
delayed beyond January 1, 2005;
. No mandatory divestiture of generating assets;
. Deregulation of generation in 2002;
. Capped base rates from January 1, 2001 to July 1, 2007;
. Recovery of net stranded costs through capped rates or a wires charge
paid by those customers opting, while capped rates are in effect, to
purchase energy from a competitive supplier;
. Cost-based recovery of fuel expenses until July 2007;
. Consumer protection safeguards;
. Establishment of default service beginning January 1, 2004; and
. Creation of a Legislative Transition Task Force to oversee the
implementation of the statute.
Under this legislation, the Company's base rates will remain unchanged until
July 2007 and recovery of generation-related costs will continue to be provided
through the capped rates. In addition, under companion legislation enacted by
Virginia in 1999, providers of electric service will be subject to corporate
income tax in lieu of gross receipts tax effective in 2001.
As discussed in Note A, the Company's financial statements reflect
regulatory assets and liabilities under cost-based rate regulation in
accordance with SFAS No. 71. Rate-regulated companies are required to write off
regulatory assets against current earnings whenever changes in facts and
circumstances result in those assets no longer satisfying criteria for
recognition as defined by SFAS No. 71. The legislation's deregulation of
generation is an event that required discontinuation of SFAS No. 71 for the
Company's generation operations in the first quarter of 1999. The Company's
transmission and distribution operations continue to meet the criteria for
recognition of regulatory assets and liabilities as defined by SFAS No. 71. In
addition, fuel continues to be subject to deferral accounting.
43
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In order to measure the amount of regulatory assets to be written off, the
Company evaluated to what extent recovery of regulatory assets would be
provided through the capped rates during the transition period. EITF Issue 97-
4, provides guidance about writing off regulatory assets when SFAS No. 71 is
discontinued for only a portion of a utility's operations. The provisions of
the Virginia legislation provide an opportunity to recover generation-related
costs, including certain regulatory assets, through capped rates prior to July
2007. Under EITF Issue 97-4 such generation-related regulatory assets will
continue to be recognized until they are recovered through capped rates.
Generation-related assets and liabilities that will not be recovered through
the capped rates were written off in the first quarter of 1999, resulting in an
after-tax charge to earnings of $255 million. See Note H for discussion of net
regulatory assets at December 31, 1999.
In addition to the write-off of generation-related net regulatory assets,
the $255 million charge included a write-off of approximately $18 million,
after-tax, of other generation-related assets. Pursuant to EITF Issue 97-4, a
corresponding regulatory asset of $23 million, representing the amount expected
to be recovered during the transition period related to these assets, was
established. The extraordinary item also included the write-off of
approximately $38 million, after-tax, of deferred investment tax credits.
Also, the events or changes in circumstances that cause discontinuance of
SFAS No. 71, and write-off of regulatory assets, also require a review of
utility plant assets and long-term power purchase contracts for possible
impairment. This review is based on estimates of possible future market prices,
load growth, competition and many other assumptions. The Company evaluated its
generation assets in accordance with the provisions of SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of. Those evaluations included the effects of nuclear decommissioning
and other currently identified environmental expenditures. Based on those
analyses which were highly dependent on the underlying assumptions, no plant
write-downs were appropriate at that time.
The Company reviewed its long-term purchased power commitments for potential
loss in accordance with SFAS No. 5, Accounting for Contingencies, and
Accounting Research Bulletin No. 43, Chapter 4, Inventory Pricing. Based on
projections of possible future market prices for wholesale electricity, the
results of the analyses of the Company's long-term power purchase contracts
indicated no loss recognition was appropriate at that time. Other projections
of possible future market prices indicated a possible loss of $500 million. In
the absence of capped rates as provided by the legislation, the potential
exposure related to the Company's power purchase contracts would have been
approximately $3.2 billion.
Significant estimates were required in recording the effect of the
deregulation legislation, including the resulting impact on the fair value
determination of generating facilities and estimated purchases under long-term
power purchase contracts. Such projections are highly dependent on future
customer load projections, generating unit availability, the timing and type of
future capacity additions in Virginia Power's market area and future market
prices for fuel and electricity and are subject to future re-evaluation.
C. Recently Issued Accounting Standards
The Financial Accounting Standards Board (FASB) recently issued SFAS No.
137, Accounting for Derivative Instruments and Hedging Activities--Deferral of
the Effective Date of FASB Statement No. 133, which defers the effective date
of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities
(SFAS No. 133) from January 1, 2000 to January 1, 2001. SFAS No. 133 requires
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. This statement requires that changes in a
derivative's fair value be recognized in current earnings unless specific hedge
accounting criteria are met.
44
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company has tentatively determined that its long-term purchased power
contracts would not be subject to SFAS No. 133. The Company's trading portfolio
of commodity contracts is currently marked to fair value and would not be
affected by this statement. The Company is in the process of assessing the
impact, method, and period of adoption of SFAS No. 133 and has not estimated
the financial impact of adoption. To the extent that any of the contracts are
subject to fair value accounting, implementing appropriate hedging strategies
could possibly mitigate the potential impact on earnings volatility.
D. Income Taxes
Details of income tax expense are as follows:
<TABLE>
<CAPTION>
Years
----------------
1999 1998 1997
---- ---- ----
(Millions)
<S> <C> <C> <C>
Current expense:
Federal............................................... $224 $167 $222
State................................................. 13 12 9
---- ---- ----
237 179 231
Deferred expense:
Federal............................................... 36 (3) 36
State................................................. 2 (2) (1)
---- ---- ----
38 (5) 35
Net deferred investment tax credits-amortization........ (17) (17) (17)
---- ---- ----
Total income tax expense................................ $258 $157 $249
==== ==== ====
</TABLE>
Total federal income tax expense differs from the amount computed by
applying the statutory federal income tax rate to pretax income for the
following reasons:
<TABLE>
<CAPTION>
Years
----------------------------------
1999 1998 1997
---- ---- ----
(Millions)
<S> <C> <C> <C> <C> <C> <C>
Income before income taxes................ $743 $387 $718
Federal income tax expense at federal
statutory rate........................... 260 35.0% 135 35.0% 251 35.0%
---- ---- ----
Increases (decreases) resulting from:
Plant and equipment differences......... 3 26 8
Ratable amortization of investment tax
credits................................ (15) (17) (17)
Terminated construction project costs... 1 5 5
State income tax, net of federal tax
benefit................................ 10 7 5
Other, net.............................. (1) 1 (3)
---- ---- ----
Total increase (decrease) from
reconciling items.................... (2) 22 (2)
---- ---- ----
Total income tax expense and effective
tax rate............................. $258 34.7% $157 40.6% $249 34.7%
==== ==== ====
</TABLE>
45
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company's net accumulated deferred income taxes consist of the
following:
<TABLE>
<CAPTION>
Years
-------------
1999 1998
------ ------
(Millions)
<S> <C> <C>
Deferred income tax assets:
Investment tax credits......................................... $ 52 $ 78
------ ------
Deferred income tax liabilities:
Plant and equipment differences................................ 1,466 1,475
Income taxes recoverable through future rates.................. 20 155
Other.......................................................... 18 12
------ ------
Total deferred income tax liabilities........................ 1,504 1,642
------ ------
Total net accumulated deferred income taxes.................. $1,452 $1,564
====== ======
</TABLE>
E. Nuclear Operations
Decommissioning
When the Company's nuclear units cease operations, the Company is obligated
to decontaminate or remove radioactive contaminants so that the property will
not require Nuclear Regulatory Commission (NRC) oversight. This phase of a
nuclear power plant's life cycle is termed decommissioning. While the units are
operating, amounts are currently being collected from ratepayers that, when
combined with investment earnings, will be used to fund this future obligation.
These dollars are deposited into external trusts through which the funds are
invested.
The amount being accrued for decommissioning is equal to the amount being
collected from ratepayers and is included in Depreciation and Amortization
Expense. The decommissioning collections were $36 million per year for the
period 1997 through 1999. However, an additional $10 million was expensed in
1997 based on an expected increase in the decommissioning collections for 1997
as provided in the Company's rate case then pending before the Virginia
Commission. Since the Virginia rate case settlement did not include such an
increase, the 1998 expense provision was decreased by $10 million. Therefore,
the expense levels were $36 million, $26 million and $46 million in 1999, 1998
and 1997, respectively.
Net earnings of the trusts' investments are included in Other Income in the
Company's Consolidated Statements of Income. In 1999, 1998 and 1997, net
earnings were $17 million, $18 million and $21 million, respectively. The
accretion of the decommissioning obligation is equal to the trusts' net
earnings and is also recorded in Other Income.
The accumulated provision for decommissioning, which is included in
Accumulated Depreciation in the Company's Consolidated Balance Sheets, includes
the accrued expense and accretion described above and any unrealized gains and
losses on the trusts' investments. At December 31, 1999, the net unrealized
gains were $291 million, which is an increase of $60 million over the December
31, 1998, amount of $231 million. The accumulated provision for decommissioning
at December 31, 1999 and 1998, was $818 million and $705 million, respectively.
46
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The total estimated cost to decommission the Company's four nuclear units is
$1.6 billion based upon a site-specific study that was completed in 1998. The
cost estimate assumes that the method of completing decommissioning activities
is prompt dismantlement. This method assumes that dismantlement and other
decommissioning activities will begin shortly after cessation of operations,
which under current operating licenses will begin in 2012 as detailed in the
table below.
<TABLE>
<CAPTION>
Surry North Anna
------------- ------------- Total All
Unit 1 Unit 2 Unit 1 Unit 2 Units
------ ------ ------ ------ ---------
(Millions)
<S> <C> <C> <C> <C> <C>
NRC license expiration year............. 2012 2013 2018 2020
Current cost estimate (1998 dollars).... $411 $413 $401 $387 $1,612
Funds in external trusts at December 31,
1999................................... 225 220 192 181 818
1999 contributions to external trusts... 11 11 7 7 36
</TABLE>
The NRC requires nuclear power plant owners to annually update minimum
financial assurance amounts for the future decommissioning of the nuclear
facilities. The Company's 1999 NRC minimum financial assurance amount,
aggregated for the four nuclear units, was $1.0 billion and will be satisfied
by a combination of surety bonds and the funds being collected in the external
trusts.
FASB is reviewing the accounting for nuclear plant decommissioning. FASB has
tentatively determined that the estimated cost of decommissioning should be
reported as a liability rather than as accumulated depreciation and that a
substantial portion of the decommissioning obligation should be recognized
earlier in the operating life of the nuclear unit. During its deliberations,
FASB expanded the scope of the project to include similar unavoidable
obligations to perform closure and post-closure activities for other long-lived
assets, possibly including non-nuclear power plants. Any forthcoming standard
also may change regulated utility plant depreciation practices, the impact of
which cannot be determined at this time.
Insurance
The Price-Anderson Act limits the public liability of an owner of a nuclear
power plant to $9.5 billion for a single nuclear incident. The Price-Anderson
Act Amendment of 1988 allows for an inflationary provision adjustment every
five years. The Company has purchased $200 million of coverage from the
commercial insurance pools with the remainder provided through a mandatory
industry risk sharing program. In the event of a nuclear incident at any
licensed nuclear reactor in the United States, the Company could be assessed up
to $91 million for each of its four licensed reactors not to exceed $10 million
per year per reactor. There is no limit to the number of incidents for which
this retrospective premium can be assessed.
The Company's current level of property insurance coverage ($2.55 billion
for North Anna and $2.40 billion for Surry) exceeds the NRC's minimum
requirement for nuclear power plant licensees of $1.06 billion per reactor site
and includes coverage for premature decommissioning and functional total loss.
The NRC requires that the proceeds from this insurance are used first to return
the reactor to and maintain it in a safe and stable condition and second to
decontaminate the reactor and station site in accordance with a plan approved
by the NRC. The Company's nuclear property insurance is provided by Nuclear
Electric Insurance Limited (NEIL), a mutual insurance company, and is subject
to retrospective premium assessments in any policy year in which losses exceed
the funds available to the insurance company. The maximum assessment for the
current policy period is $29 million. Based on the severity of the incident,
the board of directors of the Company's nuclear insurer has the discretion to
lower or eliminate the maximum retrospective premium assessment. For any losses
that exceed the limits or for which insurance proceeds are not available
because they must first be used for stabilization and decontamination, the
Company has the financial responsibility for these losses.
47
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company purchases insurance from NEIL to cover the cost of replacement
power during the prolonged outage of a nuclear unit due to direct physical
damage of the unit. Under this program, Virginia Power is subject to a
retrospective premium assessment for any policy year in which losses exceed
funds available to NEIL. The current policy period's maximum assessment is $7
million.
As part owner of the North Anna Power Station, the co-owner is responsible
for its share of the nuclear decommissioning obligation and insurance premiums
applicable to that station, including any retrospective premium assessments and
any losses not covered by insurance.
F. Property, Plant and Equipment
Property, plant and equipment, other than nuclear fuel, consists of the
following:
<TABLE>
<CAPTION>
At December 31,
---------------
1999 1998
------- -------
(Millions)
<S> <C> <C>
Generation.................................................. $ 7,758 $ 7,714
Transmission................................................ 1,517 1,422
Distribution................................................ 4,835 4,682
Other....................................................... 901 941
------- -------
15,011 14,759
Construction work in progress............................... 677 449
------- -------
Total....................................................... $15,688 $15,208
======= =======
</TABLE>
G. Jointly Owned Plants
The following information relates to the Company's proportionate share of
jointly owned plants at December 31, 1999:
<TABLE>
<CAPTION>
Bath County
Pumped North Anna Clover
Storage Power Power
Station Station Station
----------- ---------- -------
(Millions)
<S> <C> <C> <C>
Ownership interest.............................. 60.0% 88.4% 50.0%
Plant in service................................ $1,069 $1,824 $536
Accumulated depreciation........................ 274 1,066 56
Nuclear fuel.................................... 361
Accumulated amortization of nuclear fuel........ 334
Construction work in progress................... 61 3
</TABLE>
The co-owners are obligated to pay their share of all future construction
expenditures and operating costs of the jointly owned facilities in the same
proportion as their respective ownership interest. The Company's share of
operating costs is classified in the appropriate operating expense (fuel,
operations and maintenance, depreciation, taxes, etc.) in the Consolidated
Statements of Income.
48
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
H. Regulatory Assets
The Company's regulatory assets include the following:
<TABLE>
<CAPTION>
At
December 31,
-------------
1999 1998
------ ------
(Millions)
<S> <C> <C>
Income taxes recoverable through future rates................. $ 57 $ 439
Cost of decommissioning DOE uranium enrichment facilities..... 55 62
Deferred losses on reacquired debt, net....................... 15 31
Deferred Fuel................................................. 63 28
Other......................................................... 31 60
------ ------
Total..................................................... $ 221 $ 620
====== ======
</TABLE>
The incurred costs underlying these regulatory assets may represent
expenditures by the Company or may represent the recognition of liabilities
that ultimately will be settled at some time in the future. See Note B and Note
Q for information about the impairment of regulatory assets resulting from the
1999 Virginia legislation and the settlement of the Company's 1998 Virginia
rate proceedings.
Where permitted by appropriate regulatory jurisdictions for the portion of
the Company's operations that are subject to cost-based regulation, income
taxes recoverable through future rates represent principally the tax effect of
depreciation differences not normalized in earlier years for ratemaking
purposes. These amounts are amortized as the related temporary differences
reverse. Such amounts are net of related regulatory liabilities and $43 million
associated with deferred income taxes which were established at rates in excess
of the current Federal rate and are subject to Internal Revenue Code
normalization requirements.
The cost of decommissioning the Department of Energy's (DOE) uranium
enrichment facilities represents Virginia Power's required contributions to a
fund for decommissioning and decontaminating the DOE's uranium enrichment
facilities. Virginia Power is making such contributions over a 15-year period
with escalation for inflation. These costs are currently being recovered in
fuel rates.
Where permitted by appropriate regulatory jurisdictions for the portion of
the Company's operations that are subject to cost-based regulation, gains or
losses on refinanced debt are deferred and amortized over the lives of the new
debt issues. Gains or losses resulting from the redemption of debt without
refinancing are amortized over the remaining lives of the redeemed issues.
Deferred fuel accounting provides that the difference between reasonably
incurred actual expenses and the recovery for such costs included in current
rates is deferred and matched against future revenue.
49
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
I. Long-Term Debt
Long-term debt includes the following:
<TABLE>
<CAPTION>
At
December 31,
-------------
1999 1998
------ ------
(Millions)
<S> <C> <C>
First and refunding mortgage bonds(/1/):
1989 Series B, 8.875%, due 1999................................. $ 100
1993 Series C, 5.875%, due 2000................................. $ 135 135
1993 Series E, 6.000%, due 2001................................. 100 100
1992 Series E, 7.375%, due 2002................................. 155 155
1993 Series F, 6.000%, due 2002................................. 100 100
1993 Series B, 6.625%, due 2003................................. 200 200
Various series, 7.625%-8%, due 2004-2007........................ 665 665
Various series, 5.45%-8.75%, due 2021-2025...................... 1,101 1,125
------ ------
Total first and refunding mortgage bonds...................... 2,456 2,580
------ ------
Other long-term debt:
Term notes:
Fixed interest rate notes, 5.73%-10.00%, due 1998-2008........ 422 563
1999 Series B, senior notes, 7.20%, due 2004.................. 75
1999 Series A, senior notes, 6.70%, due 2009.................. 150
1998 Series A, senior notes, 7.15%, due 2038.................. 150 150
Tax exempt financings:
Money market municipal securities due 2007-2027(/2/)(/3/)..... 489 489
Convertible interest rate bonds, 5.15%, due 2022(/2/)......... 10 10
Fixed interest rate bonds, 5.45%, due 2024(/1/)............... 19 19
------ ------
Total other long-term debt.................................. 1,315 1,231
------ ------
3,771 3,811
------ ------
Less amounts due within one year:
First and refunding mortgage bonds............................ 135 100
Term notes.................................................... 60 221
------ ------
Total amount due within one year............................ 195 321
------ ------
Less unamortized discount, net of premium......................... 25 25
------ ------
Total long-term debt........................................ $3,551 $3,465
====== ======
</TABLE>
- --------
(/1/)The first and refunding mortgage bonds and the fixed interest rate, tax-
exempt financings are secured by a mortgage lien on substantially all of
the Company's property.
(/2/)Certain pollution control facilities at the Company's generating
facilities have been pledged or conveyed to secure these financings.
(/3/)Interest rates vary based on short-term, tax-exempt market rates. For 1999
and 1998, the weighted average daily interest rates were 3.34 percent and
3.49 percent, respectively. Although these bonds are re-marketed within a
one year period, they are classified as long-term debt because the Company
intends to maintain the debt, and they are supported by long-term bank
commitments.
The following amounts of debt will mature during the next five years: 2000
- -- $195 million; 2001-- $241 million; 2002 -- $315 million; 2003 -- $240
million; and 2004 -- $325 million.
50
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
J. Company Obligated Mandatorily Redeemable Preferred Securities Of Subsidiary
Trust
Virginia Power Capital Trust I (VP Capital Trust) was established as a
subsidiary of the Company for the sole purpose of selling $135 million of
preferred securities (5.4 million shares at $25 par) in 1995. The Company
concurrently issued $139 million of its 1995 Series A, 8.05% Junior
Subordinated Notes (the Notes) in exchange for the $135 million realized from
the sale of the preferred securities and $4 million of common securities of VP
Capital Trust.
The preferred securities and the common securities represent the total
beneficial ownership interest in the assets held by VP Capital Trust. The Notes
are the sole assets of VP Capital Trust. The preferred securities are subject
to mandatory redemption upon repayment of the Notes at a liquidation amount of
$25 plus accrued and unpaid distributions, including interest. The Notes are
due September 30, 2025. However, that date may be extended up to an additional
ten years if certain conditions are satisfied.
K. Preferred Stock Subject To Mandatory Redemption
The total number of authorized shares for all preferred stock (whether or
not subject to mandatory redemption) is 10 million shares. Upon involuntary
liquidation, dissolution or winding-up of the Company, all presently
outstanding preferred stock is entitled to receive $100 per share plus accrued
dividends. Dividends are cumulative.
There are two series of preferred stock subject to mandatory redemption
outstanding as of December 31, 1999:
<TABLE>
<CAPTION>
Issued And
Outstanding
Dividend Shares
-------- -----------
<S> <C> <C>
$5.58..... 400,000 Shares are non-callable prior to maturity at 3/1/2000
$6.35..... 1,400,000 Shares are non-callable prior to maturity at 9/1/2000
---------
Total... 1,800,000
=========
</TABLE>
There were no redemptions of preferred stock during the years 1997 through
1999.
The Company has classified the $180 million of preferred stock subject to
mandatory redemption in Securities due within one year at December 31, 1999.
51
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
L. Preferred Stock Not Subject To Mandatory Redemption
Shown below are the series of preferred stock not subject to mandatory
redemption that were outstanding as of December 31, 1999.
<TABLE>
<CAPTION>
Entitled Per Share Upon Liquidation
-------------------------------------------------
Issued and And Thereafter to
Outstanding Amounts Declining in
Dividend Shares Amount Through Steps to
-------- ----------- ------- ------- ---------------------
<S> <C> <C> <C> <C>
$5.00......................... 106,677 $112.50
4.04......................... 12,926 102.27
4.20......................... 14,797 102.50
4.12......................... 32,534 103.73
4.80......................... 73,206 101.00
7.05......................... 500,000 105.00 7/31/03 $100.00 after 7/31/13
6.98......................... 600,000 105.00 8/31/03 $100.00 after 8/31/13
MMP 1/87(*)................... 500,000 100.00
MMP 6/87(*)................... 750,000 100.00
MMP 10/88(*).................. 750,000 100.00
MMP 6/89(*)................... 750,000 100.00
MMP 9/92, Series A(*)......... 500,000 100.00
MMP 9/92, Series B(*)......... 500,000 100.00
---------
Total....................... 5,090,140
=========
</TABLE>
- --------
(*) Money Market Preferred (MMP) dividend rates are variable and are set every
49 days via an auction process. The combined weighted average rates for
these series in 1999, 1998 and 1997, including fees for broker/dealer
agreements, were 4.82 percent, 4.49 percent, and 4.48 percent,
respectively.
M. Common Stock
There were no changes in the number of authorized and outstanding shares of
the Company's common stock during the three years ended December 31, 1999.
N. Short-Term Debt
The Company's commercial paper program has a maximum borrowing capacity of
$500 million. It is supported by two credit facilities. One is a $300 million,
five-year credit facility that expires in June 2001. The other is a $200
million credit facility that originated in June 1996 and is subject to annual
renewal.
The total amount of commercial paper outstanding as of December 31, 1999,
was $378 million with a weighted average interest rate of 6.11 percent. This
represents an increase of $157 million from the December 31, 1998, balance of
$221 million which had a weighted average interest rate of 5.38 percent.
O. Long-Term Incentives
Certain officers and key employees of Virginia Power participate in a stock-
based compensation plan sponsored by Dominion. During 1999, approximately 2
million Dominion common stock options were granted to these individuals. These
stock options vested on January 1, 2000. No compensation expense was recognized
under the provisions of Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees and related Interpretations. Had compensation
expense been measured based on the fair value of the options on the date of
grant, calculated under the provisions of SFAS No. 123, Accounting for Stock
Based Compensation,
52
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the Company's allocated share of such compensation expense would have reduced
reported net income by approximately $5 million.
P. Retirement Plan, Postretirement Benefits And Other Benefits
Under the terms of its benefit plans, the Company reserves the right to
change, modify or terminate the plans. From time to time in the past, benefits
have changed, and some of these changes have reduced benefits.
Retirement Plan
The Company participates in the Dominion Resources, Inc. Retirement Plan
(the Retirement Plan), a defined benefit pension plan. The benefits are based
on years of service and average base compensation over the consecutive 60-month
period in which pay is highest.
The Company's pension plan expenses were $21 million, $21 million, and $21
million for 1999, 1998, and 1997, respectively, and the amounts funded by the
Company were $21 million, $21 million, and $27 million in 1999, 1998, and 1997,
respectively.
Other Postretirement Benefits
In addition to providing pension benefits, the Company provides certain
health care and life insurance benefits for retired employees. Health care
benefits are provided to retirees who complete at least 10 years of service
after attaining age 45. These and similar benefits for active employees are
provided through insurance companies.
Net periodic postretirement benefit expense was as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------
1999 1998 1997
---- ---- ----
(Millions)
<S> <C> <C> <C>
Service cost............................................... $16 $12 $12
Interest cost.............................................. 27 24 25
Expected return on plan assets............................. (19) (16) (12)
Amortization of transition obligation...................... 12 12 12
Amortization of unrecognized net loss/(gain)............... (1)
--- --- ---
Net periodic postretirement benefit cost................... $36 $31 $37
=== === ===
</TABLE>
53
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table sets forth the funded status of the plan:
<TABLE>
<CAPTION>
Year Ended
December
31,
------------
1999 1998
----- -----
(Millions)
<S> <C> <C>
Change in plan assets:
Fair value of plan assets at beginning of year.............. $ 212 $ 177
Actual return on plan assets................................ 45 24
Contributions............................................... 16 11
Benefits paid from plan assets.............................. (1)
----- -----
Fair value of plan assets at end of year.................... 272 212
Change in benefit obligation:
Expected benefit obligation at beginning of year............ 372 361
Expected actuarial gain/(loss) during prior year............ 25 (42)
----- -----
Actual benefit obligation at beginning of year.............. 397 319
Service cost................................................ 16 12
Interest cost............................................... 27 24
Benefits paid from general funds............................ (18) (16)
Actuarial (gain)/loss during the year....................... (28) 33
----- -----
Expected benefit obligation at end of year.................. 394 372
----- -----
Reconciliation of funded status:
Funded status............................................... (122) (160)
Unrecognized net actuarial gain............................. (46) (18)
Unrecognized net transition obligation...................... 156 169
----- -----
Accrued benefit cost........................................ $ (12) $ (9)
===== =====
Significant assumptions used in determining postretirement benefit
obligations were:
<CAPTION>
Year Ended
December
31,
------------
1999 1998
----- -----
<S> <C> <C>
Discount rate................................................. 7.50% 7.00%
Expected return on plan assets................................ 9.00% 9.00%
Rate of increase for participants' compensation............... 5.00% 5.00%
Medical cost trend rate:
First year.................................................. 4.75% 5.00%
Second year and years thereafter............................ 4.75% 4.75%
</TABLE>
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in
assumed health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
One One
Percentage Percentage
Point Point
Increase Decrease
---------- ----------
(Millions)
<S> <C> <C>
Effect on total of service and interest cost components
for 1999............................................... $ 6 $ (4)
Effect on postretirement benefit obligation at December
31, 1999............................................... 39 (32)
</TABLE>
The funds collected for other postretirement benefits in rates, in excess of
benefits actually paid during the year, are contributed to external benefit
trusts. See Note R for a discussion of the impact of the 1999 deregulation
legislation on the recoverability of potentially stranded costs.
54
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Q. Virginia Rate Settlement
In 1998 Virginia Power agreed to settle its outstanding base rate
proceedings. The Virginia Commission approved the settlement by Order dated
August 7, 1998.
The settlement defined a new regulatory framework for the Company's
transition to electric competition. The major provisions of the settlement were
as follows:
. 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;
. 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;
. An immediate, one-time refund of $150 million for the period March 1,
1997 through February 28, 1998;
. A discontinuation of deferral accounting for purchased power capacity
expenses effective February 28, 1998;
. A write-off of a minimum of $220 million of regulatory assets in
addition to normal amortization by February 28, 2002;
Due to the required write-off of a minimum of $220 million of regulatory
assets in addition to normal amortization thereof during the rate freeze
period, the Company evaluated its regulatory assets for potential impairment
under SFAS No. 71. Based on the uncertainty of the Company's earnings potential
for regulatory purposes during the rate freeze period, management could no
longer conclude that recovery of the $220 million was probable, i.e., that
earnings above its authorized rate of return would be available to offset the
$220 million write-off of regulatory assets. The Company had previously
identified reductions in operating costs of $38 million in 1997 and $27 million
in 1996, which were used to establish a reserve for potential impairment of
regulatory assets. Accordingly, the Company charged $159 million to second
quarter 1998 earnings, which when combined with the reserve for accelerated
cost recovery accrued in 1996 and 1997, provided for the impairment of
regulatory assets resulting from the settlement.
R. Commitments And Contingencies
The Company is involved in legal, tax and regulatory proceedings before
various courts, regulatory commissions and governmental agencies regarding
matters arising in the ordinary course of business, some of which involve
substantial amounts. Management believes that the final disposition of these
proceedings will not have a material adverse effect on the Company's
operations, financial position, liquidity or results of operations.
Utility Rate Regulation
As discussed in Note B, the Governor of Virginia signed into law legislation
establishing a detailed plan to restructure the electric utility industry in
Virginia. Under this legislation, the Company's base rates will remain
unchanged until July 2007 and recovery of generation-related costs will
continue to be provided through the capped rates. The legislation's
deregulation of generation was an event that required discontinuation of SFAS
No. 71 for the Company's generation operations in the first quarter of 1999.
The Company remains exposed to numerous risks, including, among others,
exposure to potentially stranded costs, future environmental compliance
requirements, changes in tax laws, inflation and increased
55
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
capital costs. At December 31, 1999, the Company's exposure to potentially
stranded costs was comprised of the following:
. long-term purchased power contracts that could ultimately be determined
to be above market--See Purchased Power Contracts below;
. generating plants that could possibly become uneconomic in a deregulated
environment; and
. unfunded obligations for nuclear plant decommissioning and
postretirement benefits not yet recognized in the financial statements--
See Notes E and P.
Retrospective Premium Assessments
Under several of the Company's nuclear insurance policies, the Company is
subject to retrospective premium assessments in any policy year in which losses
exceed the funds available to these insurance companies. For additional
information, see Note E.
Construction Program
The Company has made substantial commitments in connection with its
construction program and nuclear fuel expenditures. Those expenditures are
estimated to total approximately $856 million for 2000. The Company presently
estimates that 2000 construction expenditures, including nuclear fuel, will be
met through cash flow from operations and through a combination of sales of
securities and short-term borrowing.
Purchased Power Contracts
The Company has entered into contracts for the long-term purchases of
capacity and energy from other utilities, qualifying facilities and independent
power producers. The Company has 57 non-utility purchase contracts with a
combined dependable summer capacity of 3,839 MW.
The table below reflects the Company's minimum commitments as of December
31, 1999, for power purchases from utility and non-utility suppliers.
<TABLE>
<CAPTION>
Commitment
----------------
Year Capacity Other
---- -------- -------
(Millions)
<S> <C> <C>
2000....................................................... $ 765 $ 45
2001....................................................... 770 36
2002....................................................... 771 32
2003....................................................... 731 33
2004....................................................... 731 31
Later years................................................ 7,890 227
------- -------
Total.................................................... $11,658 $ 404
======= =======
Present value of the total................................. $ 6,218 $ 215
======= =======
</TABLE>
In addition to the minimum purchase commitments in the table above, under
some of these contracts, the Company may purchase, at its option, additional
power as needed. Purchased power expenditures, subject to cost of service rate
regulation, (including economy, emergency, limited term, short-term and long-
term purchases) for the years 1999, 1998 and 1997 were $1.2 billion, $1.1
billion and $1.4 billion, respectively.
56
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
See Note B for an evaluation of the Company's potential exposure under its
long-term purchased power commitments.
Fuel Purchase Commitments
The Company's estimated fuel purchase commitments for the next five years
for system generation are as follows: 2000 -- $334 million; 2001 -- $277
million; 2002 -- $156 million; 2003 -- $145 million; and 2004-- $143 million.
Lease Commitments
Total future minimum lease payments under the Company's noncancellable
capital leases and operating leases that have initial or remaining lease terms
in excess of one year was $145 million at December 31, 1999. Expected future
minimum lease payments under these leases over the next five years are as
follows: 2000--$30 million; 2001--$21 million; 2002--$16 million; 2003--$13
million; 2004--$11 million and $54 million for the year thereafter.
Sales of Power
The Company enters into agreements with other utilities and with other
parties to purchase and sell capacity and energy. These agreements may cover
current and future periods ("forward positions"). The volume of these
transactions varies from day to day based on the market conditions, our current
and anticipated load, and other factors. The combined amounts of sales and
purchases range from 3,000 MW to 15,000 MW at various times during a given
year. These operations are closely monitored from a risk management
perspective.
Environmental Matters
The Company is subject to rising costs resulting from a steadily increasing
number of federal, state and local laws and regulations designed to protect
human health and the environment. These laws and regulations affect future
planning and existing operations. These laws and regulations can result in
increased capital, operating and other costs as a result of compliance,
remediation, containment and monitoring obligations of the Company.
Historically, the Company recovered these costs from customers through utility
rates. However, to the extent environmental costs are incurred during the
period ending June 30, 2007, in excess of the level currently included in
Virginia jurisdictional rates, the Company's results of operations will
decrease. After that date, Virginia Power may seek recovery from customers
through utility rates of only those environmental costs related to transmission
and distribution operations.
In 1987, the Environmental Protection Agency (EPA) identified the Company
and several other entities as Potentially Responsible Parties (PRPs) at two
Superfund sites located in Kentucky and Pennsylvania. Current cost studies
estimate total remediation costs for the sites to range from $106 million to
$156 million. The Company's proportionate share of the total cost is expected
to be in the range of $2 million to $3 million, based upon allocation formulas
and the volume of waste shipped to the sites. The Company has accrued a reserve
of $2 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 generally seeks to recover its costs associated with
environmental remediation from third party insurers. At December 31, 1999, any
pending or possible claims were not recognized as an asset or offset against
such obligations of the Company.
In April 1999, the Company was notified by the Department of Justice of
alleged noncompliance with the EPA's oil spill prevention, control and
countermeasures (SPCC) plans and facility response plan (FRP) requirements at
one of the Company's power stations. If, in a legal proceeding, such instances
of noncompliance are deemed to have occurred, the Company may be required to
remedy any alleged deficiencies
57
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
and pay civil penalties. Settlement of this matter is currently in negotiation
and is not expected to have a material impact on the Company's financial
condition or results of operations.
In August 1999, the Company identified matters at certain other power
stations that the EPA might view as not in compliance with the SPCC and FRP
requirements. The Company reported these matters to the EPA and in December
1999 submitted revised FRP and SPCC plans. Presently, the EPA has not assessed
any penalties against the Company, pending its review of the Company's
disclosure information. Future resolution of these matters is not expected to
have a material impact on the Company's financial condition or results of
operations.
On November 8, 1999 and September 21, 1999, Virginia Power received notices
from the Attorney Generals of Connecticut and New York, respectively, of their
intention to file suit against the Company for alleged violations of the Clean
Air Act. The notices question whether modifications at certain Virginia Power
generating facilities were properly permitted under the Clean Air Act and
allege that emissions from these facilities have contributed to damage to
public health and the environment in the Northeast. To date, no suits have been
filed. Management believes, based on newspaper reports and other sources, that
it is one of a number of companies with fossil fuel power generating stations
in the southeast and central United States to have received such notifications.
The Company believes that it has obtained the permits necessary in connection
with its generating facilities and that suits, if any, filed by the Attorney
Generals would not have a material adverse effect on its financial condition or
results of operations.
S. Fair Value of Financial Instruments
The Company used available market information and appropriate valuation
methodologies to estimate the fair value of each class of financial instrument
for which it is practicable to estimate fair value. These estimates are not
necessarily indicative of the amounts the Company could realize in a market
exchange. In addition, the use of different market assumptions may have a
material effect on the estimated fair value amounts.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1999 1998
--------------- ---------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------ -------- ------
(Millions)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents................... $ 62 $ 62 $ 49 $ 49
Nuclear decommissioning trust funds......... 818 818 705 705
Commodity-based swaps and options........... 6 6 10 10
Liabilities and capitalization:
Short-term debt............................. 378 378 221 221
Commodity-based swaps and options........... 5 5 9 9
Long-term debt:
First and refunding mortgage bonds........ 2,456 2,370 2,580 2,762
Medium-term notes and senior unsecured
notes.................................... 797 750 713 737
Money market municipal tax-exempt
securities............................... 489 489 489 489
Convertible and fixed interest rate tax-
exempt bonds............................. 29 28 29 29
Preferred stock subject to mandatory
redemption................................. 180 181 180 186
Preferred securities of subsidiary trust.... 135 117 135 138
Unrecognized financial instruments:
Forward treasury lock contracts............. 2
Interest rate swap agreements............... (11)
</TABLE>
58
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Cash and cash equivalents: The carrying amount of cash and cash equivalents
approximates fair value because of their short maturity.
Nuclear decommissioning trust funds: Fair value is based on available market
information and generally is the average of bid and asked price.
Commodity-based swaps and options: Fair value reflects the Company's best
estimates considering over-the-counter quotations, time value and volatility
factors of the underlying commitments.
Short-term debt: The carrying amount of short-term debt approximates fair
value because of its short maturity.
First and refunding mortgage bonds: Fair value is based on market
quotations.
Medium-term notes: These notes were valued by discounting the remaining cash
flows at a rate estimated for each issue. A yield curve rate was estimated to
relate treasury bond rates for specific issues to the corresponding maturities.
Senior unsecured notes: Fair value is based on market quotations.
Money Market Municipal tax-exempt securities: The interest rates for these
notes vary so that fair value approximates carrying value.
Convertible and fixed interest rate tax-exempt bonds and preferred stock
subject to mandatory redemption: The fair value is based on market quotations
or is estimated by discounting the dividend and principal payments for a
representative issue of each series over the average remaining life of the
series.
Preferred securities of subsidiary trust: Fair value is based on market
quotations.
Forward treasury lock contracts: Fair value is based on the difference
between the yield at December 31, 1998 on the 30-year treasury note and such
rates specified in the contracts.
Interest rate swap agreements: Fair value was determined by the respective
counterparties to the agreements and is based upon the present value of all
estimated net future cashflows. A negative value indicates that the aggregate
sum of the respective valuations results in a projected net payment by the
Company.
T. Business Segments
The Company manages its operations along two primary lines of business,
Generation and Delivery. The Generation Business encompasses the Company's
generation portfolio, trading and marketing activities, nuclear consulting
services and energy services activities. The Delivery Business includes bulk
power transmission, distribution and metering services, and customer service
and continues to be subject to cost-based regulation.
59
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The majority of the Company's revenue is provided through bundled rate
tariffs. Such revenue is generally allocated between the two business lines for
management reporting based on prior cost of service studies. Interest
allocations are based on internal management estimates. Income taxes are
calculated using the Company's effective rate. Amounts in the column Other
include the following: 1) transactions or events for which the segments are not
held accountable for internal reporting purposes (including the 1999
extraordinary item discussed in Note B, the 1998 Virginia rate settlement
discussed in Note Q and the 1997 reserve for potential impairment of regulatory
assets); 2) adjustments to reconcile internal financial statement groupings to
those used to prepare the externally reported consolidated financial
statements; 3) intercompany eliminations, where applicable; and 4) assets of
the Company's corporate operations that are not allocated to its Generation and
Delivery Businesses for internal reporting purposes.
<TABLE>
<CAPTION>
Generation Delivery Consolidated
Description Business Business Other Total
----------- ---------- -------- ------ ------------
(Millions)
<S> <C> <C> <C> <C>
Year ended December 31, 1999
Revenue.............................. $3,393 $1,166 $ 32 $ 4,591
Depreciation and amortization........ 275 246 27 548
Income before interest and taxes..... 580 449 3 1,032
Interest and related charges......... 139 147 3 289
Income taxes......................... 149 109 258
Net income........................... 292 193 (255) 230
Total Assets......................... 6,401 4,633 731 11,765
Capital expenditures................. 333 317 23 673
Year ended December 31, 1998
Revenue.............................. $3,292 $1,111 $ (123) $ 4,280
Depreciation and amortization........ 307 237 (7) 537
Income before interest and taxes..... 545 440 (281) 704
Interest and related charges......... 156 150 11 317
Income taxes......................... 143 104 (90) 157
Net income........................... 245 185 (200) 230
Total Assets......................... 6,066 4,596 1,323 11,985
Capital expenditures................. 106 282 63 451
Year ended December 31, 1997
Revenue.............................. $3,574 $1,098 $ (8) $ 4,664
Depreciation and amortization........ 347 237 584
Income before interest and taxes..... 613 459 (39) 1,033
Interest and related charges......... 176 139 315
Income taxes......................... 151 111 (13) 249
Net income........................... 285 209 (25) 469
</TABLE>
60
<PAGE>
VIRGINIA ELECTRIC AND POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
U. Quarterly Financial Data (Unaudited)
The following amounts reflect all adjustments, consisting of only normal
recurring accruals (except as discussed below), necessary in the opinion of
management for a fair statement of the results for the interim periods.
<TABLE>
<CAPTION>
Balance
Available
Income/(Loss) Income Before Net For
From Extraordinary Income Common
Quarter Revenue Operations Item (Loss) Stock
------- ------- ------------- ------------- ------ ---------
<S> <C> <C> <C> <C> <C>
1999
- ----
1st...................... $1,088 $246 $114 $(141) $(149)
2nd...................... 1,087 214 98 90
3rd...................... 1,440 430 236 227
4th...................... 976 117 37 25
1998
- ----
1st...................... 1,051 234 99 90
2nd...................... 906 (90) (121) (129)
3rd...................... 1,348 394 206 197
4th...................... 975 143 46 36
</TABLE>
Results for interim periods may fluctuate as a result of weather conditions,
changes in rates and other factors.
The following accruals and adjustments recorded in 1999 and 1998 were of an
extraordinary, unusual, or infrequent nature:
Extraordinary item -- The legislation's deregulation of generation is an
event that required discontinuation of SFAS No. 71 for the Company's generation
operations in the first quarter of 1999. Generation-related assets and
liabilities that will not be recovered through the capped rates were written
off, resulting in an after-tax charge to earnings of $255 million. See Note B.
Rate refund -- The Company recognized a $154 million provision for rate
refund and related interest expense of $11 million and other taxes of $4
million in the second quarter of 1998 as a result of the settlement of the
Company's rate proceeding in Virginia. See Note Q.
Impairment of regulatory assets -- The Company charged $159 million to
second quarter 1998 earnings to provide for the impairment of regulatory assets
resulting from the settlement of the Company's rate proceeding in Virginia. See
Note Q.
61
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Information concerning directors of Virginia Electric and Power Company
is as follows:
<TABLE>
<CAPTION>
Principal Occupation For Last 5 Year First
Years, Elected A
Name And Age Directorships In Public Corporations Director
------------ ------------------------------------- ----------
<C> <S> <C>
Thos. E. Capps(64)......... Chairman of the Board of Virginia 1986
Electric and Power Company from
September 12, 1997 to date and Vice
Chairman of the Board of Directors,
President and Chief Executive
Officer of Dominion from January 28,
2000 to date; Chairman of the Board
of Directors, President and Chief
Executive Officer from September 1,
1995 to January 28, 2000; Chairman
of the Board of Directors and Chief
Executive Officer prior to September
1, 1995.
Jean E. Clary(55).......... President and owner of Century 21 1996
Clary and Associates,
Inc., South Hill, Virginia. Director
of Sherwood Brands, LLC.
Thomas F. Farrell, II(45).. Chief Executive Officer of Virginia 1999
Electric and Power Company, Dominion
Energy, Inc. and Dominion
Generation, Inc. from May 1, 1999 to
date; Executive Vice President
Dominion Resources, Inc. March 1,
1999 to date; Executive Vice
President, General Counsel and
Corporate Secretary of Virginia
Electric and Power Company July 1,
1998 to April 30, 1999; Executive
Vice President and General Counsel
of Virginia Electric and Power
Company April 17, 1998 to June 30,
1998; Senior Vice President--
Corporate Affairs and General
Counsel of Dominion Resources, Inc.
January 1, 1997 to March 1, 1999,
Vice President and General Counsel
of Dominion Resources, Inc. from
July 1, 1995 to January 1, 1997;
Partner in law firm of McGuire,
Woods, Battle & Boothe LLP prior to
July 1, 1995.
Edgar M. Roach, Jr.( 51)... Chief Executive Officer of Virginia 1999
Electric and Power Company from May
1, 1999 to date and Executive Vice
President of Dominion from September
15, 1997 to date; Senior Vice
President--Finance, Regulation and
General Counsel of Virginia Electric
and Power Company from January 1,
1996 to September 15, 1997; Vice
President--Regulation and General
Counsel, prior to January 1, 1996.
William G. Thomas(60)...... Partner in the law firm of Reed, 1987
Smith,
Hazel & Thomas, LLP, Falls Church,
Virginia.
</TABLE>
Mr. Thomas has entered into a Consent Decree with the Office of Thrift
Supervision in connection with the lending and credit granting activities of
Perpetual Savings Bank, FSB, which Mr. Thomas formerly served as a director.
The Consent Decree requires that Mr. Thomas obtain approval from the
appropriate federal banking agency before accepting certain positions involving
lending or credit activities with an insured depository institution.
62
<PAGE>
(b) Information concerning the executive officers of Virginia Electric and
Power Company is as follows:
<TABLE>
<CAPTION>
Name And Age Business Experience Past Five Years
------------ -----------------------------------
<S> <C>
Thomas F. Farrell, Chief Executive Officer of Virginia Electric and Power
II(45)................. Company, Dominion Energy, Inc., and Dominion Generation,
Inc. from May 1, 1999 to date; Executive Vice President
Dominion Resources, Inc. March 1, 1999 to date; Executive
Vice President, General Counsel and Corporate Secretary of
Virginia Electric and Power Company July 1, 1998 to April
30, 1999; Executive Vice President and General Counsel of
Virginia Electric and Power Company April 17, 1998 to June
30, 1998; Senior Vice President--Corporate Affairs and
General Counsel of Dominion Resources, Inc. January 1, 1997
to March 1, 1999, Vice President and General Counsel of
Dominion Resources, Inc. from July 1, 1995 to January 1,
1997; Partner in law firm of McGuire, Woods, Battle & Boothe
LLP prior to July 1, 1995.
Edgar M. Roach, Jr.( Chief Executive Officer of Virginia Electric and Power
51).................... Company from May 1, 1999 to date and Executive Vice
President of Dominion from September 15, 1997 to date;
Senior Vice President--Finance, Regulation and General
Counsel of Virginia Electric and Power Company from January
1, 1996 to September 15, 1997; Vice President--Regulation
and General Counsel, prior to January 1, 1996.
James P. O'Hanlon(56)... President, Chief Operating Officer and Chief Nuclear Officer
of Virginia Electric and Power Company and Dominion
Generation, Inc., and Executive Vice President of Dominion
Resources, Inc. from May 1, 1999 to date; Senior Vice
President--Nuclear, prior to May 1, 1999.
Robert E. Rigsby(50).... President and Chief Operating Officer of Virginia Electric
and Power Company from May 1, 1999 to date; Executive Vice
President of Dominion Resources, Inc., from January 1, 1996
to April 30, 1999; Senior Vice President--Finance and
Controller, prior to January 1, 1996.
M. Stuart Bolton , Senior Vice President--Financial Management from January 28,
Jr.(46)................ 2000 to date; Vice President and Controller, January 1, 1999
to January 27, 2000; Controller, prior to January 1, 1999.
James T. Earwood, Senior Vice President--Bulk Power Delivery, January 28, 2000
Jr.(56)................ to date; Vice President--Bulk Power Delivery, January 1,
1997 to January 27, 2000; Vice President--Energy Efficiency
and Division Services, January 1, 1996 to January 1, 1997;
Vice President--Division Services prior to January 1, 1996.
G. Scott Hetzer(43)..... Senior Vice President and Treasurer from January 28, 2000 to
date; Senior Vice President and Treasurer of Dominion
Resources, Inc. from May 1, 1999 to date; Vice President and
Treasurer of Dominion Resources, Inc. from October 1, 1997
to May 1, 1999; Managing Director of Wheat First Butcher
Singer prior to October 1, 1997.
E. Paul Hilton(56)...... Senior Vice President--Bulk Sales from January 28, 2000 to
date; Vice President--Regulation, October 1, 1997 to January
27, 2000; Manager, Rates and Regulation, February 20, 1996
to October 1, 1997.
Thomas A. Hyman, Senior Vice President--Electric Distribution from January 28,
Jr.(48)................ 2000 to date; Vice President--Distribution Operations and
North Carolina Power, June 1, 1997 to January 27, 2000; Vice
President--Eastern Division and North Carolina Power, July
1, 1995 to June 1, 1997; Vice President-- Southern Division,
June 1, 1994 to July 1, 1995.
</TABLE>
63
<PAGE>
<TABLE>
<S> <C>
Paul D. Koonce(40)...... Senior Vice President--Virginia Electric and Power Company
and Senior Vice President--Dominion Generation January 28,
2000 to date; Senior Vice President Commercial Operations
CNG from January 1999 to date; Executive Vice President-
Sonat Power Systems from August 1997 to January 1999;
Executive Vice President-Sonat Marketing Company and Senior
Vice President-Sonat Energy Services prior to August 1997.
Mark F. McGettrick(42).. Senior Vice President--Customer Service and Metering from
January 28, 2000 to date; Vice President--Customer Service
and Marketing, January 1, 1997 to January 27, 2000.
Edward J. Rivas(55)..... Senior Vice President--Fossil & Hydro from September 1, 1999
to date;Vice President--Fossil & Hydro Operations, January
1, 1998 to August 31, 1999.
John A. Shaw(52)........ Senior Vice President, Chief Financial Officer and Treasurer,
July 1, 1998 to date; Senior Vice President--Finance, March
16, 1998 to July 1, 1998; Vice President Financial Services
for ARCO Chemical Company, Philadelphia, Pennsylvania, prior
To March 16, 1998. Prior to March 16, 1998 Vice President--
Treasurer and Vice President--Controller of ARCO Chemical.
Eva S. Teig(55)......... Senior Vice President--External Affairs & Corporate
Communications, September 1, 1997 to date; Vice President--
External Affairs & Corporate Communications, June 1, 1997 to
September 1, 1997; Vice President-- Public Affairs prior to
June 1, 1997.
James A. White(56)...... Senior Vice President--Human Resources, July 1, 1998 to date;
Senior Vice President--Human Resources, Cigna Investment
Management, prior to July 1, 1998.
Said Ziai(46)........... Senior Vice President--Corporate Strategy, October 1, 1997 to
date; Corporate Planning Director, East Midlands Electricity
plc, Nottingham, England, prior to October 1, 1997.
</TABLE>
There is no family relationship between any of the persons named in response
to Item 10.
64
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The Summary Table below includes compensation paid by Virginia Power for
services rendered in 1997, 1998 and 1999 for the Chief Executive Officer(s) and
the four other most highly compensated executive officers (as of December 31,
1999).
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards(3) Payouts
--------------------------------------- ------------------------ ------------------------
Securities
Restricted Underlying
Name & Principal Other Annual Stock Options/ LTIP Pay All Other
Position Year Salary(1) Bonus Compensation(2) Awards SAR Grants(4) Out(5) Compensation(6)
- ---------------- ---- --------- -------- --------------- ---------- ------------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Norman Askew......... 1999 $164,983 $ 0 0 0 $200,855 $6,900,000(7)
President and CEO 1998 $475,000 $308,223 $ 0 0 0 $177,040
1997 $177,084 $ 85,833 $14,560 0 0 $ 18,791 $ 120,000
Thomas F. Farrell,
II.................. 1999 $123,299 $ 48,628 $ 0 0 112,500 $113,126 $ 3,486
Chief Executive
Officer 1998 $236,971 $161,951 $ 0 0 0 $ 33,444 $ 4,800
Edgar M. Roach....... 1999 $ 98,000 $ 79,380 $ 0 0 220,500 $205,917 $ 3,383
Chief Executive
Officer 1998 $201,667 $138,104 $ 0 0 0 $ 70,687 $ 4,800
1997 $281,098 $ 0 0 0 $ 4,521
James P. O'Hanlon.... 1999 $243,400 $100,637 $ 0 0 192,500 $115,951 $ 355,800(8)
President, COO and 1998 $334,667 $180,232 $ 0 0 0 $ 86,512 $ 4,679
Chief Nuclear
Officer 1997 $270,250 $110,240 $ 0 0 0 $ 80,140 $ 4,800
Robert E. Rigsby..... 1999 $231,727 $161,841 $ 0 0 262,500 $229,352 $ 4,800
President and COO 1998 $279,414 $226,553 $ 0 0 0 $133,691 $ 4,769
1997 $254,850 $129,920 $ 0 0 0 $ 83,171 $ 4,800
John A. Shaw......... 1999 $201,200 $100,921 $ 0 0 65,250 $ 75,149 $ 70,331(9)
Senior Vice
President,
Chief Financial Officer and
Treasurer
James A. White....... 1999 $224,250 $127,980 $ 0 0 87,000 $ 79,966 $ 4,800
Senior Vice
President-
Human Resources
</TABLE>
- --------
(1) Amounts shown include vacation sold back to the Company.
(2) None of the executive officers above received perquisites or other personal
benefits in excess of either $50,000 or 10% of total cash compensation.
(3) Dividends are paid on restricted stock. The closing price of the stock on
December 31, 1999 was $39.25; For each of the above named executives, the
aggregate number of shares of restricted stock held as of December 31, 1999
issued under Virginia Power compensation programs was as follows: Mr.
Askew-0, Mr. Farrell-376, Mr. Roach-0, Mr. O'Hanlon-972, Mr. Rigsby-1,502,
Mr. Shaw-221, Mr. White-132.
(4) In May of 1999, upon approval by the Dominion Organization, Compensation
and Nominating Committee of the Board of Directors, a grant of Non-
Qualified Stock Options was issued to the executives. The grant price was
$41.25 per share. All options vest on January 1, 2000. The 1999 stock
option grant was designed to replace 50% of the 1998-2000 and 100% of the
1999-2001 long-term incentive plans.
(5) Amounts in this column represent payouts under the Incentive Compensation
Plan for the three-year period 1997-1999. These amounts include both the
cash award and the fair market value of the restricted Dominion shares as
of the issue date January 31, 2000 ($41.22 per share). For purposes of
these calculations, fair market value is defined as the average of the high
and low of the market value on the day prior to issue. Performance was
measured based 50% on Virginia Power financial results (Net Earnings and
Net Cash Flow) and 50% on Dominion's consolidated net income. Based on
their accomplishment level, each executive received their award in the form
of 50% cash and 50% restricted stock. Awards were
65
<PAGE>
- --------
Footnotes:
1. Nonstatutory stock options were granted on May 17, 1999 to the named
executives at an exercise price of $41.25 per share (the fair market value
on the date of grant). Fair Market Value is defined as the average of the
intra-day high and low as of the close of business on December 31, 1999.
2. One hundred percent of the options vested on January 1, 2000. The options
will remain exercisable for 10 years from the date of grant. Upon a change
in control the options become fully exercisable and remain exercisable until
the original expiration date.
3. The binomial pricing model was used to calculate the present value of the
stock options. The assumptions underlying this model are:
<TABLE>
<S> <C>
Volatility 15.137%
Risk Free Rate 6.700%
Dividend Yield 6.200%
Expiration Date May 17, 2009
</TABLE>
Aggregated Option/SAR Exercises in Last Fiscal Year
And FY-End Option/SAR Values
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e) (f) (g)
--- ----------- ----------- ----------- ------------- ----------- -------------
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs In-the-money Options/SARs
at FY-end(#)2 at FY- end ($)1
------------------------- -------------------------
Shares
acquired on Value
Name exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Norman Askew............ 0 0 0 0 0 0
Thomas F. Farrell, II... 0 0 0 450,000 0 0
Edgar M. Roach.......... 0 0 0 450,000 0 0
James P. O'Hanlon....... 0 0 0 350,000 0 0
Robert E. Rigsby........ 0 0 0 350,000 0 0
John A. Shaw............ 0 0 0 87,000 0 0
James A. White.......... 0 0 0 87,000 0 0
</TABLE>
- --------
(1) The Fair Market Value of the underlying options is defined as the average
of the intra-day high and low as of the close of business on December 31,
1999.
(2) Shares are exercisable January 1, 2000.
Stock Ownership
In 1999 Dominion adopted stock ownership guideline for its executive
officers. Officers have up to five years to meet the guidelines outlined below.
Although stated in share amounts, the guidelines are based approximately on a
multiple of base salary as presented in parentheses.
Dominion Resources, Inc.
Stock Ownership Guidelines
<TABLE>
<CAPTION>
Position Share Ownership
-------- ---------------
<S> <C>
Chief Executive Officer..................................... 145,000(~8x)
Executive Vice President.................................... 35,000(~5x)
CEO-Operating Companies
Senior Vice President....................................... 20,000(~4x)
Vice President.............................................. 10,000(~3x)
</TABLE>
66
<PAGE>
- --------
Footnotes:
1. Nonstatutory stock options were granted on May 17, 1999 to the named
executives at an exercise price of $41.25 per share (the fair market value
on the date of grant). Fair Market Value is defined as the average of the
intra-day high and low as of the close of business on December 31, 1999.
2. Certain executives had their salaries split between Virginia Power and
Dominion based on the estimated amount of time that they performed work for
each organization. The number of options reflected in these tables is based
on the percentage of salary which was paid by Virginia Power.
3. One hundred percent of the options vested on January 1, 2000. The options
will remain exercisable for 10 years from the date of grant. Upon a change
in control the options become fully exercisable and remain exercisable until
the original expiration date.
4. The Black-Scholes pricing model was used to calculate the present value of
the stock options. The assumptions underlying this model are:
<TABLE>
<S> <C>
Volatility 19.2%
Risk Free Rate 6.05%
Dividend Yield 6.06%
Option Value $5.30
Expiration Date May 17, 2009
</TABLE>
Aggregated Option/SAR Exercises in Last Fiscal Year
And FY-End Option/SAR Values
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e) (f) (g)
--- ----------- ----------- ----------- ------------- ----------- -------------
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs In-the-money Options/SARs
at FY-end(#) (1) at FY- end ($) (2)
------------------------- -------------------------
Shares
acquired on Value
Name exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Norman Askew............ 0 0 0 0 0 0
Thomas F. Farrell, II... 0 0 0 112,500 0 0
Edgar M. Roach.......... 0 0 0 220,500 0 0
James P. O'Hanlon....... 0 0 0 192,500 0 0
Robert E. Rigsby........ 0 0 0 262,500 0 0
John A. Shaw............ 0 0 0 65,250 0 0
James A. White.......... 0 0 0 87,000 0 0
</TABLE>
- --------
(1) Shares were exercisable January 1, 2000.
(2) The Fair Market Value of the underlying options is defined as the average
of the intra-day high and low as of the close of business on December 31,
1999.
Stock Ownership
In 1999 Dominion adopted stock ownership guidelines for its executive
officers and those of its subsidiaries. Officers have up to five years to meet
the guidelines outlined below. Although stated in share amounts, the guidelines
are based approximately on a multiple of base salary as presented in
parentheses.
Dominion Resources, Inc.
Stock Ownership Guidelines
<TABLE>
<CAPTION>
Position Share Ownership
-------- ---------------
<S> <C>
Chief Executive Officer..................................... 145,000(^8x)
Executive Vice President
CEO-Operating Companies..................................... 35,000(^5x)
Senior Vice President....................................... 20,000(^4x)
Vice President.............................................. 10,000(^3x)
</TABLE>
67
<PAGE>
Stock Purchase and Loan Programs
At the end of 1999, Dominion approved a Stock Purchase and Loan Programs
intended to encourage and facilitate executives' ownership of common stock
through the availability of loans guaranteed by Dominion.
Under the programs loans must be used to purchase Dominion common stock. An
executive can borrow up to ten times his or her base salary, subject to credit
approval, with a term of five years. Executives who meet their target ownership
level through their participation in the Program receive "bonus shares" equal
to five percent of the number of shares purchased under the program. The
dividends on the stock purchased through the programs are used to pay the
interest on the loan. Dominion subsidizes the interest payments to the extent
that the current dividend rate does not fully cover the payments. Dominion will
end its subsidy of the loan if it is prepaid or if the stock is sold. As of
February 3, 2000, our officers have borrowed in aggregate $67 million, for
which they are personally liable and which Dominion has guaranteed.
Retirement Plans
The table below sets forth the estimated annual straight life benefit that
would be paid following retirement under the benefit formula of the Dominion
Resources, Inc. Retirement Plan (the Retirement Plan).
Estimated Annual Benefits Payable Upon Retirement
<TABLE>
<CAPTION>
Credited Years Of Service
---------------------------------
Final Average Earnings 15 20 25 30
---------------------- -------- -------- ------- -------
<S> <C> <C> <C> <C>
$300,000................................... 86,191 114,922 143,652 172,382
350,000................................... 101,416 135,222 169,027 202,832
400,000................................... 116,641 155,522 194,402 233,282
450,000................................... 131,866 175,822 219,777 263,732
500,000................................... 147,091 196,122 245,152 294,182
550,000................................... 162,316 216,422 270,527 324,632
600,000................................... 177,541 236,722 295,902 355,082
650,000................................... 192,766 257,022 321,277 385,532
750,000................................... 223,216 297,622 372,027 446,432
800,000................................... 238,441 317,922 397,402 476,882
850,000................................... 253,666 338,222 422,777 507,332
</TABLE>
Benefits under the Retirement Plan are based on (i) average base
compensation over the consecutive 60-month period in which pay is highest, (ii)
years of credited service, (iii) age at retirement, and (iv) the offset of
Social Security Benefits. Certain officers have entered into retirement
agreements that give additional credited years of service for retirement and
retirement life insurance purposes, and retirement medical benefit purposes
contingent upon the officer reaching a specified age and remaining in the
employ of the Company or an affiliate.
In addition, certain officers, if they reach a specified age while still
employed, will be credited with additional years of service. For the executives
named in the Summary Compensation Table, credited years of service at age 60,
including any additional years earned in connection with the retirement
agreements, would not exceed 30.
Virginia Power's executive compensation program places significant emphasis
on incentive compensation opportunities linked to financial and operating
performance. The Retirement Plan benefit formula recognizes base salary, but
not incentive compensation payments. Therefore, each year the Board approves a
market-based adjustment to executive base salaries for use in calculating the
retirement benefit under the Dominion Resources, Inc. Benefit Restoration Plan
(the Restoration Plan). This adjustment was not material in 1999. Also, the
Internal Revenue Code limits the annual retirement benefit that may be paid
from a qualified retirement plan and the amount of compensation that may be
recognized by the Retirement Plan. To the extent that benefits determined under
the Retirement Plan's benefit formula exceed the limitations imposed by the
Internal Revenue Code, they will be paid under the Restoration Plan.
68
<PAGE>
Executive Supplemental Retirement Plan
The Supplemental Plan provides an annual retirement benefit equal to 25
percent of a participant's final cash compensation (base pay plus target annual
incentive plan payments). The normal form of benefit is monthly installments
for 120 months to a participant with 60 months of service, who (i) retires at
or after age 55 from the employ of the Company, (ii) has become permanently
disabled, or (iii) dies. The accrued benefit vests proportionately between the
time an officer is elected and when he or she reaches age 55 when the benefit
is fully vested. If a participant dies while employed, the normal form of
benefit will be paid to a designated beneficiary. If a participant dies while
retired, but before receiving all benefit payments, the remaining installments
will be paid to a designated beneficiary. A lump sum payment is available under
certain conditions. Based on 1999 compensation, the estimated annual benefit
under this plan for each of the executives named in the Summary Compensation
Table are: Mr. Farrell, II-$34,932, Mr. Roach-$55,125, Mr. O'Hanlon-$71,558,
Mr. Rigsby- $91,370, Mr. Shaw-$70,162, Mr. White-$86,050.
Executive Deferred Compensation Plan
Under this plan, executives may defer any portion of their base salary,
annual incentive cash award and/or long term incentive cash award. Deferrals
are credited at the executive's discretion, for bookkeeping purposes, with
earnings and losses as if they were invested in any of several mutual fund
options, or Dominion common stock. Distributions are made at the direction of
the executive.
Employment Agreements
Messrs. Farrell and Roach have employment agreements with Dominion for a
three year period ending September 12, 2000. During employment, each of these
executives will continue to receive a salary at least equal to his salary on
the date of the agreement and will be eligible for bonuses and all employee
benefits provided to senior management. The agreements also provide executives
with enhanced retirement benefits. If the executive's employment is terminated
without cause or if his salary, incentives or benefits are reduced or not paid,
or he is demoted to a position that is not a senior management position, the
executive will (subject to notice and remedy provisions): (1) receive a lump
sum payment equal to the present value of salary and cash bonus for the balance
of the contract period, (2) vest in his outstanding restricted stock and (3)
receive age and service credit and continued benefit plan coverage through the
end of the contract period. The agreements also provide benefits in the event
of death or disability. In the case of a change in control, the executive will
not receive pay under this agreement as a result of his termination of
employment for any reason if he receives payment under his employment
continuity agreement (described below).
Messrs. Roach and Rigsby have agreements with the Company that provide that,
as a result of certain years of service with the Company, they will, upon
retirement or any other termination of employment receive a payment of one
year's base salary (or six month's base salary and certain enhanced retirement
benefits at the executive's election). They will also be indemnified for
potential penalties under the Internal Revenue Code if they are applicable to
the enforcement of this benefit. These amounts are in addition to any amounts
to which they may be entitled under other agreements with the Company with the
exception of employment continuity agreement payments which will replace these
payments. These agreements also provide the executives with enhanced retirement
benefits as does a separate agreement of Mr. O'Hanlon's.
Messrs. Shaw and White have employment agreements under which they are
entitled to salary, annual and long term incentive program participation and
all employee benefits provided by the Company to senior management. In the case
of a change in control, these executives may also receive payments under their
employment continuity agreements (described below).
Special Arrangements
The Company or Dominion have entered into employment continuity agreements
with the executives named in the Summary Compensation Table (other than Mr.
Askew), which provide benefits in the event of a change of control. Each
agreement has a three-year term and is automatically extended for an additional
year, unless cancelled by the Company.
69
<PAGE>
The agreements provide for the continuation of salary and benefits for a
maximum period of three years after either (1) a change of control, (2)
termination without cause following a change in control or (3) a reduction of
responsibilities, salary and incentives following a change in control (if the
executive gives 60 days notice). Payment of this benefit will be made in either
a lump sum or installments over three years. The Company is also obligated to
pay outplacement fees for the executive. In addition, the agreements indemnify
the executives for potential penalties related to the Internal Revenue Code and
fees associated with the enforcement of the agreements. If an executive is
terminated for cause, the agreements are not effective.
A change of control shall be deemed to have occurred if (i) any person or
group becomes a beneficial owner of 20% or more of the combined voting power of
Dominion voting stock or (ii) as a direct or indirect result of, or in
connection with, a cash tender or exchange offer, a merger or other business
combination, sale of assets, or contested election, the Directors constituting
the Dominion Board before any such transactions cease to represent a majority
of Dominion or its successor's Board within two years after the last of such
transactions.
Compensation Of Directors
Fees
During 1999, non-employee directors were paid an annual retainer of $19,000
in cash plus $19,000 in stock. They also received $900 in cash per Board or
committee meeting attended. Beginning January 2000, non-employee directors will
be paid an annual retainer of $20,000 in cash plus $20,000 in stock. They will
also receive $1200 in cash per Board meeting attended.
Deferred Cash Compensation Plan
Directors may elect to defer their cash fees under this plan until they
reach retirement or a specified age. The deferred fees are credited to either
an interest bearing account or a Dominion common stock equivalent account.
Interest or dividend equivalents accrue until distributions are made. A
director will be paid in cash or stock according to the election made.
Stock Compensation Plan
The stock portion of the directors' retainer is paid under this plan.
Directors have the option to defer receipt of the stock. If a director elects
this option, the shares are held in trust until the director's retirement and
the dividends on those shares are reinvested. However, the director retains all
voting and other rights as a shareholder.
Stock Accumulation Plan
Upon election to the Board, a non-employee director receives a one-time
award under this plan. The award is in Stock Units, which are equivalent in
value to Dominion common stock. The award amount is determined by multiplying
the director's annual cash retainer by 17, then dividing the result by the
average price of Dominion common stock on the last trading days of the three
months before the director's election to the Board. The Stock Units awarded to
a director are credited to a book account. A separate account is credited with
additional Stock Units equal in value to dividends on all Stock Units held in
the director's account. A director must have 17 years of service to receive all
of the Stock Units awarded and accumulated under this plan. Reduced
distributions may be made where a director has at least 10 years of service.
Charitable Contribution Program
As part of its overall program of charitable giving, the Company offers the
directors participation in a Directors' Charitable Contribution Program. The
Program is funded by life insurance policies purchased by the Company on the
directors. The directors derive no financial or tax benefits from the Program,
because all insurance proceeds and charitable tax deductions accrue solely to
the Company. However, upon the death of a director, the Company will donate an
aggregate of $50,000 per year for ten years to one or more qualifying
charitable organizations recommended by that director. Effective in January
2000, this program will not be offered to incoming directors.
70
<PAGE>
Matching Gifts Program
Directors may give up to $1,000 per year to 501(c)(3) organizations of their
choice and Virginia Power will match their donations on a 1-to-1 basis. If they
volunteer more than 50 hours of work to any organization during a year,
Virginia Power will match the donation on a 2-to-1 basis.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Beneficial Owners and Management
The table below sets forth as of February 18, 2000, except as noted, the
number of shares of Dominion Common Stock owned by Directors and the executive
officers named on the Summary Compensation Table.
<TABLE>
<CAPTION>
Shares Of Common Stock Director Plan
Name Beneficially Owned Accounts(1)
---- ---------------------- -------------
<S> <C> <C>
Thos. E. Capps........................ 1,551,481
Jean E. Clary......................... 11,237 10,328
Thomas F. Farrell, II................. 590,730
Edgar M. Roach, Jr.................... 590,992
William G. Thomas..................... 13,055 14,952
Norman Askew.......................... 3,613
James P. O'Hanlon..................... 453,772
Robert E. Rigsby...................... 403,431
John A. Shaw.......................... 117,486
James A. White........................ 110,013
All Directors and Executive Officers
as a Group 18 persons(5)............. 4,788,012
</TABLE>
- --------
(1) Amounts in this column represent share equivalents accumulated under
the non-employee director Stock Accumulation Plan. Balances of shares
are the amounts accumulated under the plan. Because of the plan's
vesting provisions, these amounts will not necessarily be distributed
to a director. Any balance in excess of is an amount of shares
accumulated--at the director's election--under the Deferred Cash
Compensation plan. That excess amount will be distributed in actual
shares to the director.
(2) Amounts include restricted stock as follows: Mr. Capps 29,932 shares;
Mr. Askew 0; Mr. Farrell 6,525; Mr. Roach 693; Mr. Rigsby 5,062; Mr.
Shaw 1,388; Mr. White 1,151; and all directors and executive officers
as a group 64,953.
(3) Mr. Farrell disclaims beneficial ownership of shares held by his
spouse.
(4) Includes shares held in trust under the Directors Stock Compensation
Plan.
(5) All current directors and executive officers as a group own less than
one percent of the number of shares outstanding as of February 18,
2000.
(6) Beneficial ownership is disclaimed for a total of 636 shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reed, Smith, Hazel & Thomas, LLP, a professional corporation, from time to
time acts as counsel to the Company. Mr. Thomas, a Director of the Company, is
a partner with Reed, Smith, Hazel & Thomas, LLP.
71
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Form 10-K:
1. Financial Statements
See Index on page 31.
2. Exhibits
<TABLE>
<C> <C> <S>
3.1 -- Restated Articles of Incorporation, as amended, as in effect on May 6,
1999 (Exhibit 3.1), Form 10-Q for the period ended March 31, 1999,
File No. 1-2255, incorporated by reference).
3.2 -- Bylaws, as amended, as in effect on January 21, 2000 (filed herewith).
4.1 -- See Exhibit 3 (i) above.
4.2 -- Indenture of Mortgage of the Company, dated November 1, 1935, as
supplemented and modified by fifty-eight Supplemental Indentures
(Exhibit 4(ii), Form 10-K for the fiscal year ended December 31, 1985,
File No. 1-2255, incorporated by reference); Sixty-Seventh
Supplemental Indenture (Exhibit 4(i), Form 8-K, dated April 2, 1991,
File No. 1-2255, incorporated by reference and Seventieth Supplemental
Indenture (Exhibit 4(iii), Form 8-K, dated February 25, 1992,
File No. 1-2255, incorporated by reference); Seventy-First
Supplemental Indenture (Exhibit 4(i)) and Seventy-Second Supplemental
Indenture (Exhibit 4(ii), Form 8-K, dated July 7, 1992,
File No. 1-2255, incorporated by reference); Seventy-Third
Supplemental Indenture (Exhibit 4(i), Form 8-K, dated August 6, 1992,
File No. 1-2255, incorporated by reference); Seventy-Fourth
Supplemental Indenture (Exhibit 4(i), Form 8-K, dated February 10,
1993, File No. 1-2255, incorporated by reference); Seventy-Fifth
Supplemental Indenture (Exhibit 4(i), Form 8-K, dated April 6, 1993,
File No. 1-2255, incorporated by reference); Seventy-Sixth
Supplemental Indenture (Exhibit 4(i), Form 8-K, dated April 21, 1993,
File No. 1-2255, incorporated by reference); Seventy-Seventh
Supplemental Indenture (Exhibit 4(i), Form 8-K, dated June 8, 1993,
File No. 1-2255, incorporated by reference); Seventy-Eighth
Supplemental Indenture (Exhibit 4(i), Form 8-K, dated August 10, 1993,
File No. 1-2255, incorporated by reference); Seventy-Ninth
Supplemental Indenture (Exhibit 4(i), Form 8-K, dated August 10, 1993,
File No. 1-2255, incorporated by reference); Eightieth Supplemental
Indenture (Exhibit 4(i), Form 8-K, dated October 12, 1993, File No. 1-
2255, incorporated by reference); Eighty-First Supplemental Indenture
(Exhibit 4(iii), Form 10-K for the fiscal year ended December 31,
1993, File No. 1-2255, incorporated by reference); Eighty-Second
Supplemental Indenture (Exhibit 4(i), Form 8-K, dated January 18,
1994, File No. 1-2255, incorporated by reference); Eighty-Third
Supplemental Indenture (Exhibit 4(i), Form 8-K, dated October 19,
1994, File No. 1-2255, incorporated by reference); Eighty-Fourth
Supplemental Indenture (Exhibit 4(i), Form 8-K, dated March 22, 1995,
File No. 1-2255, incorporated by reference; and Eighty-Fifth
Supplemtnal Indenture (Exhibit 4(i), Form 8-K, dated February 20,
1997, File No. 1-2255, incorporated by reference).
4.3 -- Indenture, dated as of June 1, 1986, between Virginia Electric and
Power Company and The Chase Manhattan Bank (formerly Chemical Bank)
(Exhibit 4(v), Form 10-K for the fiscal year ended December 31, 1993,
File No. 1-2255, incorporated by reference).
4.4 -- Indenture, dated April 1, 1988, between Virginia Electric and Power
Company and The Chase Manhattan Bank (formerly Chemical Bank), as
supplemented and modified by a First Supplemental Indenture, dated
August 1, 1989, (Exhibit 4(vi), Form 10-K for the fiscal year ended
December 31, 1993, File No. 1-2255, incorporated by reference).
</TABLE>
72
<PAGE>
<TABLE>
<C> <C> <S>
4.5 -- Subordinated Note Indenture, dated as of August 1, 1995 between
Virginia Electric and Power Company and The Chase Manhattan Bank
(formerly Chemical Bank), as Trustee, as supplemented (Exhibit
4(a), Form S-3 Registration Statement File No. 333-20561 as filed
on January 28, 1997, incorporated by reference).
4.6 -- Form of Senior Indenture, dated as of June 1, 1998 as supplemented
by the First Supplemental Indenture (Exhibit 4.2 to Form 8-K dated
June 12, 1998, File No. 1-2255, incorporated by reference); Second
Supplemental Indenture (Exhibit 4.2 to Form 8-K dated June 3, 1999,
File No. 1-2255, incorporated by reference) and Third Supplemental
Indenture (Exhibit 4.2, Form 8-K, dated October 27, 1999, File No.
1-2255, incorporated by reference).
4.7 -- Virginia Electric and Power Company agrees to furnish to the
Commission upon request any other instrument with respect to long-
term debt as to which the total amount of securities authorized
thereunder does not exceed 10 percent of Virginia Electric and
Power Company's total assets.
10.1 -- Amended and Restated Interconnection and Operating Agreement, dated
as of July 29, 1997 between Virginia Electric and Power Company and
Old Dominion Electric Cooperative (Exhibit 10.3, Form 10-K for the
fiscal year ended December 31, 1997, File No. 1-2255 incorporated
by reference).
10.2 -- Credit Agreement dated June 7, 1996, between The Chase Manhattan
Bank (formerly Chemical Bank) and Virginia Electric and Power
Company (Exhibit 10(i), Form 10-Q for the period ended June 30,
1996, File No. 1-2255, incorporated by reference) Credit Agreement
dated June 7, 1996, between The Chase Manhattan Bank and Virginia
Electric and Power Company and as amended and restated as of June
4, 1999 (filed herewith).
10.3* -- Description of arrangements with certain officers regarding
additional credited years of service for retirement purposes
(Exhibit 10 (xii), Form 10-K for the fiscal year ended December 31,
1992, File No. 1-2255, incorporated by reference).
10.4* -- Dominion Resources, Inc. Executive Supplemental Retirement Plan,
effective January 1, 1981 as amended and restated September 1, 1996
with first amendment dated June 20, 1997 and second amendment dated
March 3, 1998 (Exhibit 10.14, Form 10-K for the fiscal year ended
December 31, 1997, File No. 1-2255, incorporated by reference)
10.5* -- Dominion Resources, Inc.'s Cash Incentive Plan as adopted December
20, 1991 (Exhibit 10 xxv), Form 10-K for the fiscal year ended
December 31, 1994, File No. 1-2255, incorporated by reference).
10.6* -- Dominion Resources, Inc. Retirement Benefit Funding Plan, effective
June 29, 1990 as amended and restated September 1, 1996 (Exhibit
10.16, Form 10-K for the fiscal year ended December 31, 1997, File
No. 1-2255, incorporated by reference).
10.7* -- Dominion Resources, Inc. Retirement Benefit Restoration Plan as
adopted effective January 1, 1991 as amended and restated September
1, 1996 (Exhibit 10.17, Form 10-K for the fiscal year ended
December 31, 1997, File No. 1-2255, incorporated by reference).
10.8* -- Dominion Resources, Inc. Executives' Deferred Compensation Plan,
effective January 1, 1994, as amended and restated on January 1,
1997 (Exhibit 10 (xix), Form 10-K for the fiscal year ended
December 31, 1996, File No. 1-2255, incorporated by reference).
10.9* -- Employment Agreement dated September 15, 1995 between Virginia
Power and Robert E. Rigsby (Exhibit 10 (xxii), Form 10-K for the
fiscal year ended December 31, 1996, File No. 1-2255, incorporated
by reference).
10.10* -- Dominion Resources, Inc. Stock Accumulation Plan for Outside
Directors, effective April 23, 1996 (Exhibit 10 (xxiv), Form 10-K
for the fiscal year ended December 31, 1996, File No. 1-2255,
incorporated by reference).
</TABLE>
73
<PAGE>
<TABLE>
<C> <C> <S>
10.11* -- Dominion Resources, Inc. Incentive Compensation Plan, effective
April 22, 1997 (Exhibit 10.23 Form 10-K for the fiscal year ended
December 31, 1997, File No. 1-2255, incorporated by reference) and
as amended and restated effective April 16, 1999 (Exhibit 10.1,
Form 10-Q for the period ended June 30, 1999 File No. 1-2255,
incorporated by reference).
10.12* -- Form of an Employment Agreement dated March 16, 1998 between
Virginia Power and certain executive officers including John A.
Shaw and James A. White (Exhibit 10.1, Form 10-Q for the period
ended March 31, 1998, File No. 1-2255, incorporated by reference).
[The only material respect in which the particular employment
agreements differ is the base salary set forth therein.]
10.13* -- Dominion Resources, Inc. Directors' Stock Compensation Plan,
effective April 9, 1998 (Exhibit 10.22, Form 10-K for the fiscal
year ended December 31, 1998, File No. 1-2255, incorporated by
reference).
10.14* -- Dominion Resources, Inc. Directors' Deferred Cash Compensation Plan
effective December 21, 1998 (Exhibit 10.23, Form 10-K for the
fiscal year ended December 31, 1998, File No. 1-2255, incorporated
by reference).
10.15* -- Employment Agreement dated September 12, 1997 between Dominion and
Thomas F. Farrell, II (Exhibit 10.24, Form 10-K for the fiscal year
ended December 31, 1998, File No. 1-2255, incorporated by
reference).
10.16* -- Form of Employment Continuity Agreement for certain officers of the
Company including Thomas F. Farrell, II, Edgar M. Roach, Jr., James
P. O'Hanlon, John A. Shaw and James A. White (Exhibit 10.2, Form
10-Q for the period ended June 30, 1999, File No. 1-2255,
incorporated by reference).
10.17* -- Form of Amendment to Employment Agreement for certain officers
including Robert E. Rigsby and James P. O'Hanlon (Exhibit 10.3,
Form 10-Q for the period ended June 30, 1999, File No. 1-2255,
incorporated by reference).
10.18* -- Employment Agreement dated September 12, 1997, between Dominion and
Edgar M. Roach, Jr. (Exhibit 10(xxxiv) Form 10-K for fiscal year
ended December 31, 1997, File No. 1-8489, incorporated by
reference).
10.19 -- Services Agreement between Dominion Resources Services, Inc. and
Virginia Electric and Power Company dated January 1, 2000 (filed
herewith).
10.20 -- Support Agreement between Dominion Resources Services, Inc. and
Virginia Electric and Power Company effective January 1, 2000
(filed herewith).
10.21 -- Alliance Agreement Establishing the Alliance Independent
Transmission System Operator, Inc., Alliance Transmission Company,
Inc., and Alliance Transmission Company, LLC Dated May 27, 1999
(filed herewith).
10.22* -- Employment Agreement dated May 26, 1989 between the Company and
James P. O'Hanlon (filed herewith).
10.23* -- Employment Agreement dated October 8, 1999 between the Company and
James P. O'Hanlon (filed herewith)
23.1 -- Consent of McGuire Woods Battle & Boothe LLP (filed herewith).
23.2 -- Consent of Jackson & Kelly (filed herewith).
23.3 -- Consent of Deloitte & Touche LLP (filed herewith).
27 -- Financial Data Schedule (filed herewith).
</TABLE>
- --------
* Indicates management contract or compensatory plan or arrangement
(b) Reports on Form 8-K
None
74
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Virginia Electric and Power Company
Date:
/s/ Thos. E. Capps
By: _________________________________
(Thos. E. Capps., Chairman of the
Board Of Directors)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the day of March 7, 2000.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Thos. E. Capps Chairman of the Board of
______________________________________ Directors and Director
Thos E. Capps
/s/ Jean E. Clary Director
______________________________________
Jean E. Clary
/s/ Thomas F. Farrell, II Chief Executive Officer
______________________________________ and Director
Thomas F. Farrell, II
/s/ Edgar M. Roach, Jr. Chief Executive Officer
______________________________________ and Director
Edgar M. Roach, Jr.
/s/ William G. Thomas Director
______________________________________
William G. Thomas
/s/ John A. Shaw Senior Vice President,
______________________________________ Chief Financial Officer
John A. Shaw And Treasurer
/s/ M. S. Bolton Jr. Senior Vice President-
______________________________________ Financial Management
</TABLE> M. S. Bolton, Jr. (Principal Accounting
Officer)
75
<PAGE>
Exhibit 3.2
BYLAWS
OF
VIRGINIA ELECTRIC AND POWER COMPANY
As amended and in effect on January 21, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Page
<S> <C>
I Name........................................................ 1
II Shareholders' Meetings...................................... 1
III Annual Meeting.............................................. 1
IV Special Meetings............................................ 1
V Notice of Shareholders' Meetings and Voting Lists........... 2
VI Waiver of Notice............................................ 3
VII Quorum...................................................... 3
VIII Proxy and Voting............................................ 4
IX Board of Directors.......................................... 4
X Powers of Directors......................................... 4
XI Executive and Other Committees.............................. 5
XII Meetings of Directors and Quorum............................ 5
XIII Action Without a Meeting.................................... 7
XIV Officers.................................................... 7
XV Eligibility of Officers..................................... 7
XVI Chairman of the Board of Directors and President............ 8
XVII Vice Presidents............................................. 8
XVIII Corporate Secretary......................................... 9
XIX Treasurer................................................... 9
XX Controller.................................................. 10
XXI Resignations and Removals................................... 10
XXII Vacancies................................................... 10
XXIII Certificates for Shares..................................... 11
XXIV Transfer of Shares.......................................... 11
XXV Record Date................................................. 12
XXVI Voting of Shares Held....................................... 12
XXVII Bonds, Debentures and Notes Issued Under an Indenture....... 13
XXVIII Amendments.................................................. 13
XXIX Emergency Bylaws............................................ 13
</TABLE>
BYLAWS
OF
VIRGINIA ELECTRIC AND POWER COMPANY
ARTICLE I.
Name.
<PAGE>
The name of the Corporation is Virginia Electric and Power Company.
ARTICLE II.
Shareholders' Meetings.
All meetings of the Shareholders shall be held at such place, within or
without of the Commonwealth, as provided in the notice of the meeting given
pursuant to Article V. If the Chairman of the Board of Directors determines
that the holding of any meeting at the place named in the notice might be
hazardous, he may cause it to be held at some other place deemed by him
suitable and convenient, upon arranging notice to Shareholders who attend at
the first place and reasonable opportunity for them to proceed to the new
place.
ARTICLE III.
Annual Meeting.
The Annual Meeting of the Shareholders shall be held on the fourth Friday
in April in each year if not a legal holiday, and if a legal holiday then on
the next business day not a legal holiday. In the event that such Annual
Meeting is omitted by oversight or otherwise on the date herein provided for,
the Board of Directors shall cause a meeting in lieu thereof to be held as
soon thereafter as conveniently may be, and any business transacted or
elections held at such meeting shall be as valid as if transacted or held at
the Annual Meeting. Such subsequent meeting shall be called in the same
manner as provided for Special Shareholders' Meetings.
ARTICLE IV.
Special Meetings.
Special Meetings of the Shareholders shall be held whenever called by the
Chairman of the Board of Directors, any Chief Executive Officer, or a majority
of the Directors or in accordance with the provisions of Article III of the
Articles of Incorporation. Special Meetings of the Shareholders shall also be
held following the accrual or termination of voting rights of the Preferred
Stock, whenever requested to be called in the manner provided in Article III of
the Articles of Incorporation.
ARTICLE V.
Notice of Shareholders' Meetings and Voting Lists.
Written notice stating the place, day and hour of each Shareholders'
Meeting and the purpose or purposes for which the meeting is called shall be
given not less than 10 nor more than 60 days before the date of the meeting, or
such longer period as is specified below, by, or at the direction of, the Board
of Directors or its Chairman, any Chief Executive Officer, any President or any
Vice President or the Corporate Secretary or any Assistant Corporate Secretary,
by hand or by mail, to each Shareholder of record entitled to vote at the
meeting, at his or her registered address and the person giving such notice
shall make affidavit in relation thereto. Such notice shall be deemed to be
given when deposited in the United States mails addressed to the Shareholder at
his address as it appears on the stock transfer books, with postage thereon
prepaid or when hand delivered at said address.
Notice of a Shareholders' Meeting to act on an amendment of the Articles of
Incorporation, on a plan of merger or share exchange, on a proposed dissolution
of the Corporation or on a proposed sale, lease or exchange, or other
disposition, of all, or substantially all, of the property of the Corporation
otherwise than in the usual and regular course of business, shall be given in
the manner provided above, not less than 25 nor more than 60 days before the
date of the meeting. Any notice of a Shareholders' Meeting to act on an
amendment of the Articles of Incorporation, a plan of merger or share exchange
or a proposed sale, lease or exchange, or other disposition of all, or
substantially all, of the property of the Corporation otherwise than in the
usual and regular course of business shall be accompanied by a copy of the
<PAGE>
proposed amendment, plan of merger or exchange or agreement effecting the
disposition of assets.
Any meeting at which all Shareholders having voting power in respect of
the business to be transacted thereat are present, either in person or by
proxy, or of which those not present waive notice in writing, whether before
or after the meeting, shall be a legal meeting for the transaction of business
notwithstanding that notice has not been given as hereinbefore provided.
The officer or agent having charge of the share transfer books of the
Corporation shall make, at least 10 days before each meeting of Shareholders,
a complete list of the Shareholders entitled to vote at such meeting or any
adjournment thereof, with the address of and number of shares held by each.
The list shall be arranged by voting group and within each voting group by
class or series of shares. Such list, for a period of 10 days prior to such
meeting, shall be kept on file at the principal office of the Corporation.
Any person who shall have been a Shareholder of record for at least 6 months
immediately preceding his demand or who shall be the holder of record of at
least 5% of all the outstanding shares of the Corporation, upon demand stating
with reasonable particularity the purpose thereof, shall have the right to
inspect such list, in person, for any proper purpose if such list is directly
connected with such purpose, during usual business hours within the period of
10 days prior to the meeting. Such list shall also be produced at the time
and place of the meeting and shall be subject to the inspection of any
Shareholder during the whole time of the meeting for the purposes thereof.
ARTICLE VI.
Waiver of Notice.
Notice of any Shareholders' Meeting may be waived by any Shareholder,
whether before or after the date of the meeting. Such waiver of notice shall
be in writing, signed by the Shareholder and delivered to the Corporate
Secretary. Any Shareholder who attends a meeting shall be deemed to have
waived objection to lack of notice or defective notice of the meeting, unless
the Shareholder at the beginning of the meeting objects to holding the meeting
or transacting business at the meeting and shall be deemed to have waived
objection to consideration of a particular matter at the meeting that is not
within the purpose or purposes described in the meeting notice, unless the
Shareholder objects to considering the matter when it is presented.
ARTICLE VII.
Quorum.
At any meeting of the Shareholders, a majority in number of votes of all
the shares issued and outstanding having voting power in respect of the
business to be transacted thereat, represented by such Shareholders of record
in person or by proxy, shall constitute a quorum, but a lesser interest may
adjourn any meeting from time to time and the meeting may be held as adjourned
without further notice. When a quorum is present at any meeting, a majority
vote represented thereat shall decide any question brought before such
meeting, unless the question is one upon which by express provision of law or
of the Articles of Incorporation or of these Bylaws a larger or different vote
is required, in which case such express provision shall govern and control the
decision of such question. The provisions of this Article are, however,
subject to the provisions of Article III of the Articles of Incorporation.
ARTICLE VIII.
Proxy and Voting.
Shareholders of record entitled to vote may vote at any meeting held, in
person or by proxy executed in writing by the Shareholder or by his duly
authorized attorney-in-fact, which shall be filed with the Corporate Secretary
or the secretary of the meeting before being voted. A proxy shall designate
only one person as proxy, except that proxies executed pursuant to a general
solicitation of proxies may designate one or more persons as proxies.
Proxies shall entitle the holders thereof to vote at any adjournment of the
meeting, but shall not be valid after the final adjournment thereof. No proxy
<PAGE>
shall be valid after 11 months from its date unless the appointment form
expressly provides for a longer period of validity. Shareholders entitled to
vote may also be represented by an agent personally present, duly designated by
power of attorney, with or without power of substitution, and such power of
attorney shall be produced at the meeting on request. Each holder of record of
stock of any class shall, as to all matters in respect of which stock of any
class has voting power, be entitled to one vote for each share of stock of such
class standing in his name on the books.
ARTICLE IX.
Board of Directors.
A Board of Directors shall be chosen by ballot at the Annual Meeting of the
Shareholders or at any meeting held in lieu thereof as herein before provided in
Article III. The number of Directors may be fixed from time to time by
Resolution of the Board of Directors within a variable range of not less than
five nor more than eighteen. Except as otherwise provided in Article XXI hereof,
each Director shall serve until the next Annual Meeting of Shareholders and
until his successor is duly elected and qualified or until the number of
Directors is decreased. The foregoing provisions are, however, subject to
Article III of the Articles of Incorporation, if and whenever the same may
become applicable by the accrual of voting rights to the Preferred Stock.
ARTICLE X.
Powers of Directors.
All corporate powers shall be exercised by or under the authority of, and
the business and affairs of the Corporation shall be managed under the
direction of, the Board of Directors, subject to any limitation set forth in
the Articles of Incorporation and so far as this delegation of authority is
not inconsistent with the laws of the Commonwealth of Virginia, with the
Articles of Incorporation or with these Bylaws.
ARTICLE XI.
Executive and Other Committees.
The Board of Directors, by resolution passed by a majority of the whole
Board, may designate two or more of its number to constitute an Executive
Committee. If a quorum is present, the Committee may act upon the affirmative
vote of a majority of the Committee members present. When the Board of
Directors is not in session, the Executive Committee shall have and may
exercise all of the authority of the Board of Directors except that the
Executive Committee shall not (i) approve or recommend to Shareholders action
that Virginia law requires to be approved by Shareholders; (ii) fill vacancies
on the Board of Directors or any of its Committees or elect officers; (iii)
Amend Articles of Incorporation other than as permitted by statute; (iv)
adopt, amend or repeal these Bylaws; (v) approve a plan of merger not
requiring Shareholder approval; (vi) authorize or approve a distribution,
except according to a general formula or method prescribed by the Board of
Directors; or (vii) authorize or approve the issuance or sale or contract for
sale of shares, or determine the designation and relative rights, preferences,
and limitations of a class or series of shares, except that the Board of
Directors may authorize the Executive Committee to do so within limits
specifically prescribed by the Board of Directors. If the Executive Committee
is created for any designated purpose, its authority shall be limited to such
purpose. The Executive Committee shall report its action to the Board of
Directors. Regular and special meetings of the Executive Committee may be
called and held subject to the same requirements with respect to time, place
and notice as are specified in these Bylaws for regular and special meetings
of the Board of Directors. Members of the Executive Committee shall receive
such compensation for attendance at meetings as may be fixed by the Board of
Directors.
The Board of Directors likewise may appoint from their number other
Committees from time to time, the number composing such Committees and the
power conferred upon the same to be subject to the foregoing exceptions for an
Executive Committee but otherwise as determined by vote of the Board of
<PAGE>
Directors.
ARTICLE XII.
Meetings of Directors and Quorum.
Regular Meetings of the Board of Directors may be held at such places
within or without the Commonwealth of Virginia and at such times as the Board by
vote may determine from time to time, and if so determined no notice thereof
need be given. Special Meetings of the Board of Directors may be held at any
time or place either within or without the Commonwealth of Virginia, whenever
called by the Chairman of the Board of Directors, the President, any Vice
President, the Corporate Secretary, or three or more Directors, notice thereof
being given to each Director by the Corporate Secretary or an Assistant
Corporate Secretary, the Directors or the officer calling the meeting, or at any
time without formal notice provided all the Directors are present or those not
present waive notice thereof. Notice of Special Meetings, stating the time and
place thereof, shall be given by mailing the same to each Director at his
residence or business address at least two days before the meeting, or by
delivering the same to him personally or telephoning the same to him at his
residence or business address at least one day before the meeting, unless, in
case of exigency, the Chairman of the Board of Directors or any Chief Executive
Officer shall prescribe a shorter notice to be given personally or by
telephoning each Director at his residence or business address.
A written waiver of notice signed by the Director entitled to such notice,
whether before or after the date of the meeting, shall be equivalent to the
giving of such notice. A Director who attends or participates in a meeting shall
be deemed to have waived timely and proper notice of the meeting unless the
Director, at the beginning of the meeting or promptly upon his arrival, objects
to holding the meeting or transacting business at the meeting and does not
thereafter vote for or assent to action taken at the meeting.
A majority of the number of Directors fixed at the time in accordance with
the Bylaws shall constitute a quorum for the transaction of business, but a
lesser number may adjourn any meeting from time to time, and the meeting may be
held without further notice. The foregoing provision is, however, subject to
Article III of the Articles of Incorporation. When a quorum is present at any
meeting, a majority of the members present thereat shall decide any question
brought before such meeting, except as otherwise provided by law, by the
Articles of Incorporation or by these Bylaws.
ARTICLE XIII.
Action Without a Meeting.
Any action required to be taken at a meeting of the Directors, or any
action which may be taken at a meeting of the Directors or of a Committee, may
be taken without a meeting if a consent in writing (which may be in any number
of counterparts), setting forth the action so to be taken, shall be signed by
all of the Directors, or all of the members of the Committee, as the case may
be, either before or after such action is taken. Such consent shall have the
same force and effect as a unanimous vote.
ARTICLE XIV.
Officers.
The Board of Directors shall appoint such officers of the Corporation with
such titles and duties as the Board in its discretion may determine. The
Chairman of the Board of Directors and the Vice Chairman, if one is elected,
shall be officers unless they are not full-time employees of the Corporation.
The officers and the Chairman of the Board shall be elected or appointed by the
Board of Directors after each election of Directors by the Shareholders, and a
meeting of the Board of Directors may be held without notice for the purpose of
electing officers following the Annual Meeting of the Shareholders. The
foregoing shall not preclude the Board from electing individual officers at any
regular or special meeting of the Board of Directors.
The Board of Directors may appoint one or more Chief Executive Officers,
Presidents, Chief Operating Officers, Chief Financial Officers, Treasurers and
Controllers and other officers with
<PAGE>
such titles, powers and duties with respect to the Corporation and its operating
divisions as the Board of Directors may prescribe. Except as otherwise
prescribed by the Board of Directors, such officers shall have the powers and
duties commonly incident to their offices. Where more than one such Chief
Executive Officer or Chief Financial Officer has been so appointed, each shall
be authorized to execute documents on behalf of the Corporation as its chief
executive officer or chief financial officer, as the case may be, for purposes
of filing the same with governmental or regulatory authorities including,
without limitation, the State Corporation Commission of the Commonwealth of
Virginia and the Securities and Exchange Commission.
The officers appointed by the Board of Directors shall include a Corporate
Secretary who shall perform the duties set forth in Article XVIII and such other
duties as are commonly incident to such office.
The Board of Directors, in its discretion, may appoint one or more Vice
Presidents and one or more assistant officers to any of the officers it appoints
with the exception of any Chief Executive Officers, Presidents, Chief Operating
Officers or Chief Financial Officers, and may appoint such other officers or
agents as it may deem advisable and prescribe their powers and duties. Unless
otherwise provided by the Board, any such officer or agent shall have the powers
and duties commonly incident to his office.
Except as otherwise provided by the Board of Directors, each Chief
Executive Officer, President and Vice President shall have authority to sign
certificates of stock, bonds, deeds and contracts and to delegate such authority
in such manner as may be approved by a Chief Executive Officer or President.
ARTICLE XV.
Eligibility of Officers.
The Chairman of the Board of Directors, any Vice Chairman of the Board of
Directors, any Chief Executive Officer and any President of the Corporation
shall be Directors. The office of Chief Executive Officer may be held by a
person who does not also hold the office of President. In the case where a Chief
Executive Officer who is not a President has been appointed by the Board of
Directors, any President also appointed shall not be chief executive officer,
but shall have such other powers and responsibilities as are prescribed by the
Board of Directors and these Bylaws. Any person may hold more than one office
provided, however, that none of the Corporate Secretary, any Treasurer, any
Chief Financial Officer or any Controller shall at the same time hold the office
of Chairman of the Board of Directors or any office as Chief Executive Officer
or President.
ARTICLE XVI.
Chairman of the Board of Directors and Vice Chairman.
The Chairman of the Board of Directors shall preside at the meetings of the
Board of Directors. He may call meetings of the Board of Directors and of any
Committee thereof whenever he deems it necessary. He shall call to order, and
act as chairman of, all meetings of the Shareholders and prescribe rules of
procedure therefor. He shall perform the duties commonly incident to his office
and such other duties as the Board of Directors shall designate from time to
time.
In the absence of the Chairman of the Board of Directors, the Vice Chairman
of the Board of Directors, if one has been elected, shall perform his duties.
The Vice Chairman, if any, shall also perform the duties commonly incident to
his office and such other duties as the Board of Directors shall designate from
time to time. In the absence of the Vice Chairman of the Board of Directors, or
if no Vice Chairman has been elected, his duties shall be performed by a Chief
Executive Officer of the Corporation. If more than one Chief Executive Officer
has been appointed, the Chairman shall from time to time designate the order in
which such chief executive officers shall serve in the event of such absences.
ARTICLE XVII.
Presidents; Vice Presidents
---------------------------
In the event of the absence or disability of a Chief Executive Officer, the
duties and powers of the Chief Executive Officer shall be performed and
exercised by the President; and in the event of the absence or disability of a
President, the duties and powers of the President shall be performed and
<PAGE>
exercised by the Vice President designated to so act by the line of succession
provided by the Board of Directors, or if not so provided by the Board of
Directors, in accordance with the order of priority set forth below. Where the
absent or disabled Chief Executive Officer or President has been appointed for a
division, the officers in the line of succession referred to in this Article
shall, unless otherwise provided by the Board of Directors, be officers in the
corresponding division. The order of priority among Vice Presidents for
succession referred to above is: (a) The Executive Vice Presidents in order of
their seniority of first election to such office, or if two or more shall have
been first elected to such office on the same day, in order of their seniority
in age; (b) The Senior Vice Presidents in order of their seniority of first
election to such office, or if two or more shall have been first elected to such
office on the same day, in order of their seniority in age; (c) All other Vice
Presidents at the principal office of the Corporation in the order of their
seniority of first election to such office or if two or more shall have been
first elected to such office on the same day, the order of their seniority in
age; and (d) Any other persons that are designated on a list that shall have
been approved by the Board of Directors, such persons to be taken in such order
of priority and subject to such conditions as may be provided in the resolution
approving the list.
ARTICLE XVIII.
Corporate Secretary.
The Corporate Secretary shall keep accurate minutes of all meetings of the
Shareholders, the Board of Directors and the Executive Committee, shall perform
the duties commonly incident to his office, and shall perform such other duties
and have such other powers as the Board of Directors shall designate from time
to time. The Corporate Secretary shall have power, together with a Chief
Executive Officer, a President or a Vice President, to sign certificates for
shares of stock. In his absence an Assistant Corporate Secretary shall perform
his duties.
ARTICLE XIX.
Treasurer.
The Treasurer, subject to the order of the Board of Directors, shall have
the care and custody of the money, funds and securities of the Corporation and
shall have and exercise under the supervision of the Board of Directors, all the
powers and duties commonly incident to his office. He shall deposit all funds of
the Corporation in such bank or banks, trust company or trust companies or with
such firm or firms doing a banking business, as the Directors shall designate.
He may endorse for deposit or collection all checks, notes, et cetera, payable
to the Corporation or to its order, may accept drafts on behalf of the
Corporation, and, together with the President or a Vice President, may sign
certificates for shares of stock.
All checks, drafts, notes and other obligations for the payment of money
except bonds, debentures and notes issued under an Indenture shall be signed
either manually or, if and to the extent authorized by the Board of Directors,
through facsimile, by the Treasurer or an Assistant Treasurer or such other
officer or agent as the Board of Directors shall authorize. Checks for the total
amount of any payroll may be drawn in accordance with the foregoing provisions
and deposited in a special fund. Checks upon this fund may be drawn by such
person as the Treasurer shall designate.
Where a Treasurer has been appointed to serve for a division of the
Corporation, he shall exercise the foregoing power and duties with respect to
such division.
ARTICLE XX.
Controller.
The Controller shall keep accurate books of account of the Corporation's
transactions and shall perform such other duties and have such other powers as
the Board of Directors shall designate from time to time.
ARTICLE XXI.
Resignation and Removals.
<PAGE>
Any Director may resign at any time by giving written notice to the Board
of Directors, to the Chairman of the Board of Directors, to a Chief Executive
Officer or to the Corporate Secretary, and any member of any Committee may
resign by giving written notice either as aforesaid or to the Committee of which
he is a member or the chairman thereof. Any officer may resign at any time by
delivering notice to the Corporation. Any such resignation shall take effect at
the time specified therein or, if the time be not specified, upon receipt
thereof; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
The Shareholders, at any meeting called for the purpose, by vote of a
majority of the stock having voting power issued and outstanding, may remove any
Director from office with or without cause and elect his successor; but this
provision is subject to Article III of the Articles of Incorporation, if and
whenever the same may become applicable by the accrual of voting rights to the
Preferred Stock. The Board of Directors, by vote of a majority of the entire
Board, may remove any officer, agent or member of any Committees elected or
appointed by them, with or without cause, from office.
ARTICLE XXII.
Vacancies.
If the office of any officer or agent, one or more, becomes vacant by
reason of death, disability, resignation, removal, disqualification or
otherwise, the Directors at the time in office, may, by a majority vote at a
meeting at which a quorum is present, choose a successor or successors who shall
hold office for the unexpired term or until his successor is duly elected and
qualified or his position is eliminated.
ARTICLE XXIII.
Certificates for Shares.
Every Shareholder shall be entitled to a certificate or certificates for
shares of record owned by him in such form as may be prescribed by the Board of
Directors, duly numbered and setting forth the number and kind of shares to
which such Shareholder is entitled. Such certificates shall be signed by a Chief
Executive Officer, a President or a Vice President and by a Treasurer or an
Assistant Treasurer or the Corporate Secretary or an Assistant Corporate
Secretary. The Board of Directors may also appoint one or more Transfer Agents
and/or Registrars for its stock of any class or classes and may require stock
certificates to be countersigned and/or registered by one or more of such
Transfer Agents and/or Registrars. If certificates for shares are signed by a
Transfer Agent or by a Registrar, the signatures thereon of the President or a
Vice President and the Treasurer or an Assistant Treasurer or the Corporate
Secretary or an Assistant Corporate Secretary may be facsimiles, engraved or
printed. Any provisions of these Bylaws with reference to the signing of stock
certificates shall include, in cases above permitted, such facsimiles. In case
any officer or officers who shall have signed, or whose facsimile signature or
signatures shall have been used on, any such certificate or certificates shall
cease to be such officer or officers of the Corporation, whether because of
death, resignation or otherwise, before such certificate or certificates shall
have been delivered by the Corporation, such certificate or certificates may
nevertheless be issued and delivered as though the person or persons who signed
such certificate or certificates or whose facsimile signature or signatures
shall have been used thereon had not ceased to be such officer or officers of
the Corporation.
Notwithstanding the foregoing, the Board of Directors may authorize the issue
of some or all of the shares of any or all of its classes or series without
certificates. Within a reasonable time after the issue or transfer of shares
without certificates, the Corporation shall send the Shareholder a written
statement of the information required on certificates by the Virginia Stock
Corporation Act or other applicable law.
ARTICLE XXIV.
Transfer of Shares.
<PAGE>
Shares may be transferred by delivery of the certificate accompanied either
by an assignment in writing on the back of the certificate or by a written power
of attorney to sell, assign and transfer the same on the books of the
Corporation, signed by the person appearing by the certificate to be the owner
of the shares represented thereby, and shall be transferable on the books of the
Corporation upon surrender thereof so assigned or endorsed. The person
registered on the books of the Corporation as the owner of any shares shall be
entitled exclusively as the owner of such shares to receive dividends and to
vote in respect thereof. It shall be the duty of every Shareholder to notify the
Corporation of his address.
ARTICLE XXV.
Record Date.
For the purpose of determining the Shareholders entitled to notice of or to
vote at any meeting of Shareholders, or any adjournment thereof, or entitled to
receive payment of any dividend, or in order to make a determination of
Shareholders for any other proper purpose, the Board of Directors may fix in
advance a date as the record date for any such determination of Shareholders,
provided that such date shall not in any case be more than 70 days prior to the
date on which the particular action, requiring such determination of
Shareholders, is to be taken. If no record date shall be fixed for the
determination of Shareholders entitled to notice of or to vote at a meeting of
Shareholders, or for the determination of the Shareholders entitled to receive
payment of a dividend, the date on which notice of the meeting is mailed or the
date on which the resolution of the Board of Directors declaring such dividend
is adopted, as the case may be, shall be the record date for such determination
of Shareholders in such cases. A determination of Shareholders entitled to
notice of or to vote at a Shareholders' meeting is effective for any adjournment
of the meeting unless the Board of Directors fixes a new record date, which it
shall do if the meeting is adjourned to a date more than 120 days after the date
fixed for the original meeting.
ARTICLE XXVI.
Voting of Shares Held.
Unless the Board of Directors shall otherwise provide, the Chairman of the
Board of Directors, any Chief Executive Officer, President or Vice President, or
the Corporate Secretary may from time to time appoint one or more attorneys-in-
fact or agents of the Corporation, in the name and on behalf of the Corporation,
to cast the votes that the Corporation may be entitled to cast as a shareholder
or otherwise in any other corporation, any of whose stock or securities of which
may be held by the Corporation, at meetings of the holders of any such other
corporations, or to consent in writing to any action by any such other
corporation, and may instruct the person or persons so appointed as to the
manner of casting such votes or giving such consent, and may execute or cause to
be executed on behalf of the Corporation such written proxies, consents, waivers
or other instruments as he may deem necessary or proper in the premises; or
either the Chairman of the Board of Directors, a Chief Executive officer, a
President or the Corporate Secretary may himself attend any meeting of the
shareholders of any such other corporation and there at vote or exercise any or
all other powers of the Corporation as the shareholder of such other
corporation.
ARTICLE XXVII.
Bonds, Debentures and Notes Issued Under an Indenture.
All bonds, debentures and notes issued under an Indenture shall be signed
by a Chief Executive Officer, President or any Vice President or such other
officer or agent as the Board of Directors shall authorize and by the Corporate
Secretary or any Assistant Corporate Secretary or by a Treasurer or any
Assistant Treasurer or such other officer or agent as the Board of Directors
shall authorize.
The signature of any authorized officer of the Corporation on bonds and
debentures authenticated by a corporate trustee may be made manually or by
facsimile.
<PAGE>
ARTICLE XXVIII.
Amendments.
All Bylaws shall be subject to alteration or repeal, and new Bylaws may be
made by the affirmative vote of a majority of the Directors. The Shareholders
entitled to vote, however, shall have the power to rescind, amend, alter or
repeal the Bylaws and to enact Bylaws which, if expressly so provided, may not
be amended, altered or repealed by the Board of Directors.
ARTICLE XXIX.
Emergency Bylaws.
The Emergency Bylaws provided in this Article XXIX shall be operative
during any emergency notwithstanding any different provision in the preceding
Articles of the Bylaws or in the Articles of Incorporation of the Corporation or
in the Virginia Stock Corporation Act. An emergency exists if a quorum of the
Corporation's Board of Directors cannot readily be assembled because of some
catastrophic event. To the extent not inconsistent with these Emergency Bylaws,
the Bylaws provided in the preceding Articles shall remain in effect during such
emergency and upon the termination of such emergency the Emergency Bylaws shall
cease to be operative unless and until another such emergency shall occur.
During any such emergency:
(a) Any meeting of the Board of Directors may be called by any officer of
the Corporation or by any Director. Notice shall be given by the person calling
the meeting. The notice shall specify the place of the meeting, which shall be
the principal office of the Corporation at the time if feasible, but otherwise
shall be any other place specified in the notice. The notice shall also specify
the time of the meeting. Notice may be given only to such of the Directors as it
may be feasible to reach at the time and by such means as may be feasible at the
time, including publication or radio. If given by mail, messenger or telephone,
the notice shall be addressed to the Director's address or such other place as
the person giving the notice shall deem most suitable. Notice shall be similarly
given, to the extent feasible, to the other persons referred to in (b) below.
Notice shall be given at least two days before the meeting if feasible in the
judgment of the person giving the notice, but otherwise shall be given any time
before the meeting as the person giving the notice shall deem necessary.
(b) At any meeting of the Board of Directors, a quorum shall consist of a
majority of the number of Directors fixed at the time by Article IX of the
Bylaws. If the Directors present at any particular meeting shall be fewer than
the number required for such quorum, other persons present, as determined by the
following provisions and in the following order of priority, up to the number
necessary to make up such quorum, shall be deemed Directors for such particular
meeting:
(i) The Executive Vice Presidents;
(ii) The Senior Vice Presidents in the order of their seniority of
first election to such office, or if two or more shall have been first
elected to such office on the same day, in the order of their
seniority in age;
(iii) All other Vice Presidents at the principal office of the
Corporation in the order of their seniority of first election to such
office, or if two or more shall have been first elected to such office
on the same day, in the order of their seniority in age; and
(iv) Any other persons that are designated on a list that shall have
been approved by the Board of Directors before the emergency, such
persons to be taken in such order of priority and subject to such
conditions as may be provided in the resolution approving the list.
(c) The Board of Directors, during as well as before any such emergency,
<PAGE>
may provide, and from time to time modify, lines of succession in the event that
during such an emergency any or all officers or agents of the Corporation for
any reason shall be rendered incapable of discharging their duties.
(d) The Board of Directors, before and during any such emergency, may,
effective in the emergency, change the principal office or designate several
alternative principal offices or regional offices, or authorize the officers so
to do.
No officer, Director or employee shall be liable for any action taken in
good faith in accordance with these Emergency Bylaws.
These Emergency Bylaws shall be subject to repeal or change by further
action of the Board of Directors or by action of the Shareholders, except that
no such repeal or change shall modify the provisions of the next preceding
paragraph with regard to action or inaction prior to the time of such repeal or
change. Any such amendment of these Emergency Bylaws may make any further or
different provision that may be practical and necessary for the circumstances of
the emergency.
<PAGE>
Exhibit 10.2
================================================================================
AMENDED AND RESTATED
364-DAY CREDIT AGREEMENT
among
VIRGINIA ELECTRIC AND POWER COMPANY
The Several Lenders
from Time to Time Parties Hereto
and
THE CHASE MANHATTAN BANK,
as Administrative Agent
CHASE SECURITIES INC.,
as Lead Arranger and Book Manager
Dated as of June 7, 1996
as amended and restated as of June 4, 1999
===============================================================================
<PAGE>
TABLE OF CONTENTS
Page
<TABLE>
<CAPTION>
<S> <C>
SECTION 1. DEFINITIONS............................................. 1
1.1 Defined Terms............................................. 1
-------------
1.2 Other Definitional Provisions............................. 11
-----------------------------
SECTION 2. AMOUNT AND TERMS OF THE CREDIT FACILITIES............... 11
2.1 The Commitments........................................... 11
---------------
2.2 Procedure for Revolving Credit Borrowing.................. 12
----------------------------------------
2.3 Facility Fee.............................................. 12
------------
2.4 Termination or Reduction of Commitments................... 12
---------------------------------------
2.5 Repayment of Loans; Evidence of Debt...................... 12
------------------------------------
2.6 Optional Prepayments...................................... 13
--------------------
2.7 Conversion and Continuation Options....................... 13
-----------------------------------
2.8 Minimum Amounts and Maximum Number of Tranches............ 14
----------------------------------------------
2.9 The Competitive Loans..................................... 14
---------------------
2.10 Procedure for and Payment of Competitive Loan Borrowing.. 14
-------------------------------------------------------
2.11 Interest Rates and Payment Dates......................... 18
--------------------------------
2.12 Computation of Interest and Fees......................... 18
--------------------------------
2.13 Inability to Determine Interest Rate..................... 19
------------------------------------
2.14 Pro Rata Treatment and Payments.......................... 19
-------------------------------
2.15 Illegality............................................... 20
----------
2.16 Additional Costs......................................... 20
----------------
2.17 Taxes.................................................... 22
-----
2.18 Indemnity................................................ 24
---------
2.19 Change of Lending Office................................. 25
------------------------
2.20 Replacement of Lenders under Certain Circumstances....... 25
--------------------------------------------------
2.21 Extension of Termination Date............................ 25
-----------------------------
SECTION 3. REPRESENTATIONS AND WARRANTIES.......................... 26
3.1 Financial Condition....................................... 26
-------------------
3.2 No Change................................................. 26
---------
3.3 Corporate Existence; Compliance with Law.................. 27
----------------------------------------
3.4 Corporate Power; No Legal Bar............................. 27
-----------------------------
3.5 Authorization; Enforceability............................. 27
-----------------------------
3.6 ERISA..................................................... 27
-----
3.7 No Material Litigation.................................... 27
----------------------
3.8 Taxes..................................................... 28
-----
3.9 Purpose of Loans.......................................... 28
----------------
3.10 Year 2000................................................ 28
---------
SECTION 4. CONDITIONS PRECEDENT.................................... 28
4.1 Conditions to Initial Loans............................... 28
---------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
4.2 Conditions to Each Loan................................... 29
-----------------------
SECTION 5. COVENANTS............................................... 30
5.1 Financial Statements...................................... 30
--------------------
5.2 Conduct of Business and Compliance........................ 31
----------------------------------
5.3 Books and Records......................................... 31
-----------------
5.4 Notices................................................... 31
-------
5.5 Limitation on Liens....................................... 31
-------------------
5.6 Limitation on Fundamental Changes......................... 31
---------------------------------
5.7 Limitation on Guarantee Obligations....................... 32
-----------------------------------
5.8 Maintenance of Net Worth.................................. 32
------------------------
SECTION 6. EVENTS OF DEFAULT....................................... 32
SECTION 7. THE ADMINISTRATIVE AGENT................................ 34
7.1 Appointment............................................... 34
-----------
7.2 Delegation of Duties...................................... 35
--------------------
7.3 Exculpatory Provisions.................................... 35
----------------------
7.4 Reliance by Administrative Agent.......................... 35
--------------------------------
7.5 Notice of Default......................................... 35
-----------------
7.6 Non-Reliance on Administrative Agent and Other Lenders.... 36
------------------------------------------------------
7.7 Indemnification........................................... 36
---------------
7.8 Administrative Agent in Its Individual Capacity........... 37
-----------------------------------------------
7.9 Successor Administrative Agent............................ 37
------------------------------
SECTION 8. MISCELLANEOUS........................................... 37
8.1 Amendments and Waivers.................................... 37
----------------------
8.2 Notices................................................... 37
-------
8.3 No Waiver; Cumulative Remedies............................ 38
------------------------------
8.4 Survival.................................................. 38
--------
8.5 Payment of Expenses....................................... 38
-------------------
8.6 Transfer Provisions....................................... 39
-------------------
8.7 Adjustments............................................... 41
-----------
8.8 Counterparts.............................................. 41
------------
8.9 Severability.............................................. 41
------------
8.10 Integration.............................................. 41
-----------
8.11 GOVERNING LAW............................................ 41
-------------
8.12 WAIVERS OF JURY TRIAL.................................... 41
---------------------
8.13 Confidentiality.......................................... 42
---------------
</TABLE>
<PAGE>
SCHEDULES
I Facility Fee/Applicable Margin
II Permitted Guarantee Obligations
EXHIBITS
A-1 Form of Revolving Credit Note
A-2 Form of Competitive Loan Note
B-1 Form of Competitive Loan Confirmation
B-2 Form of Competitive Loan Offer
B-3 Form of Competitive Loan Request
C Form of Closing Certificate
D-1 Form of Legal Opinion of Borrower's Counsel
D-2 Form of Legal Opinion of Simpson Thacher & Bartlett
E Form of Assignment and Acceptance
<PAGE>
364-DAY CREDIT AGREEMENT, dated as of June 7, 1996, as amended and
restated as of June 4, 1999, among VIRGINIA ELECTRIC AND POWER COMPANY, a
Virginia public service corporation (the "Borrower"), the several banks and
--------
other financial institutions from time to time parties to this Agreement (the
"Lenders") and The Chase Manhattan Bank, a New York banking corporation, as
-------
administrative agent for the Lenders hereunder (in such capacity, the
"Administrative Agent").
--------------------
INTRODUCTORY STATEMENT
The Borrower, certain of the Lenders, certain other banks and
financial institutions and the Administrative Agent are parties to the 364-Day
Credit Agreement, dated as of June 7, 1996, as such has been extended through
June 4, 1999 (the "Existing Credit Agreement").
-------------------------
The Borrower has requested that the Termination Date (as defined in
the Existing Credit Agreement) be extended to June 2, 2000 and certain other
amendments to the Existing Credit Agreement.
The Borrower, the Lenders and the Administrative Agent desire to amend
and restate the Existing Credit Agreement pursuant to this Agreement.
Accordingly, the parties hereto hereby agree that on the Effective
Date the Existing Credit Agreement shall be amended and restated in its entirety
as follows:
SECTION 1. DEFINITIONS
0.1 Defined Terms. As used in this Agreement, the following terms
-------------
shall have the following meanings:
"ABR": for any day, a rate per annum (rounded upwards, if necessary,
---
to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in
effect on such day and (b) the Federal Funds Effective Rate in effect on
such day plus 1/2 of 1%. Any change in the ABR due to a change in the Prime
Rate or the Federal Funds Effective Rate shall be effective as of the
opening of business on the effective day of such change in the Prime Rate
or the Federal Funds Effective Rate.
"ABR Loans": Revolving Credit Loans the rate of interest applicable
---------
to which is the ABR.
"Additional Costs": as defined in subsection 2.16(a).
----------------
"Affiliate": as to any Person, any other Person which, directly or
---------
indirectly, is in control of, is controlled by, or is under common control
with, such Person. For purposes of this definition, "control" of a Person
means the power, directly or indirectly, either to
<PAGE>
(a) vote 10% or more of the securities having ordinary voting power for the
election of directors of such Person or (b) direct or cause the direction
of the management and policies of such Person, whether by contract or
otherwise.
"Agreement": this 364-Day Credit Agreement, as amended, supplemented
---------
or otherwise modified from time to time.
"Applicable Lending Office": each Lender's lending office designated
-------------------------
on such Lender's signature page hereto or such other office of such Lender
notified to the Administrative Agent and Borrower.
"Applicable Margin": the rate per annum set forth in Schedule I under
-----------------
the applicable S&P Bond Rating and Moody's Bond Rating.
"Assignee": as defined in subsection 8.6(c).
--------
"Board": the Board of Governors of the Federal Reserve System (or any
-----
successor).
"Borrowing Date": any Business Day specified in a notice given by the
--------------
Borrower pursuant to subsection 2.2 or 2.10 as a date on which the Loans
are to be made hereunder.
"Business Day": a day other than a Saturday, Sunday or other day on
------------
which commercial banks in New York City are authorized or required by law
to close, except that, when used in connection with a LIBOR Loan or LIBOR
Competitive Loan, the term "Business Day" shall mean any Business Day on
which dealings in foreign currencies and exchange between banks may be
carried on in London, England and New York, New York.
"CD Assessment Rate": for any day as applied to any CD Rate Loan, the
------------------
annual assessment rate in effect on such day which is payable by a member
of the Bank Insurance Fund maintained by the Federal Deposit Insurance
Corporation (the "FDIC") classified as well-capitalized and within
----
supervisory subgroup "B" (or a comparable successor assessment risk
classification) within the meaning of 12 C.F.R. (S) 327.4(a) (or any
successor provision) to the FDIC (or any successor) for the FDIC's (or such
successor's) insuring time deposits at offices of such institution in the
United States.
"CD Base Rate": with respect to each day during each Interest Period
------------
pertaining to a CD Rate Loan, the rate of interest per annum determined by
the Agent to be the rate notified to the Agent by Chase as the average rate
bid at 9:00 A.M., New York City time, or as soon thereafter as practicable,
on the first day of such Interest Period by a total of three certificate of
deposit dealers of recognized standing selected by Chase for the purchase
at face value from Chase of its certificates of deposit in an amount
comparable to the CD Rate Loan of Chase to which such Interest Period
applies and having a maturity comparable to such Interest Period.
<PAGE>
"CD Rate": with respect to each day during each Interest Period
-------
pertaining to a CD Rate Loan, a rate per annum determined for such day in
accordance with the following formula (rounded upward to the nearest
1/100th of 1%):
CD Base Rate + CD Assessment Rate
----------------------------
1.00 - CD Reserve Percentage
"CD Rate Loans": Loans the rate of interest applicable to which is
-------------
based upon the CD Rate.
"CD Reserve Percentage": for any day as applied to any CD Rate Loan,
---------------------
that percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board, for determining the maximum reserve requirement
for a Depositary Institution (as defined in Regulation D of the Board) in
respect of new non-personal time deposits in Dollars having a maturity
comparable to the Interest Period for such CD Rate Loan.
"Chase": The Chase Manhattan Bank.
-----
"Closing Date": the date on which the conditions precedent set forth
------------
in subsection 4.1 shall be satisfied or waived in accordance with
subsection 8.1.
"Code": the Internal Revenue Code of 1986, as amended from time to
----
time.
"Commitment": as to any Lender, the obligation of such Lender to make
----------
Revolving Credit Loans in an aggregate principal amount at any one time
outstanding not to exceed the amount set forth on such Lender's signature
page hereto, as such amount may be changed from time to time in accordance
with this Agreement.
"Commitment Percentage": as to any Lender at any time, the percentage
---------------------
which such Lender's Commitment then constitutes of the aggregate
Commitments (or, at any time after the Commitments shall have expired or
terminated, the percentage which the aggregate principal amount of such
Lender's Loans then outstanding constitutes of the aggregate principal
amount of the Loans then outstanding).
"Commitment Period": the period from and including the Effective Date
-----------------
to but not including the Termination Date or such earlier date on which the
Commitments shall terminate as provided herein.
"Commonly Controlled Entity": an entity, whether or not incorporated,
--------------------------
which is under common control with the Borrower within the meaning of
Section 4001 of ERISA or is part of a group which includes the Borrower and
which is treated as a single employer under Section 414 of the Code.
<PAGE>
"Competitive Loan Confirmation": each confirmation by the Borrower of
-----------------------------
its acceptance of Competitive Loan Offers, which Competitive Loan
Confirmation shall be substantially in the form of Exhibit B-1 and shall be
delivered to the Administrative Agent in writing or by facsimile
transmission.
"Competitive Loan Lender": each Lender that has agreed to offer to
-----------------------
make Competitive Loans hereunder and each other Lender that shall hereafter
become a Competitive Loan Lender in accordance with the provisions of
subsection 8.6.
"Competitive Loan Maturity Date": as to any Competitive Loan, the
------------------------------
date specified by the Borrower pursuant to subsection 2.10(d)(ii) in its
acceptance of the related Competitive Loan Offer.
"Competitive Loan Note": as defined in subsection 2.10(i).
---------------------
"Competitive Loan Offer": each offer by a Competitive Loan Lender to
----------------------
make Competitive Loans pursuant to a Competitive Loan Request, which
Competitive Loan Offer shall contain the information specified in Exhibit
B-2 and shall be delivered to the Administrative Agent by telephone,
immediately confirmed by facsimile transmission.
"Competitive Loan Request": each request by the Borrower for
------------------------
Competitive Loans, which request shall contain the information specified in
Exhibit B-3 and shall be delivered to the Administrative Agent in writing
or by facsimile transmission, or by telephone, immediately confirmed by
facsimile transmission.
"Competitive Loan": each loan made pursuant to subsection 2.9.
----------------
"Consolidated Net Worth": as of the date of determination, all items
----------------------
which in conformity with GAAP would be included under stockholders' equity
on a consolidated balance sheet of the Borrower and its consolidated
Subsidiaries, if any, at such date, including preferred stock issued by the
Borrower.
"Decision Date": as defined in subsection 2.21(b).
-------------
"Default": any of the events specified in Section 6, whether or not
-------
any requirement for the giving of notice, the lapse of time, or both, or
any other condition, has been satisfied.
"Dollars" and "$": dollars in lawful currency of the United States of
------- -
America.
"Dominion Resources": Dominion Resources, Inc., a Virginia
------------------
corporation.
"Effective Date": June 4, 1999; provided the conditions precedent set
-------------- --------
forth in subsection 4.1 have been satisfied.
<PAGE>
"ERISA": the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time.
"Eurocurrency Reserve Requirements": for any day as applied to a
---------------------------------
LIBOR Loan or a LIBOR Competitive Loan, as the case may be, the aggregate
(without duplication) of the rates (expressed as a decimal fraction) of
reserve requirements in effect on such day (including, without limitation,
basic, supplemental, marginal and emergency reserves under any regulations
of the Board or other Governmental Authority having jurisdiction with
respect thereto) dealing with reserve requirements prescribed for
eurocurrency funding (currently referred to as "Eurocurrency Liabilities"
in Regulation D of the Board) maintained by a member bank of the Federal
Reserve System.
"Event of Default": any of the events specified in Section 6,
----------------
provided that any requirement for the giving of notice, the lapse of time,
--------
or both, or any other condition, has been satisfied.
"Existing Credit Agreement": as defined in the Introductory Statement
-------------------------
hereto.
"Facility Fee Rate": the rate per annum set forth in Schedule I under
-----------------
the applicable S&P Bond Rating and Moody's Bond Rating.
"Federal Funds Effective Rate": for any day, the weighted average of
----------------------------
the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers, as published on
the next succeeding Business Day by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day which is a Business Day,
the average of the quotations for the day of such transactions received by
the Administrative Agent from three federal funds brokers of recognized
standing selected by it.
"First Mortgage Bond Indenture": the first mortgage bond indenture,
-----------------------------
dated November 1, 1935, by and between the Company and Chase Manhattan
Bank, as supplemented and amended.
"Fixed Rate Competitive Loan Request": any Competitive Loan Request
-----------------------------------
requesting the Competitive Loan Lenders to offer to make Fixed Rate
Competitive Loans.
"Fixed Rate Competitive Loans": Competitive Loans the rate of
----------------------------
interest applicable to which is equal to a fixed percentage rate per annum
specified by the Competitive Loan Lender making such Loan in its
Competitive Loan Offer (as opposed to a rate composed of LIBOR plus or
minus a margin).
"GAAP": generally accepted accounting principles in the United States
----
of America in effect from time to time.
<PAGE>
"Governmental Authority": any nation or government, any state or
----------------------
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guarantee Obligation": as to any Person (the "guaranteeing person"),
-------------------- -------------------
any obligation of:
(a) the guaranteeing person or
(b) another Person (including, without limitation, any bank under any
letter of credit), when the creation of such obligation was
induced by a reimbursement, counterindemnity or similar
obligation issued by the guaranteeing person,
in either case guaranteeing or in effect guaranteeing any Indebtedness,
leases, dividends or other obligations (the "primary obligations") of any
-------------------
other third Person (the "primary obligor") in any manner, whether directly
---------------
or indirectly, including, without limitation, any obligation of the
guaranteeing person, whether or not contingent, (i) to purchase any such
primary obligation or any property constituting direct or indirect security
therefor, (ii) to advance or supply funds (1) for the purchase or payment
of any such primary obligation or (2) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth or
solvency of the primary obligor, (iii) to purchase property, securities or
services primarily for the purpose of assuring the owner of any such
primary obligation of the ability of the primary obligor to make payment of
such primary obligation or (iv) otherwise to assure or hold harmless the
owner of any such primary obligation against loss in respect thereof;
provided, however, that the term Guarantee Obligation shall not include
-------- -------
endorsements of instruments for deposit or collection in the ordinary
course of business. The amount of any Guarantee Obligation of any
guaranteeing person shall be deemed to be the lower of (a) an amount equal
to the stated or determinable amount of the primary obligation in respect
of which such Guarantee Obligation is made and (b) the maximum amount for
which such guaranteeing person may be liable pursuant to the terms of the
instrument embodying such Guarantee Obligation, unless such primary
obligation and the maximum amount for which such guaranteeing person may be
liable are not stated or determinable, in which case the amount of such
Guarantee Obligation shall be such guaranteeing person's maximum reasonably
anticipated liability in respect thereof as determined by the Borrower in
good faith.
"Indebtedness": of any Person at any date, (a) all indebtedness of
------------
such Person for borrowed money or for the deferred purchase price of
property or services (other than current trade liabilities incurred in the
ordinary course of business and payable in accordance with customary
practices), (b) any other indebtedness of such Person which is evidenced by
a note, bond, debenture or similar instrument, (c) all obligations of such
Person as lessee which are capitalized in accordance with GAAP, (d) all
obligations of such Person in respect of acceptances issued or created for
the account of such Person and
<PAGE>
(e) all liabilities secured by any Lien on any property owned by such
Person even though such Person has not assumed or otherwise become liable
for the payment thereof.
"Interest Payment Date": (a) as to any ABR Loan, the last day of each
---------------------
March, June, September and December and the Termination Date, (b) as to any
LIBOR Loan having an Interest Period of three months or less and any CD
Rate Loan having an Interest Period of 90 days or less, the last day of
such Interest Period, (c) as to any LIBOR Loan or CD Rate Loan having an
Interest Period longer than three months or 90 days, respectively, each day
which is three months or 90 days, respectively, or a whole multiple
thereof, after the first day of such Interest Period and the last day of
such Interest Period, (d) as to any Fixed Rate Competitive Loan, each
interest payment date specified by the Borrower for such Loan in the
related Competitive Loan Request (including, in any event, the applicable
Competitive Loan Maturity Date) and (e) as to any LIBOR Competitive Loan,
(i) the applicable Competitive Loan Maturity Date and (ii) each date (if
any) occurring prior to such Competitive Loan Maturity Date which is three
months, or a whole multiple thereof, after the Borrowing Date in respect of
such Loan.
"Interest Period": (a) with respect to any LIBOR Loan:
---------------
(i) initially, the period commencing on the borrowing or
conversion date, as the case may be, with respect to such LIBOR Loan
and ending one, two, three, six or, to the extent available as
determined by the Administrative Agent, nine or twelve months
thereafter, as selected by the Borrower in its notice of borrowing or
notice of conversion, as the case may be, given with respect thereto;
and
(ii) thereafter, each period commencing on the last day of
the next preceding Interest Period applicable to such LIBOR Loan and
ending one, two, three, six or, to the extent available as determined
by the Administrative Agent, nine or twelve months thereafter, as
selected by the Borrower by irrevocable notice to the Administrative
Agent not less than three Business Days prior to the last day of the
then current Interest Period with respect thereto;
and (b) with respect to any CD Rate Loan:
(i) initially, the period commencing on the borrowing or
conversion date, as the case may be, with respect to such CD Rate Loan
and ending 30, 60, 90 or 180 days thereafter, as selected by the
Borrower in its notice of borrowing or notice of conversion, as the
case may be, given with respect thereto; and
(ii) thereafter, each period commencing on the last day of
the next preceding Interest Period applicable to such CD Rate Loan and
ending 30, 60, 90 or 180 days thereafter, as selected by the Borrower
by irrevocable notice to the Agent not less than three Business Days
prior to the last day of the then current Interest Period with respect
thereto;
<PAGE>
and (c) with respect to any LIBOR Competitive Loan, the period specified in
the Competitive Loan Request for the LIBOR Competitive Loan with the
maturity date corresponding to the LIBOR Competitive Loan accepted by the
Borrower in the Competitive Loan Confirmation;
provided that, all of the foregoing provisions relating to Interest Periods
--------
are subject to the following:
(1) if any Interest Period pertaining to a LIBOR Loan would
otherwise end on a day that is not a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless
the result of such extension would be to carry such Interest Period
into another calendar month in which event such Interest Period shall
end on the immediately preceding Business Day;
(2) if any Interest Period pertaining to a CD Rate Loan would
otherwise end on a day that is not a Business Day, such Interest
Period shall be extended to the next succeeding Business Day;
(3) any Interest Period that would otherwise extend beyond the
Termination Date shall end on the Termination Date;
(4) any Interest Period pertaining to a LIBOR Loan that begins
on the last Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month at the
end of such Interest Period) shall end on the last Business Day of a
calendar month; and
(5) the Borrower shall select Interest Periods so as not to
require a payment or prepayment of any LIBOR Loan or CD Rate Loan
during an Interest Period for such Loan.
"LIBOR": with respect to each day during each Interest Period
-----
pertaining to a LIBOR Loan or a LIBOR Competitive Loan, the rate per annum
equal to the rate at which Chase is offered Dollar deposits at or about
11:00 A.M., London time, two Business Days prior to the beginning of such
Interest Period, in the London interbank eurodollar market where the
eurodollar and foreign currency and exchange operations in respect of its
LIBOR Loans are then being conducted, for delivery on the first day of such
Interest Period for the number of days comprised therein and in an amount
comparable to the amount of its LIBOR Loan (or, in the case of a LIBOR
Competitive Loan, an amount that would have been Chase's portion of such
LIBOR Competitive Loan had such Loan been a LIBOR Loan) to be outstanding
during such Interest Period.
"LIBOR Competitive Loan": Competitive Loans the rate of interest
----------------------
applicable to which is equal to LIBOR plus or minus a margin.
<PAGE>
"LIBOR Competitive Loan Request": any Competitive Loan Request
------------------------------
requesting the Competitive Loan Lenders to offer to make LIBOR Competitive
Loans.
"LIBOR Loans": Revolving Credit Loans the rate of interest applicable
-----------
to which is based upon LIBOR.
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
----
arrangement, encumbrance, lien (statutory or other), charge or other
security interest or any preference, priority or other security agreement
or preferential arrangement of any kind or nature whatsoever (including,
without limitation, any conditional sale or other title retention agreement
and any capitalized lease obligation having substantially the same economic
effect as any of the foregoing).
"Loan": any Revolving Credit Loan or Competitive Loan made by any
----
Lender pursuant to this Agreement.
"Loan Documents": this Agreement and any Notes.
--------------
"Majority Lenders": at any time, Lenders the Commitment Percentages
----------------
of which aggregate more than 50%.
"Material Subsidiary": means a Subsidiary of the Borrower whose total
-------------------
assets, as determined in accordance with GAAP, represent at least 20% of
the total assets of the Borrower, on a consolidated basis, as determined in
accordance with GAAP.
"Moody's Bond Rating" means for any day, the rating of the Borrower's
-------------------
senior secured long-term debt or if there is no senior secured debt, the
Borrower's senior long-term unsecured debt by Moody's Investor Service,
Inc. in effect at 11:00 A.M., New York City time, on such day.
"Non-Excluded Taxes": as defined in subsection 2.17(a).
------------------
"Notes": the collective reference to the Revolving Credit Notes and
-----
the Competitive Loan Notes.
"Participant": as defined in subsection 8.6(b).
-----------
"PBGC": the Pension Benefit Guaranty Corporation established pursuant
----
to Subtitle A of Title IV of ERISA.
"Person": an individual, partnership, corporation, business trust,
------
joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other entity of whatever nature.
<PAGE>
"Plan": at a particular time, any employee benefit plan which is
----
covered by ERISA and in respect of which the Borrower or a Commonly
Controlled Entity is (or, if such plan were terminated at such time, would
under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"Prime Rate": the rate of interest per annum publicly announced from
----------
time to time by Chase as its prime rate in effect at its principal office
in New York City (the Prime Rate not being intended to be the lowest rate
of interest charged by Chase in connection with extensions of credit to
debtors).
"Register": as defined in subsection 8.6(d).
--------
"Regulatory Change": shall mean, as to any Lender, any change
-----------------
occurring or taking effect after the date of this Agreement in Federal,
state, local or foreign laws or regulations, or the adoption or making or
taking effect after such date of any interpretations, directives, or
requests applying to a class of lenders including the Lenders of or under
any Federal, state, local or foreign laws or regulations (whether or not
having the force of law) by any court or governmental or monetary authority
charged with the interpretation or administration thereof.
"Requirement of Law": as to any Person, the Certificate of
------------------
Incorporation and By-Laws or other organizational or governing documents of
such Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"Responsible Officer": any President, Vice President, Treasurer or
-------------------
Assistant Treasurer of the Borrower.
"Revolving Credit Loans": as defined in subsection 2.1.
----------------------
"Revolving Credit Note": as defined in subsection 2.5(e).
---------------------
"S&P Bond Rating": means for any day, the rating of the Borrower's
---------------
senior secured long-term debt or if there is no senior secured debt, the
Borrower's senior long-term unsecured debt by Standard & Poor's Ratings
Group in effect at 11:00 A.M., New York City time, on such day.
"Subsidiary": as to any Person, a corporation, partnership or other
----------
entity of which shares of stock or other ownership interests having
ordinary voting power (other than stock or such other ownership interests
having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through
one or more intermediaries, or both, by such Person. Unless otherwise
qualified, all references to a
<PAGE>
"Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a
Subsidiary or Subsidiaries of the Borrower.
"Termination Date": June 2, 2000, or as otherwise extended pursuant
----------------
to subsection 2.21 hereof.
"Tranche": the collective reference to LIBOR Loans or CD Rate Loans
-------
the then current Interest Periods with respect to all of which begin on the
same date and end on the same later date (whether or not such Loans shall
originally have been made on the same day); Tranches may be identified as
"LIBOR Tranches" or "CD Rate Tranches", as applicable.
"Transferee": as defined in subsection 8.6(f).
----------
"Type": (a) as to any Revolving Credit Loan, its nature as an ABR
----
Loan, a CD Rate Loan or a LIBOR Loan and (b) as to any Competitive Loan,
its nature as a Fixed Rate Competitive Loan or a LIBOR Competitive Loan.
1.2 Other Definitional Provisions. (a) Unless otherwise specified
----------------------------------
therein, all terms defined in this Agreement shall have the defined meanings
when used in the Notes or any certificate or other document made or delivered
pursuant hereto or thereto.
(b) As used herein and in the Notes and any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms relating
to the Borrower and its Subsidiaries not defined in subsection 1.1 and
accounting terms partly defined in subsection 1.1, to the extent not defined,
shall have the respective meanings given to them under GAAP, and the parties
hereto agree that upon any change to GAAP that has the effect of materially
altering any of the terms herein, the parties hereto will negotiate in good
faith to amend the terms affected thereby to place the parties in a position as
nearly equivalent as possible to what existed prior to such change to GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, subsection,
Schedule and Exhibit references are to this Agreement unless otherwise
specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
<PAGE>
SECTION 2. AMOUNT AND TERMS OF THE CREDIT FACILITIES
2.1 The Commitments. (a) Subject to the terms and conditions hereof,
--------------------
each Lender severally agrees to make revolving credit loans ("Revolving Credit
----------------
Loans") to the Borrower from time to time during the Commitment Period in an
- -----
aggregate principal amount at any one time outstanding not to exceed the amount
of such Lender's Commitment. During the Commitment Period the Borrower may use
the Commitments by borrowing, prepaying the Revolving Credit Loans in whole or
in part, and reborrowing, all in accordance with the terms and conditions
hereof. Notwithstanding anything to the contrary in this Agreement, in no event
may Revolving Credit Loans be borrowed under this Section 2 if, after giving
effect thereto, the aggregate principal amount of the Loans then outstanding
would exceed the aggregate Commitments then in effect.
(b) The Revolving Credit Loans may from time to time be (i) LIBOR
Loans, (ii) ABR Loans, (iii) CD Rate Loans or (iv) a combination thereof, as
determined by the Borrower and notified to the Agent in accordance with
subsections 2.2 and 2.7, provided that no Revolving Credit Loan shall be made as
--------
a LIBOR Loan or a CD Rate Loan after the day that is one month or 30 days,
respectively, prior to the Termination Date.
2.2 Procedure for Revolving Credit Borrowing. The Borrower may
---------------------------------------------
borrow under the Commitments during the Commitment Period on any Business Day,
provided that the Borrower shall give the Administrative Agent irrevocable
- --------
written notice, which notice must be received by the Administrative Agent prior
to (a) 12:00 P.M., New York City time, three Business Days prior to the
requested Borrowing Date, in the case of LIBOR Loans or CD Rate Loans, or (b)
10:30 A.M. New York City time, on the requested Borrowing Date, in the case of
ABR Loans. Each such notice shall specify (i) the amount to be borrowed, (ii)
the requested Borrowing Date, (iii) whether the borrowing is to be of ABR Loans,
CD Rate Loans, LIBOR Loans, or a combination thereof and (iv) if the borrowing
is to be entirely or partly of LIBOR Loans or CD Rate Loans, the respective
lengths of the initial Interest Periods therefor. Each borrowing under the
Commitments shall be in an amount equal to $10,000,000 or a whole multiple of
$1,000,000 in excess thereof. Upon receipt of any such notice from the
Borrower, the Administrative Agent shall promptly notify each Lender thereof.
Each Lender will make the amount of its pro rata share of each borrowing
available to the Administrative Agent for the account of the Borrower at the
office of the Administrative Agent specified in subsection 8.2 prior to 2:00
P.M., New York City time, on the Borrowing Date requested by the Borrower in
funds immediately available to the Administrative Agent. Such borrowing will
then be made available to the Borrower by the Administrative Agent crediting the
account of the Borrower on the books of such office with the aggregate of the
amounts made available to the Administrative Agent by the Lenders and in like
funds as received by the Administrative Agent.
2.3 Facility Fee. The Borrower agrees to pay to the Administrative
-----------------
Agent for the account of each Lender a facility fee for the period from and
including the first day of the Commitment Period to the Termination Date,
computed at the Facility Fee Rate on the average daily amount of the Commitment
(whether used or unused) of such Lender during the period for which payment is
made, payable quarterly in arrears on the last day of each March, June,
<PAGE>
September and December and on the date on which the Commitments shall terminate
as provided herein, commencing on the first of such dates to occur after the
date hereof.
2.4 Termination or Reduction of Commitments. The Borrower may, upon
--------------------------------------------
not less than three Business Days' written notice to the Administrative Agent,
terminate or reduce the unutilized amount of the Commitments. Any reduction of
the Commitments shall be in an amount equal to $10,000,000 or a whole multiple
of $1,000,000 in excess thereof and shall reduce permanently the Commitments
then in effect.
2.5 Repayment of Loans; Evidence of Debt. (a) The Borrower hereby
-----------------------------------------
unconditionally promises to pay to the Administrative Agent for the account of
each Lender the then unpaid principal amount of each Revolving Credit Loan of
such Lender on the Termination Date (or such earlier date on which the Revolving
Credit Loans become due and payable pursuant to Section 6). The Borrower hereby
further agrees to pay interest on the unpaid principal amount of the Loans from
time to time outstanding from the date hereof until payment in full thereof at
the rates per annum, and on the dates, set forth in subsection 2.11.
(b) Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing indebtedness of the Borrower to such Lender
resulting from each Loan of such Lender from time to time, including the amounts
of principal and interest payable and paid to such Lender from time to time
under this Agreement.
(c) The Administrative Agent shall maintain the Register pursuant to
subsection 8.6(d), and a subaccount therein for each Lender, in which shall be
recorded (i) the amount of each Loan made hereunder, the Type thereof and each
Interest Period applicable thereto, (ii) the amount of any principal or interest
due and payable or to become due and payable from the Borrower to each Lender
hereunder and (iii) both the amount of any sum received by the Administrative
Agent hereunder from the Borrower and each Lender's share thereof.
(d) The entries made in the Register and the accounts of each Lender
maintained pursuant to subsection 2.5(b) shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts of the
----- -----
obligations of the Borrower therein recorded; provided, however, that the
-------- -------
failure of any Lender or the Administrative Agent to maintain the Register or
any such account, or any error therein, shall not in any manner affect the
obligation of the Borrower to repay (with applicable interest) the Loans made to
such Borrower by such Lender in accordance with the terms of this Agreement.
(e) The Borrower agrees that, upon the request to the Administrative
Agent by any Lender, the Borrower will execute and deliver to such Lender a
promissory note of the Borrower evidencing the Revolving Credit Loans of such
Lender, substantially in the form of Exhibit A-1 with appropriate insertions as
to date and principal amount (a "Revolving Credit Note").
---------------------
2.6 Optional Prepayments. The Borrower may at any time and from time
-------------------------
to time prepay the Revolving Credit Loans, in whole or in part, without premium
or penalty, upon at
<PAGE>
least four Business Days' irrevocable notice to the Administrative Agent. Each
such notice shall specify the date and amount of prepayment and whether the
prepayment is of ABR Loans, CD Rate Loans, LIBOR Loans, or a combination
thereof, and, if of a combination thereof, the amount allocable to each. Upon
receipt of any such notice the Administrative Agent shall promptly notify each
Lender thereof. If any such notice is given, the amount specified in such notice
shall be due and payable on the date specified therein, together with any
amounts payable pursuant to subsection 2.18. Partial prepayments shall be in an
aggregate principal amount of $10,000,000 or a whole multiple of $1,000,000 in
excess thereof. Prepayments of the Competitive Loans shall not be permitted.
2.7 Conversion and Continuation Options. (a) The Borrower may elect
----------------------------------------
from time to time to convert LIBOR Loans or CD Rate Loans to ABR Loans, by
giving the Administrative Agent at least one Business Day's prior irrevocable
notice of such election, provided that any such conversion of LIBOR Loans or CD
--------
Rate Loans may only be made on the last day of an Interest Period with respect
thereto. The Borrower may elect from time to time to convert ABR Loans or CD
Rate Loans to LIBOR Loans , and/or to convert LIBOR Loans or ABR Loans to CD
Rate Loans, by giving the Administrative Agent at least three Business Days'
prior irrevocable notice of such election, provided that any such conversion of
--------
LIBOR Loans or CD Rate Loans may only be made on the last day of an Interest
Period with respect thereto. Any such notice of conversion to LIBOR Loans or CD
Rate Loans shall specify the length of the initial Interest Period or Interest
Periods therefor. Upon receipt of any such notice the Administrative Agent
shall promptly notify each Lender thereof. All or any part of outstanding LIBOR
Loans, ABR Loans and CD Rate Loans may be converted as provided herein, provided
--------
that (i) no Loan may be converted into a LIBOR Loan or a CD Rate Loan when any
Event of Default has occurred and is continuing and the Administrative Agent has
or the Majority Lenders have determined that such a conversion is not
appropriate and (ii) no Loan may be converted into a LIBOR Loan or a CD Rate
Loan after the date that is one month or 30 days, respectively, prior to the
Termination Date.
(b) Any LIBOR Loans or CD Rate Loans may be continued as such upon
the expiration of the then current Interest Period with respect thereto by the
Borrower giving notice to the Administrative Agent, in accordance with the
applicable provisions of the term "Interest Period" set forth in subsection 1.1,
of the length of the next Interest Period to be applicable to such Loans,
provided that no LIBOR Loan or CD Rate Loan may be continued as such (i) when
- --------
any Event of Default has occurred and is continuing and the Agent has or the
Majority Lenders have determined that such a continuation is not appropriate or
(ii) after the date that is one month or 30 days prior to, respectively, the
Termination Date and provided, further, that if the Borrower shall fail to give
-------- -------
such notice or if such continuation is not permitted such Loans shall be
automatically converted to ABR Loans on the last day of such then expiring
Interest Period.
2.8 Minimum Amounts and Maximum Number of Tranches. All borrowings,
---------------------------------------------------
prepayments, conversions and continuations of Loans hereunder and all selections
of Interest Periods hereunder shall be in such amounts and be made pursuant to
such elections so that, after giving effect thereto, the aggregate principal
amount of the Loans comprising each LIBOR Tranche or each CD Rate Tranche shall
be equal to $10,000,000 or a whole multiple of
<PAGE>
$1,000,000 in excess thereof. In no event shall there be more than 5 LIBOR
Tranches or 5 CD Rate Tranches outstanding at any time.
2.9 The Competitive Loans. Subject to the terms and conditions of
--------------------------
this Agreement, the Borrower may borrow Competitive Loans in Dollars from time
to time on any Business Day during the period from the date hereof through the
date 14 days prior to the Termination Date; provided, that in no event may
--------
Competitive Loans be borrowed hereunder if, after giving effect thereto the
aggregate principal amount of Loans then outstanding would exceed the aggregate
Commitments then in effect. Within the limits and on the conditions herein set
forth with respect to Competitive Loans, the Borrower from time to time may
borrow, repay and reborrow Competitive Loans.
2.10 Procedure for and Payment of Competitive Loan Borrowing. (a)
-------------------------------------------------------------
The Borrower shall request Competitive Loans by delivering a Competitive Loan
Request to the Administrative Agent, not later than 2:00 P.M. (New York City
time) four Business Days prior to the proposed Borrowing Date (in the case of a
LIBOR Competitive Loan Request), and not later than 1:00 P.M. (New York City
time) one Business Day prior to the proposed Borrowing Date (in the case of a
Fixed Rate Competitive Loan Request). Each Competitive Loan Request may solicit
bids for Competitive Loans in an aggregate principal amount of $10,000,000 or an
integral multiple of $1,000,000 in excess thereof and having not more than three
alternative maturity dates. The maturity date for each Fixed Rate Competitive
Loan shall be not less than 14 days nor more than 180 days after the Borrowing
Date therefor and the maturity date for each LIBOR Competitive Loan shall be not
less than one month nor more than six months after the Borrowing Date therefor,
and in any event shall be not later than the Termination Date. The
Administrative Agent shall notify each Competitive Loan Lender promptly by
facsimile transmission of the contents of each Competitive Loan Request received
by the Administrative Agent.
(b) In the case of a LIBOR Competitive Loan Request, upon receipt of
notice from the Administrative Agent of the contents of such Competitive Loan
Request, each Competitive Loan Lender may elect, in its sole discretion, to
offer irrevocably, subject to Section 4, to make one or more Competitive Loans
at LIBOR plus or minus a margin determined by such Competitive Loan Lender in
its sole discretion for each such Competitive Loan. Any such irrevocable offer
shall be made by delivering a Competitive Loan Offer to the Administrative
Agent, before 10:30 A.M. (New York City time) on the day that is three Business
Days before the proposed Borrowing Date, setting forth:
(i) the maximum amount of Competitive Loans for each maturity
date and the aggregate maximum amount of Competitive Loans for all maturity
dates which such Competitive Loan Lender would be willing to make (which
amounts may, subject to subsection 2.9, exceed such Competitive Loan
Lender's Commitment); and
(ii) the margin above or below LIBOR at which such Competitive
Loan Lender is willing to make each such Competitive Loan.
<PAGE>
The Administrative Agent shall advise the Borrower before 11:00 A.M. (New York
City time) on the date which is three Business Days before the proposed
Borrowing Date of the contents of each such Competitive Loan Offer received by
it. If the Administrative Agent, in its capacity as a Competitive Loan Lender,
shall elect, in its sole discretion, to make any such Competitive Loan Offer, it
shall advise the Borrower of the contents of its Competitive Loan Offer before
10:15 A.M. (New York City time) on the date which is three Business Days before
the proposed Borrowing Date.
(c) In the case of a Fixed Rate Competitive Loan Request, upon
receipt of notice from the Administrative Agent of the contents of such
Competitive Loan Request, each Competitive Loan Lender may elect, in its sole
discretion, to offer irrevocably, subject to Section 4, to make one or more
Competitive Loans at a rate of interest determined by such Competitive Loan
Lender in its sole discretion for each such Competitive Loan. Any such
irrevocable offer shall be made by delivering a Competitive Loan Offer to the
Administrative Agent before 9:30 A.M. (New York City time) on the proposed
Borrowing Date, setting forth:
(i) the maximum amount of Competitive Loans for each maturity
date, and the aggregate maximum amount for all maturity dates, which such
Competitive Loan Lender would be willing to make (which amounts may,
subject to subsection 2.9, exceed such Competitive Loan Lender's Revolving
Credit Commitment); and
(ii) the rate of interest at which such Competitive Loan Lender
is willing to make each such Competitive Loan.
The Administrative Agent shall advise the Borrower before 10:00 A.M. (New York
City time) on the proposed Borrowing Date of the contents of each such
Competitive Loan Offer received by it. If the Administrative Agent, in its
capacity as a Competitive Loan Lender, shall elect, in its sole discretion, to
make any such Competitive Loan Offer, it shall advise the Borrower of the
contents of its Competitive Loan Offer before 9:15 A.M. (New York City time) on
the proposed Borrowing Date.
(d) Before 12:00 P.M. (New York City time) three Business Days before
the proposed Borrowing Date (in the case of LIBOR Competitive Loans) and before
10:30 A.M. (New York City time) on the proposed Borrowing Date (in the case of
Fixed Rate Competitive Loans), the Borrower, in its absolute discretion, shall:
(i) cancel such Competitive Loan Request by giving the
Administrative Agent telephone notice to that effect, or
(ii) by giving telephone notice to the Administrative Agent
(immediately confirmed by delivery to the Administrative Agent of a
Competitive Loan Confirmation in writing or by facsimile transmission) (1)
subject to the provisions of subsection 2.10(e), accept one or more of the
offers made by any Competitive Loan Lender or Competitive Loan Lenders of
the amount of Competitive Loans for each relevant maturity date and (2)
reject any remaining offers made by Competitive Loan Lenders.
<PAGE>
(e) The Borrower's acceptance of Competitive Loans in response to any
Competitive Loan Request shall be subject to the following limitations:
(i) The amount of Competitive Loans accepted for each maturity
date specified by any Competitive Loan Lender in its Competitive Loan Offer
shall not exceed the maximum amount for such maturity date specified in
such Competitive Loan Offer;
(ii) the aggregate amount of Competitive Loans accepted for all
maturity dates specified by any Competitive Loan Lender in its Competitive
Loan Offer shall not exceed the aggregate maximum amount specified in such
Competitive Loan Offer for all such maturity dates;
(iii) the Borrower may not accept offers for Competitive Loans
for any maturity date in an aggregate principal amount in excess of the
maximum principal amount requested in the related Competitive Loan Request;
and
(iv) if the Borrower accepts any of such offers, (1) it must
accept such offers based solely upon the lowest pricing for such relevant
maturity date (including any amounts which shall be payable to the relevant
Competitive Loan Lender in respect of the relevant Competitive Loans
pursuant to subsection 2.17) and upon no other criteria whatsoever and (2)
if (x) two or more Competitive Loan Lenders submit offers for any maturity
date at identical pricing and the Borrower accepts any of such offers but
does not wish to (or by reason of the limitations set forth in subsection
2.9 or in this subsection 2.10, cannot) borrow the total amount offered by
such Competitive Loan Lenders with such identical pricing, the Borrower
shall accept offers from all of such Competitive Loan Lenders in amounts
allocated among them pro rata according to the amounts offered by such
--- ----
Competitive Loan Lenders (or as nearly pro rata as shall be practicable
--- ----
after giving effect to the requirement that Competitive Loans made by a
Competitive Loan Lender on a Borrowing Date for each relevant maturity date
shall be in a principal amount of $10,000,000 or an integral multiple of
$1,000,000 in excess thereof) or (y) a Competitive Loan Lender submits
offers for multiple maturity dates specifying a maximum aggregate principal
amount for all maturity dates, and the Borrower accepts offers from such
Competitive Loan Lender for more than one maturity date, then the Borrower
shall instruct the Administrative Agent how to apportion the Borrower's
acceptances among such offers for different maturity dates to the extent,
if any, necessary to provide for acceptance of offers from such Competitive
Loan Lender equal to but not exceeding such specified maximum aggregate
amount.
(f) If the Borrower notifies the Administrative Agent that a
Competitive Loan Request is cancelled pursuant to subsection 2.10(d)(i), the
Administrative Agent shall give prompt telephone notice thereof to the
Competitive Loan Lenders.
(g) If the Borrower accepts pursuant to subsection 2.10(d)(ii) one or
more of the offers made by any one or more Competitive Loan Lenders, the
Administrative Agent promptly shall notify each Competitive Loan Lender which
has made such a Competitive Loan Offer of (i)
<PAGE>
the aggregate amount of such Competitive Loans to be made on such Borrowing Date
for each maturity date, (ii) the acceptance or rejection of any offers to make
such Competitive Loans made by such Competitive Loan Lender and (iii) in the
case of LIBOR Competitive Loans, LIBOR in respect thereof. Before 12:30 P.M.
(New York City time) on the Borrowing Date specified in the applicable
Competitive Loan Request, each Competitive Loan Lender whose Competitive Loan
Offer has been accepted shall make available to the Administrative Agent at its
office set forth in subsection 8.2 the amount of Competitive Loans to be made by
such Competitive Loan Lender, in immediately available funds. The Administrative
Agent will make such funds available to the Borrower as soon as practicable on
such date at the Administrative Agent's aforesaid address. As soon as
practicable after each Borrowing Date, the Administrative Agent shall notify
each Competitive Loan Lender of the aggregate amount of Competitive Loans
advanced on such Borrowing Date, the respective maturity dates thereof and the
respective interest rates applicable thereto.
(h) The Borrower hereby unconditionally promises to pay to the
Administrative Agent for the account of each Competitive Loan Lender the then
unpaid principal amount of each Competitive Loan of such Competitive Loan Lender
on the applicable Competitive Loan Maturity Date. The Borrower hereby further
agrees to pay interest on the unpaid principal amount of the Competitive Loans
from time to time outstanding from the date hereof until payment in full thereof
at the rates per annum, and on the dates, set forth in subsection 2.11. Each
Competitive Loan Lender shall maintain accounts and the Administrative Agent
shall maintain the Register with respect to Competitive Loans as provided in
subsections 2.5(b), (c) and (d).
(i) The Borrower agrees that, upon the request to the Administrative
Agent by any Competitive Loan Lender, the Borrower will execute and deliver to
such Competitive Loan Lender a promissory note of the Borrower evidencing the
Competitive Loans of such Competitive Loan Lender, substantially in the form of
Exhibit A-2 with appropriate insertions as to date and principal amount (a
"Competitive Loan Note").
---------------------
2.11 Interest Rates and Payment Dates. (a) Each LIBOR Loan shall
--------------------------------------
bear interest for each day during each Interest Period with respect thereto at a
rate per annum equal to LIBOR determined for such day plus the Applicable
Margin.
(b) Each ABR Loan shall bear interest at a rate per annum equal to
the ABR plus the Applicable Margin.
(c) Each CD Rate Loan shall bear interest for each day during each
Interest Period with respect thereto at a rate per annum equal to the CD Rate
determined for such day plus the Applicable Margin.
(d) Each Competitive Loan shall bear interest for each day from the
applicable Borrowing Date to (but excluding) the applicable Competitive Loan
Maturity Date at the rate of interest specified in the Competitive Loan Offer
accepted by the Borrower in connection with such Competitive Loan.
<PAGE>
(e) If all or a portion of (i) the principal amount of any Loan, (ii)
any interest payable thereon or (iii) any fee or other amount payable hereunder
shall not be paid when due (whether at the stated maturity, by acceleration or
otherwise), such overdue amount shall, to the extent permitted by applicable
law, bear interest at a rate per annum which is (x) in the case of overdue
principal (except as otherwise provided in clause (y) below), the rate that
would otherwise be applicable thereto pursuant to the foregoing provisions of
this subsection 2.11 plus 2% or (y) in the case of principal of any Competitive
----
Loan which remains overdue past the applicable Competitive Loan Maturity Date,
or any overdue interest, fee or other amount, the rate described in subsection
2.11(b) plus 2%, in each case from the date of such non-payment until such
----
overdue principal, interest, fee or other amount is paid in full (as well after
as before judgment).
(f) Interest shall accrue from and including the first day of an
Interest Period to but excluding the last day of such Interest Period. Interest
shall be payable in arrears on each Interest Payment Date, provided that
--------
interest accruing pursuant to paragraph (e) of this subsection shall be payable
from time to time on demand.
2.12 Computation of Interest and Fees. (a) Facility fees and,
-------------------------------------
whenever it is calculated on the basis of the ABR, interest shall be calculated
on the basis of a 365- (or 366-, as the case may be) day year for the actual
days elapsed; and, otherwise, interest shall be calculated on the basis of a
360-day year for the actual days elapsed. The Administrative Agent shall as
soon as practicable notify the Borrower and the Lenders of each determination of
LIBOR or of a CD Rate. Any change in the interest rate on a Loan resulting from
a change in the CD Assessment Rate or the CD Reserve Percentage shall become
effective as of the opening of business on the day on which such change becomes
effective. The Administrative Agent shall as soon as practicable notify the
Borrower and the Lenders of the effective date and the amount of each such
change in interest rate.
(b) Each determination of an interest rate by the Administrative
Agent pursuant to any provision of this Agreement shall be conclusive and
binding on the Borrower and the Lenders in the absence of manifest error. The
Administrative Agent shall, at the request of the Borrower, deliver to the
Borrower upon request a statement showing the quotations used by the
Administrative Agent in determining any interest rate pursuant to subsection
2.11(c).
2.13 Inability to Determine Interest Rate. If prior to the first day
-----------------------------------------
of any Interest Period:
(a) the Administrative Agent shall have determined (which
determination shall be conclusive and binding upon the Borrower) that, by
reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining LIBOR or the CD Rate for
such Interest Period, or
(b) the Administrative Agent shall have received notice from the
Majority Lenders that LIBOR or the CD Rate determined or to be determined
for such Interest Period will not adequately and fairly reflect the cost to
such Lenders (as conclusively
<PAGE>
certified by such Lenders) of making or maintaining their affected Loans
during such Interest Period,
the Administrative Agent shall give telecopy or telephonic notice thereof to the
Borrower and the Lenders as soon as practicable thereafter. If such notice is
given (x) any LIBOR Loans, CD Rate Loans or LIBOR Competitive Loans, as the case
may be, requested to be made on the first day of such Interest Period shall be
made as ABR Loans, (y) any Loans that were to have been converted on the first
day of such Interest Period to LIBOR Loans or CD Rate Loans, as the case may be,
shall be converted to or continued as ABR Loans and (z) any outstanding LIBOR
Loans or CD Rate Loans, as the case may be, shall be converted, on the first day
of such Interest Period, to ABR Loans. Until such notice has been withdrawn by
the Administrative Agent, no further LIBOR Loans, CD Rate Loans or LIBOR
Competitive Loans, as the case may be, shall be made or continued as such, nor
shall the Borrower have the right to convert Loans to LIBOR Loans or CD Rate
Loans, as the case may be.
2.14 Pro Rata Treatment and Payments. (a) Each borrowing by the
-------------------------------------
Borrower from the Lenders of a Revolving Credit Loan, each payment by the
Borrower on account of any facility fee hereunder and any reduction of the
Commitments of the Lenders shall be made pro rata according to the respective
Commitment Percentages of the Lenders. Each payment (including each prepayment)
by the Borrower on account of principal of and interest on the Loans shall be
made pro rata according to the respective outstanding principal amounts of the
Loans for which such payment is being made. All payments (including
prepayments) to be made by the Borrower hereunder, whether on account of
principal, interest, fees or otherwise, shall be made without set off or
counterclaim and shall be made prior to 2:00 P.M., New York City time, on the
due date thereof to the Administrative Agent, for the account of the Lenders, at
the Administrative Agent's office specified in subsection 8.2, in Dollars and in
immediately available funds. The Administrative Agent shall distribute such
payments to the Lenders promptly upon receipt in like funds as received. If any
payment hereunder becomes due and payable on a day other than a Business Day,
such payment shall be extended to the next succeeding Business Day, and, with
respect to payments of principal, interest thereon shall be payable at the then
applicable rate during such extension.
(b) Unless the Administrative Agent shall have been notified in
writing by any Lender prior to a borrowing that such Lender will not make the
amount that would constitute its share of such borrowing available to the
Administrative Agent, the Administrative Agent may assume that such Lender is
making such amount available to the Administrative Agent, and the Administrative
Agent may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. If such amount is not made available to the
Administrative Agent by the required time on the Borrowing Date therefor, such
Lender shall pay to the Administrative Agent, on demand, such amount with
interest thereon at a rate equal to the daily average Federal Funds Effective
Rate for the period until such Lender makes such amount immediately available to
the Administrative Agent. A certificate of the Administrative Agent submitted
to any Lender with respect to any amounts owing under this subsection shall be
conclusive in the absence of manifest error. If such Lender's share of such
borrowing is not made available to the Administrative Agent by such Lender
within three Business Days of such Borrowing Date, the
<PAGE>
Administrative Agent shall also be entitled to recover such amount with interest
thereon at the rate per annum applicable to ABR Loans hereunder, on demand, from
the Borrower.
2.15 Illegality. Notwithstanding any other provision herein, if the
----------------
adoption of or any change in any Requirement of Law or in the interpretation or
application thereof shall make it unlawful for any Lender to make or maintain
LIBOR Loans or LIBOR Competitive Loans as contemplated by this Agreement (a)
such Lender shall promptly give notice thereof to the Borrower and the
Administrative Agent, (b) the commitment of such Lender hereunder to make LIBOR
Loans, continue LIBOR Loans as such and convert ABR Loans or CD Rate Loans to
LIBOR Loans shall forthwith be cancelled, (c) such Lender's outstanding LIBOR
Loans, if any, shall be converted automatically to ABR Loans on the respective
last days of the then current Interest Periods with respect to such Loans or
within such earlier period as required by law and (d) the Borrower shall, with
respect to any LIBOR Competitive Loan of such Lender, take such action as such
Lender may reasonably request. If any such conversion of a LIBOR Loan occurs on
a day which is not the last day of the then current Interest Period with respect
thereto, the Borrower shall pay to such Lender such amounts, if any, as may be
required pursuant to subsection 2.18.
2.16 Additional Costs. (a) If, as a result of any Regulatory
----------------------
Change:
(i) the basis of taxation of payments to any Lender of the
principal of or interest on any LIBOR Loans, any CD Rate Loans or LIBOR
Competitive Loans or any other amounts payable under this Agreement in
respect thereof (other than Non-Excluded Taxes covered by subsection 2.17
and taxes imposed on the overall net income of any Lender) is changed;
(ii) any reserve, special deposit, or capital adequacy, or
similar requirements relating to any extensions of credit or other assets
of, or any deposits with or other liabilities of, any Lender are imposed,
modified, or deemed applicable; or
(iii) any other condition affecting this Agreement or any LIBOR
Loans, any CD Rate Loans or LIBOR Competitive Loans is imposed on any
Lender after the date hereof; and
any Lender determines that, by reason thereof, the cost (or in the case of
clause (i) above, the actually incurred cost) to such Lender of making or
maintaining its Commitment or any of its LIBOR Loans, CD Rate Loans or LIBOR
Competitive Rate Loans to the Borrower is increased or any amount receivable by
such Lender hereunder in respect of any of such Loans is reduced, in each case
by an amount reasonably deemed by such Lender to be material (such increases in
cost and reductions in amounts receivable being herein called "Additional
----------
Costs"), then the Borrower shall pay to such Lender upon its request the
additional amount or amounts as will compensate such Lender for such Additional
Costs within 15 Business Days after such written notice is received; provided,
--------
however, that if all or any such Additional Costs would not have been payable or
- -------
incurred but for such Lender's voluntary decision to designate a new Applicable
Lending Office, the Borrower shall have no obligation under this subsection 2.16
to compensate
<PAGE>
such Lender for such amount relating to such Lender's decision; provided,
--------
further, that the Borrower shall not be required to make any payments to such
- -------
Lender for Additional Costs resulting from capital adequacy requirements unless
(A) such Lender has given at least 60 days' prior written notice of its intent
to request such payments and (B) such payments are with respect to Additional
Costs which accrued and were incurred after the expiration of such 60-day notice
period. Each Lender will notify the Borrower and the Administrative Agent of any
Regulatory Change occurring after the date of this Agreement which will entitle
such Lender to compensation pursuant to this subsection 2.16(a) as promptly as
practicable after it obtains knowledge thereof and determines to request such
compensation. If such Lender requests compensation under this subsection 2.16(a)
in respect of any Regulatory Change, the Borrower may, by notice to such Lender,
require that such Lender forward to the Borrower a statement setting forth the
basis for requesting such compensation and the method for determining the amount
thereof.
(b) Without limiting the effect of the provisions of subsection
2.16(a) (but without duplication thereof), the Borrower will pay to any Lender,
within 15 Business Days of receipt by the Borrower of notice from such Lender,
for each day such Lender is required to maintain reserves against "Eurocurrency
liabilities" under Regulation D of the Board as in effect on the date of this
Agreement, an additional amount determined by such Lender equal to the product
of the following:
(i) the principal amount of the LIBOR Loan or LIBOR Competitive
Loan, as the case may be;
(ii) the remainder of (x) a fraction the numerator of which is
LIBOR for such LIBOR Loan or LIBOR Competitive Loan, as the case may be,
and the denominator of which is one minus the rate at which such reserve
requirements are imposed on such Lender on such day minus (y) such
-----
numerator; and
(iii) 1/360.
Such Lender shall request payment under this subsection 2.16(b) by giving notice
to the Borrower as of the last day of each Interest Period for each LIBOR Loan
and LIBOR Competitive Loan, as the case may be (and, if such Interest Period
exceeds three months' duration, also as of three months, or a whole multiple
thereof, after the first day of such Interest Period). Such notice shall
specify the basis for requesting such compensation and the method for
determining the amount thereof. Such Lender shall provide any evidence of such
requirement to maintain reserves as the Borrower may reasonably request.
(c) Determinations by any Lender for purposes of this subsection 2.16
of the effect of any Regulatory Change shall be conclusive, provided that such
determinations are made absent manifest error. The agreements in this
subsection shall survive the termination of this Agreement and the payment of
the Loans and all other amounts payable hereunder.
<PAGE>
2.17 Taxes. (a) All payments made by the Borrower under this
-----------
Agreement and any Notes shall be made free and clear of, and without deduction
or withholding for or on account of, any present or future income, stamp or
other taxes, levies, imposts, duties, charges, fees, deductions or withholdings,
now or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority, excluding net income taxes and franchise taxes (imposed
in lieu of net income taxes) imposed on the Administrative Agent, any Lender or
any Applicable Lending Office as a result of a present or former connection
between the Administrative Agent, such Lender or Applicable Lending Office and
the jurisdiction of the Governmental Authority imposing such tax or any
political subdivision or taxing authority thereof or therein (other than any
such connection arising solely from the Administrative Agent or such Lender
having executed, delivered or performed its obligations or received a payment
under, or enforced, this Agreement or any Note). If any such non-excluded
taxes, levies, imposts, duties, charges, fees deductions or withholdings ("Non-
---
Excluded Taxes") are required to be withheld from any amounts payable to the
- --------------
Administrative Agent or any Lender hereunder or under any Note, the amounts so
payable to the Administrative Agent or such Lender shall be increased to the
extent necessary so that the amount received by the Administrative Agent or such
Lender (after payment of all Non-Excluded Taxes) shall be equal to the interest
or any such other amounts it would have received had no such withholding been
required, provided, however, that the Borrower shall not be required to increase
-------- -------
any such amounts payable to any Lender that is not organized under the laws of
the United States of America or a state thereof if such Lender fails to comply
with the requirements of paragraph (b) of this subsection. Whenever any Non-
Excluded Taxes are payable by the Borrower, as promptly as practicable
thereafter the Borrower shall send to the Administrative Agent for its own
account or for the account of such Lender, as the case may be, evidence
reasonably satisfactory to the Administrative Agent or such Lender, as the case
may be, of such payment. If the Borrower fails to pay any Non-Excluded Taxes
payable by the Borrower when due to the appropriate taxing authority or fails to
remit to the Administrative Agent the receipts therefor or other required
documentary evidence, the Borrower shall indemnify the Administrative Agent and
the Lenders for any incremental taxes, interest or penalties that may become
payable by the Administrative Agent or any Lender as a result of any such
failure. The agreements in this subsection shall survive the termination of
this Agreement and the payment of the Loans and all other amounts payable
hereunder.
(b) Each Lender that is not incorporated under the laws of the
United States of America or a state thereof shall:
(i) deliver to the Borrower and the Administrative Agent (A)
two duly completed copies of United States Internal Revenue Service Form
1001 or 4224, or successor applicable form, as the case may be, and (B) an
Internal Revenue Service Form W-8 or W-9, or successor applicable form, as
the case may be;
(ii) deliver to the Borrower and the Administrative Agent two
further copies of any such form or certification on or before the date that
any such form or certification expires or becomes obsolete and after the
occurrence of any event requiring a change in the most recent form
previously delivered by it to the Borrower; and
<PAGE>
(iii) obtain such extensions of time for filing and complete
such forms or certifications as may reasonably be requested by the Borrower
or the Administrative Agent;
unless in any such case an event (including, without limitation, any change in
treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Lender from duly completing and delivering any such
form with respect to it and such Lender so advises the Borrower and the
Administrative Agent. Such Lender shall certify (i) in the case of a Form 1001
or 4224, that it is entitled to receive payments under this Agreement without
deduction or withholding of any United States federal income taxes and (ii) in
the case of a Form W-8 or W-9, that it is entitled to an exemption from United
States backup withholding tax. Each Person that shall become a Lender or a
Participant pursuant to subsection 8.6 shall, no later than the effectiveness of
the related transfer, be required to provide all of the forms and statements
required pursuant to this subsection, provided that in the case of a Participant
such Participant shall furnish all such required forms and statements to the
Lender from which the related participation shall have been purchased.
(c) Any Lender claiming any amount pursuant to this subsection 2.17
shall use reasonable efforts (consistent with legal and regulatory restrictions)
to file any certificate or document reasonably requested by the Borrower if such
a filing would avoid the need for or reduce the amount payable by the Borrower
under this subsection 2.17 and would not, in the good faith determination of
such Lender, be otherwise disadvantageous to such Lender.
(d) Refunds. If a Lender or the Administrative Agent (as the case
-------
may be) shall become aware that it is entitled to claim a refund (or a refund in
the form of a credit) (each, a "Refund") from a Governmental Authority (as a
result of any error in the amount of Non-Excluded Taxes paid to such
Governmental Authority) of Non-Excluded Taxes which the Borrower has paid, or
with respect to which the Borrower has paid additional amounts, pursuant to this
subsection 2.17, it shall promptly notify the Borrower of the availability of
such Refund and shall, within 30 days after receipt of written notice by the
Borrower, make a claim to such Governmental Authority for such Refund at the
Borrower's expense if, in the judgment of such Lender or the Administrative
Agent (as the case may be), the making of such claim will not be otherwise
disadvantageous to it; provided that nothing in this subsection 2.17(d) shall be
--------
construed to require any Lender or the Administrative Agent to institute any
administrative proceeding (other than the filing of a claim for any such Refund)
or judicial proceeding to obtain such Refund. If a Lender or the Administrative
Agent (as the case may be) receives a Refund from a Governmental Authority (as a
result of any error in the amount of Non-Excluded Taxes paid to such
Governmental Authority) of any Non-Excluded Taxes which have been paid by the
Borrower, or with respect to which the Borrower has paid additional amounts
pursuant to this subsection 2.17, it shall promptly pay to the Borrower the
amount so received (but only to the extent of payments made, or additional
amounts paid, by the Borrower under this subsection 2.17 with respect to Non-
Excluded Taxes giving rise to such Refund), net of all reasonable out-of-pocket
expenses (including the net amount of taxes, if any, imposed on such Lender or
the Administrative Agent with respect to such Refund) of such Lender or the
Administrative Agent,
<PAGE>
and without interest (other than interest paid by the relevant Governmental
Authority with respect to such Refund); provided, however, that the Borrower,
-------- -------
upon the request of such Lender or the Administrative Agent, agrees to repay the
amount paid over to the Borrower (plus penalties, interest or other charges) to
such Lender or the Administrative Agent in the event such Lender or the
Administrative Agent is required to repay such Refund to such Governmental
Authority. Nothing contained in this subsection 2.17(d) shall require any Lender
or the Administrative Agent to make available any of its tax returns (or any
other information that it deems to be confidential or proprietary).
(e) For purposes of this subsection 2.17, the term "Lender" includes
(i) an "Assignee" within the meaning of, and after compliance with the
requirements of, subsection 8.6(c), and (ii) a "Participant" within the meaning
of subsection 8.6(b); provided that such Participant shall have complied with
--------
the requirements of subsection 2.17(c) to the extent applicable and provided,
--------
further, that such Participant shall not be entitled to receive any greater
- -------
amount pursuant to this subsection 2.17 than the transferor Lender would have
been entitled to receive had no such transfer occurred.
2.18 Indemnity. The Borrower agrees to indemnify each Lender and to
--------------
hold each Lender harmless from any loss or expense which such Lender may sustain
or incur as a consequence of (a) default by the Borrower in making a borrowing
of LIBOR Loans, CD Rate Loans or Competitive Loans, or in the conversion into or
continuation of LIBOR Loans or CD Rate Loans, after the Borrower has given a
notice requesting or accepting the same in accordance with the provisions of
this Agreement, (b) default by the Borrower in making any prepayment after the
Borrower has given a notice thereof in accordance with the provisions of this
Agreement, or (c) the making of a prepayment of LIBOR Loans, CD Rate Loans or
Competitive Loans on a day which is not the last day of an Interest Period or
the applicable Competitive Loan Maturity Date, as the case may be, with respect
thereto. Such indemnification may include an amount equal to the excess, if
any, of (i) the amount of interest which would have accrued on the amount so
prepaid, or not so borrowed, converted or continued, for the period from the
date of such prepayment or of such failure to borrow, convert or continue to the
last day of the relevant Interest Period (or proposed Interest Period) or, in
the case of Competitive Loans, the applicable Competitive Loan Maturity Date (or
proposed Competitive Loan Maturity Date), in each case at the applicable rate of
interest for such Loans provided for herein (excluding, however, the Applicable
Margin or any positive margin applicable to LIBOR Competitive Loans included
therein, if any) over (ii) the amount of interest (as reasonably determined by
----
such Lender) which would have accrued to such Lender on such amount by placing
such amount on deposit for a comparable period with leading banks in the
interbank eurodollar market. The agreements in this subsection shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
2.19 Change of Lending Office. Each Lender agrees that if it makes
-----------------------------
any demand for payment under subsection 2.16 or 2.17(a), or if any adoption or
change of the type described in subsection 2.15 shall occur with respect to it,
it will use reasonable efforts (consistent with its internal policy and legal
and regulatory restrictions and so long as such efforts would not be
disadvantageous to it, as determined in its sole discretion) to designate a
different Applicable Lending Office if the making of such a designation would
reduce or obviate the need for the
<PAGE>
Borrower to make payments under subsection 2.16 or 2.17(a), or would eliminate
or reduce the effect of any adoption or change described in subsection 2.15.
2.20 Replacement of Lenders under Certain Circumstances. The
--------------------------------------------------------
Borrower shall be permitted to replace any Lender which (a) requests
reimbursement for amounts owing pursuant to subsection 2.16 or 2.17 (other than
with respect to LIBOR Competitive Loans), (b) is affected in the manner
described in subsection 2.15 (other than with respect to LIBOR Competitive
Loans) and as a result thereof any of the actions described in said subsection
is required to be taken, (c) defaults in its obligation to make Revolving Credit
Loans hereunder or (d) fails to consent to the extension of the Termination Date
pursuant to subsection 2.21, with a replacement bank or other financial
institution; provided that (i) such replacement does not conflict with any
--------
Requirement of Law, (ii) no Event of Default shall have occurred and be
continuing at the time of such replacement, (iii) the Borrower shall repay (or
the replacement bank or institution shall purchase, at par) all Loans and other
amounts owing to such replaced Lender prior to the date of replacement, (iv) the
Borrower shall be liable to such replaced Lender under subsection 2.18 if any
LIBOR Loan or CD Rate Loan owing to such replaced Lender shall be prepaid (or
purchased) other than on the last day of the Interest Period relating thereto or
any Competitive Loan owing to such replaced Lender shall be paid other than on
the relevant Competitive Loan Maturity Date, (v) the replacement bank or
institution, if not already a Lender, shall be reasonably satisfactory to the
Administrative Agent, (vi) the replaced Lender shall be obligated to make such
replacement in accordance with the provisions of subsection 8.6 (provided that
the Borrower shall be obligated to pay the registration and processing fee
referred to therein), (vii) until such time as such replacement shall be
consummated, the Borrower shall pay all additional amounts (if any) required
pursuant to subsection 2.16 or 2.17, as the case may be, and (viii) any such
replacement shall not be deemed to be a waiver of any rights which the Borrower,
the Administrative Agent or any other Lender shall have against the replaced
Lender.
2.21 Extension of Termination Date. (a) On or before the date
-----------------------------------
which is 60 days (but no more than 90 days) prior to the then-existing
Termination Date, the Borrower may make a request to the Administrative Agent
(which shall promptly notify each Lender of its receipt of such request) on
behalf of the Lenders for an extension of the then-existing Termination Date to
the date 364 days after the then-existing Termination Date.
(b) In the case of each requested extension, each Lender shall
promptly (and in no case later than the date (the "Decision Date") 45 days prior
-------------
to the then-existing Termination Date) notify the Administrative Agent as to
whether or not in such Lender's sole discretion such Lender consents to such
extension; provided, that each Lender shall be permitted to revoke its consent
--------
at any time on or prior to the date 30 days prior to the then-existing
Termination Date. The Administrative Agent shall notify the Borrower on the
Business Day immediately following such Decision Date as to which Lenders shall
have consented to such request and which Lenders shall not have consented to
such request. In the event that any Lender does not consent to such request,
the Borrower shall be permitted to replace such Lender with a replacement bank
or other financial institution effective on the then-existing Termination Date
pursuant to subsection 2.20. The then-existing Termination Date shall be
extended only if (i) all of the Lenders consent, (ii) all non-consenting Lenders
have been replaced by the replacement banks or other financial
<PAGE>
institutions in accordance with subsection 2.20 such that the aggregate amount
of Commitments is not reduced or (iii) in the event that not all non-consenting
Lenders have been replaced, (A) the Borrower notifies the Administrative Agent
that it wishes to extend the then-existing Termination Date notwithstanding the
reduced amount of aggregate Commitments and (B) each consenting Lender and each
replacement bank or other financial institution in its sole discretion consents
to such extension after receiving notice of such reduced amount of aggregate
Commitments. In the event that the then-existing Termination Date is extended
pursuant to clause (iii) of the preceding sentence, on the then-existing
Termination Date the Borrower shall pay to the Administrative Agent for the
benefit of each non-consenting Lender that is not replaced with a replacement
bank or other financial institution, all amounts due with respect to such non-
consenting Lender.
SECTION 3. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter into this
Agreement and to make the Loans, the Borrower hereby represents and warrants to
the Administrative Agent and each Lender that:
3.1 Financial Condition. The balance sheets of the Borrower as at
------------------------
December 31, 1998 and the related statements of income, earnings reinvested in
business, and cash flows for the fiscal year then ended on such date, reported
on by Deloitte & Touche LLP, copies of which have heretofore been furnished to
each Lender, present fairly the financial condition of the Borrower as at such
date, and the results of its operations and its cash flows for the fiscal year
then ended. The unaudited balance sheet of the Borrower as at March 31, 1999
and the related unaudited statements of income, earnings reinvested in business,
and cash flows for the three-month period ended on such date, certified by a
Responsible Officer, copies of which have heretofore been furnished to each
Lender, are complete and correct and present fairly the financial condition of
the Borrower as at such date, and the results of its operations and its cash
flows for the three-month period then ended (subject to normal year-end audit
adjustments). All such financial statements, including the related schedules
and notes thereto, have been prepared in accordance with GAAP applied
consistently throughout the periods involved (except as approved by such
accountants or Responsible Officer, as the case may be, and as disclosed
therein). During the period from December 31, 1998 to and including the date
hereof there has been no sale, transfer or other disposition by the Borrower of
any material part of its business or property and no purchase or other
acquisition of any business or property (including any capital stock of any
other Person) material in relation to the financial condition of the Borrower at
December 31, 1998.
3.2 No Change. From December 31, 1998 through the date hereof there
--------------
has been no development or event which has had or could reasonably be expected
to have a material adverse effect on the financial position or business
operations of the Borrower.
3.3 Corporate Existence; Compliance with Law. Each of the Borrower
---------------------------------------------
and its Material Subsidiaries, if any, (a) is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization, (b)
has the corporate power and authority, and the
<PAGE>
legal right, to own and operate its property, to lease the property it operates
as lessee and to conduct the business in which it is currently engaged, (c) is
duly qualified as a foreign corporation and in good standing under the laws of
each jurisdiction where its ownership, lease or operation of property or the
conduct of its business requires such qualification other than in such
jurisdictions where the failure so to qualify would not, individually or in the
aggregate, have a material adverse effect on the financial position or business
operations of the Borrower and (d) is in compliance with all Requirements of Law
except to the extent that the failure to comply therewith could not, in the
aggregate, have a material adverse effect on the financial position or business
operations of the Borrower.
3.4 Corporate Power; No Legal Bar. The execution, delivery, and
-----------------------------
performance by the Borrower of this Agreement and any Note are within its
corporate powers, have been duly authorized by all necessary corporate action,
and do not violate any provision of law or any agreement, indenture, note, or
other instrument binding upon or affecting it or its charter or by-laws or give
cause for acceleration of any of its Indebtedness.
0.2 Authorization; Enforceability. All authorizations, approvals,
-----------------------------
and other actions by, and notices to and filings with all Governmental
Authorities required for the due execution, delivery and performance of this
Agreement and any Note have been obtained or made and are in full force and
effect. Each of this Agreement and each Note executed in connection herewith is
a legal, valid and binding obligation of the Borrower enforceable against the
Borrower in accordance with its terms, subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.
0.3 ERISA. No "prohibited transaction" (as defined in Section 406 of
-----
ERISA or Section 4975 of the Code) or "accumulated funding deficiency" (as
defined in Section 302 of ERISA) or "reportable event" (herein defined as any of
the events set forth in Section 4043(b) of ERISA or the regulations thereunder)
has occurred since July 1, 1974 with respect to any Plan which would materially
and adversely affect the financial condition of the Borrower. The present value
of all benefits vested under all Plans maintained by the Borrower or any
Commonly Controlled Entity (based on those assumptions used to fund the Plans)
did not, as of the last annual valuation date, exceed the value of the assets of
the Plan allocable to such vested benefits.
0.4 No Material Litigation. As of the date hereof, except as
----------------------
heretofore disclosed pursuant to Section 13 of the Securities Exchange Act of
1934, as amended, there are no legal or arbitral proceedings or any proceedings
by or before any governmental or regulatory authority or agency, now pending or,
to the knowledge of the Borrower, threatened against the Borrower or any of its
Material Subsidiaries, which the Borrower would be required to disclose pursuant
to Section 13 of the Securities Exchange Act of 1934, as amended.
0.5 Taxes. The Borrower (or Dominion Resources for years in which
-----
the Borrower filed a consolidated return with Dominion Resources) and its
Material Subsidiaries have filed all United States Federal income tax returns
and all other tax returns which are
<PAGE>
required to be filed by them and have paid all taxes due pursuant to such
returns or pursuant to any assessment received by the Borrower or any such
Material Subsidiary. The charges, accruals and reserves on the books of the
Borrower and such Material Subsidiaries in respect of taxes and other
governmental charges are, in the opinion of the Borrower, adequate.
0.6 Purpose of Loans. The proceeds of the Loans shall be used by the
----------------
Borrower for general corporate purposes, including commercial paper back-up, and
no part of the proceeds of any Loans will be used in violation of Regulations U
or X of the Board as now and from time to time hereafter in effect.
0.7 Year 2000. The Borrower has (a) initiated a review and
---------
assessment of all areas within its and each of its Material Subsidiaries'
businesses and operations that could be adversely affected by the risk that
computer applications may not be able to recognize and properly perform date-
sensitive functions after December 31, 1999 (the "Year 2000 Problem"), (b)
-----------------
developed a plan and timeline for addressing the Year 2000 Problem on a timely
basis, and (c) to date, implemented such plan in accordance with such timetable.
Based on the foregoing, the Borrower reasonably believes that all computer
applications that are critical to its or any of its Material Subsidiaries'
businesses and operations will on a timely basis be able to properly perform
date-sensitive functions for all dates before and after January 1, 2000 (that
is, to be "Year 2000 Ready"), except to the extent that a failure to do so could
not be reasonably expected to have a material adverse effect on the ability of
the Borrower to perform its obligations under this Agreement.
SECTION 1. CONDITIONS PRECEDENT
1.1 Conditions to Initial Loans. The effectiveness of this Agreement
---------------------------
is subject to the satisfaction of the following conditions precedent on or prior
to June 4, 1999:
(a) Execution of Agreement. (i) This Agreement shall have been
----------------------
executed and delivered by a duly authorized officer of each of the Borrower
and the Administrative Agent and (ii) the Administrative Agent shall have
received an executed counterpart hereof (or a copy thereof by facsimile
transmission) from each Lender.
(b) Closing Certificate. The Administrative Agent shall have
-------------------
received a certificate of the Borrower, dated the Closing Date,
substantially in the form of Exhibit C, executed by any Assistant Treasurer
and the Secretary or any Assistant Secretary of the Borrower, and attaching
the documents referred to in subsections 4.1(c), (d) and (e).
(c) Corporate Proceedings. The Administrative Agent shall have
---------------------
received a copy of the resolutions, in form and substance satisfactory to
the Administrative Agent, of the Board of Directors of the Borrower (or a
duly authorized committee thereof) authorizing (i) the execution, delivery
and performance of this Agreement and (ii) the borrowings contemplated
hereunder.
<PAGE>
(d) Corporate Documents. The Administrative Agent shall have
-------------------
received a copy of the articles of incorporation and by-laws of the
Borrower.
(e) Regulatory Approvals. The Administrative Agent shall have
--------------------
received copies of any required orders of the Virginia State Corporation
Commission or any other state utilities commission approving the Borrower's
execution, delivery and performance of this Agreement and the borrowings
hereunder.
(f) Legal Opinions. The Administrative Agent shall have received the
--------------
following executed legal opinions, with a copy for each Lender:
(i) the executed legal opinion of McGuire Woods Battle & Boothe
LLP, counsel to the Borrower, substantially in the form of Exhibit D-
1; and
(ii) the executed legal opinion of Simpson Thacher & Bartlett,
special counsel to the Administrative Agent, substantially in the form
of Exhibit D-2.
(g) Representations and Warranties; No Default. Each of the
------------------------------------------
representations and warranties made by the Borrower in or pursuant to the
Loan Documents shall be true and correct in all material respects on and as
of such date as if made on and as of such date and no Default or Event of
Default shall have occurred and be continuing on such date.
(h) Existing Credit Agreement. All interest and fees under the
-------------------------
Existing Credit Agreement through the Effective Date shall have been paid.
1.2 Conditions to Each Loan. The agreement of each Lender to make
-----------------------
any Loan requested to be made by it on any date (including, without limitation,
its initial Loan) is subject to the satisfaction of the following conditions
precedent:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties made by the Borrower in or pursuant to the Loan Documents shall
be true and correct in all material respects on and as of such date as if
made on and as of such date.
(b) No Default. No Default or Event of Default shall have occurred
----------
and be continuing on such date or after giving effect to the Loans
requested to be made on such date.
Each borrowing by the Borrower hereunder shall constitute a representation and
warranty by the Borrower as of the date thereof that the conditions contained in
this subsection 4.2 have been satisfied.
<PAGE>
SECTION 2. COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain in
effect or any amount is owing to any Lender or the Administrative Agent
hereunder or under any other Loan Document:
2.1 Financial Statements. The Borrower shall furnish to the
--------------------
Administrative Agent, who shall forward to each Lender:
(a) as soon as practicable, but in any event within 120 days after
the end of each fiscal year of the Borrower, a copy of the consolidated
balance sheet of the Borrower and its consolidated Subsidiaries, if any, as
at the end of such year and the related consolidated statements of income,
earnings reinvested in business, and cash flows for such year, setting
forth in each case in comparative form the figures for the previous year,
reported on, by Deloitte & Touche LLP or other independent certified public
accountants of nationally recognized standing; and
(b) as soon as practicable, but in any event not later than 60 days
after the end of each of the first three quarterly periods of each fiscal
year of the Borrower, the unaudited consolidated balance sheet of the
Borrower and its consolidated Subsidiaries, if any, as at the end of such
quarter and the related unaudited consolidated statements of income,
earnings reinvested in business, and cash flows for such quarter and the
portion of the fiscal year through the end of such quarter, setting forth
in each case in comparative form the figures for the previous year
certified by a Responsible Officer as being fairly stated in all material
respects (subject to normal year-end audit adjustments);
(c) within fourteen days after the same are sent, copies of all
financial statements and reports which the Borrower sends to its
stockholders generally, and within fourteen days after the same are filed,
copies of all financial statements and reports which the Borrower may make
to, or file with, the Securities and Exchange Commission or any successor
or analogous Governmental Authority; and
(d) promptly, such additional financial and other information as the
Administrative Agent, or any Lender through the Administrative Agent, may
from time to time reasonably request.
All such financial statements in (a) and (b) shall be (i) complete and
correct in all material respects, (ii) prepared in reasonable detail and in
accordance with GAAP applied consistently throughout the periods reflected
therein and with prior periods (except as approved by such accountants or
officer, as the case may be, and disclosed therein) and (iii) accompanied by a
compliance certificate signed by a Responsible Officer of the Borrower setting
forth the Consolidated Net Worth of the Borrower as of the date of such
financial statements.
Unless accompanied by a statement of a Responsible Officer setting
forth the details of each Default which has occurred and is continuing and the
steps which the Borrower
<PAGE>
proposes to take to remedy such Default, each delivery of financial statements
pursuant to clauses (a) and (b) of this subsection 5.1 shall be deemed to
constitute a certification by the Borrower that no Default has occurred and is
continuing.
2.2 Conduct of Business and Compliance. The Borrower will continue
----------------------------------
to engage in business of the same general type as now conducted by it, and the
Borrower will, and will cause each of its Subsidiaries, if any, to comply with
all Requirements of Law except to the extent that failure to comply therewith
would not materially and adversely affect the ability of the Borrower to perform
its obligations hereunder.
2.3 Books and Records. The Borrower will, and will cause each of its
-----------------
Material Subsidiaries, if any, to, keep proper books of records and account in
which full, true and correct entries in conformity with GAAP and all
Requirements of Law shall be made of all dealings and transactions in relation
to its business and activities.
2.4 Notices. The Borrower shall promptly give notice to the
-------
Administrative Agent, and the Administrative Agent shall in turn give notice to
each Lender, of:
(a) the occurrence of any Default or Event of Default, which such
notice shall state that such notice is a "notice of default";
(b) the existence or imposition of any judgments against the
Borrower or any of its Material Subsidiaries in an amount in excess of
$25,000,000;
(c) the failure of the Borrower or any of its Material Subsidiaries
to pay any principal or interest in an aggregate amount of $25,000,000 or
more on any Indebtedness; and
(d) promptly following the Borrower's receipt, any change in the
Moody's Bond Rating or the S&P Bond Rating.
Each notice pursuant to clause (a) shall be accompanied by a statement
of a Responsible Officer setting forth details of the occurrence referred to
therein and stating what action the Borrower proposes to take with respect
thereto.
2.5 Limitation on Liens. The Borrower shall not, nor shall it permit
-------------------
any of its Material Subsidiaries to, create, incur, assume or suffer to exist
any Lien upon any of its property, assets or revenues, whether now owned or
hereafter acquired, except for (i) Liens permitted by the First Mortgage Bond
Indenture and (ii) Liens created in the ordinary course of business.
2.6 Limitation on Fundamental Changes. The Borrower will not enter
---------------------------------
into any merger, consolidation or amalgamation, or liquidate, wind up or
dissolve itself (or suffer any liquidation or dissolution), or convey, sell,
lease, assign, transfer or otherwise dispose of, a material part of its
property, business or assets, except the Borrower may be merged or consolidated
with another Person that is a corporation duly organized and existing under the
laws
<PAGE>
of any state in the United States provided that (i) the survivor shall continue
to use and operate the Borrower's public utility business, (ii) the survivor
shall assume the Borrower's obligations hereunder in accordance with
documentation acceptable to the Administrative Agent and the Majority Lenders
and (iii) after giving effect to such merger or consolidation no Default or
Event of Default shall have occurred or be continuing.
2.7 Limitation on Guarantee Obligations. The Borrower shall not
-----------------------------------
create, incur, assume or suffer to exist any Guarantee Obligation except for (a)
Guarantee Obligations in existence on the date hereof and listed on Schedule II;
(b) Guarantee Obligations made in the ordinary course of its business by the
Borrower of obligations of any of its Subsidiaries; and (c) Guarantee
Obligations guaranteeing securities issued by a corporation, partnership or
trust formed at the direction of the Borrower, provided that (i) the proceeds
--------
from the issuance of such securities (other than to cover offering expenses)
were used solely by such corporation, partnership or trust to purchase from the
Borrower securities issued by the Borrower and (ii) the Guarantee Obligations
exist only so long as and only to the extent that such corporation, partnership
or trust holds such securities issued by the Borrower.
2.8 Maintenance of Net Worth. The Borrower will not permit
------------------------
Consolidated Net Worth to be less than $3.75 billion.
SECTION 3. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Loan when
due in accordance with the terms hereof, or to pay any interest on any
Loan, or any other amount payable hereunder, within 5 Business Days after
any such amount becomes due in accordance with the terms hereof;
(b) Any representation or warranty made to the Administrative Agent
or any Lender in connection with the execution and delivery of this
Agreement or the making of Loans hereunder proves to have been incorrect in
any material respect when made, and the future financial position or
business operations of the Borrower could reasonably be expected to be
materially and adversely affected from what would be the case had such
representation and warranty not been incorrect;
(c) The Borrower shall default in the performance of any other term,
covenant, or provision contained in this Agreement (other than as provided
in paragraphs (a) and (b) of this Section) and such default shall continue
unremedied for 30 days;
(d) The Borrower or any of its Material Subsidiaries shall (i) apply
for or consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee, or
<PAGE>
liquidator of itself or of all or a substantial part of its property, (ii)
admit in writing its inability, or be generally unable, to pay its debts as
such debts become due, (iii) make a general assignment for the benefit of
its creditors, (iv) commence a voluntary case under the federal bankruptcy
laws (as now or hereafter in effect), (v) file a petition seeking to take
advantage of any other law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or readjustment of debts, (vi)
fail to controvert in a timely and appropriate manner, or acquiesce in
writing to, any petition filed against the Borrower or any of its Material
Subsidiaries in an involuntary case under such federal laws, or (vii) take
any corporate action for the purpose of affecting any of the foregoing;
(e) A case or other proceeding shall be commenced (including
commencement of such case or proceeding by way of service of process on the
Borrower or any of its Material Subsidiaries), in any court of competent
jurisdiction, seeking (i) the liquidation, reorganization, dissolution or
winding-up, or the composition or readjustment of debts of the Borrower or
any of its Material Subsidiaries, (ii) the appointment of a trustee,
receiver, custodian, liquidator, or the like of the Borrower or any of its
Material Subsidiaries or of all or any substantial part of their respective
assets, (iii) similar relief in respect of the Borrower or any of its
Material Subsidiaries under any law relating to bankruptcy, insolvency,
reorganization, winding up, or composition or readjustment of debts, or a
warrant of attachment, execution, or similar process shall be issued
against a substantial part of the property of the Borrower or any of its
Material Subsidiaries and such case, proceeding, warrant, or process shall
continue undismissed or unstayed and in effect for a period of 45 days, or
an order, judgment, or decree approving or ordering any of the foregoing
shall be entered in an involuntary case under such federal bankruptcy laws;
(f) A trustee shall be appointed to administer any Plan under Section
4042 of ERISA, or the PBGC shall institute proceedings to terminate, or to
have a trustee appointed to administer any Plan and such proceedings shall
continue undismissed or unstayed and in effect for a period of 30 days, and
any such event shall result in any liability which is material in relation
to the consolidated financial condition of the Borrower and its
consolidated Subsidiaries, if any;
(g) The Borrower or any of its Material Subsidiaries shall (i)
default in any payment of principal or interest in an aggregate amount of
$25,000,000 or more (or in the payment of any guarantee thereof) beyond the
period of grace, if any, provided in the instrument or agreement under
which such Indebtedness or guarantee thereof was created or (ii) default
beyond any applicable grace period in the observance or performance of any
other agreement or condition relating to any Indebtedness in an aggregate
amount of $25,000,000 or more or any guarantee thereof or contained in any
instrument or agreement evidencing, securing or relating thereto, or any
other event shall occur or condition exist, the effect of which default or
other event or condition is to cause, or to permit the holder or holders of
such Indebtedness to cause, with the giving of notice if required, such
Indebtedness to become due prior to its stated maturity; provided, however,
-------- -------
if such default shall be cured by the Borrower or any Material Subsidiary
or
<PAGE>
waived by the holders of such Indebtedness and any acceleration of maturity
having resulted from such default shall be rescinded or annulled, in each
case in accordance with the terms of such agreement or instrument, without
(i) any modification of the terms of such Indebtedness requiring the
Borrower or any such Material Subsidiary to furnish additional or other
security therefor, reducing the average life to maturity thereof or
increasing the principal amount thereof or (ii) any agreement by the
Borrower or any such Material Subsidiary to furnish additional or other
security therefor or to issue in lieu thereof Indebtedness secured by
additional or other collateral or with a shorter average life to maturity
or in a greater principal amount, then any default hereunder by reason
thereof shall be deemed likewise to have been thereupon cured or waived; or
(h) There shall have been entered by a court of competent
jurisdiction within the United States and shall not have been vacated,
discharged or stayed within sixty (60) days from the entry thereof (or such
longer period as may be provided by law) one or more final judgments or
final decrees for payment of money against the Borrower or any of its
Material Subsidiaries involving in the aggregate a liability (to the extent
not paid or covered by insurance) in excess of $25,000,000;
then, and in any such event, (A) if such event is an Event of Default specified
in paragraph (d) or (e) of this Section with respect to the Borrower,
automatically the Commitments shall immediately terminate and the Loans
hereunder (with accrued interest thereon) and all other amounts owing under this
Agreement shall immediately become due and payable, and (B) if such event is any
other Event of Default, either or both of the following actions may be taken:
(i) with the consent of the Majority Lenders, the Administrative Agent may, or
upon the request of the Majority Lenders, the Administrative Agent shall, by
notice to the Borrower declare the Commitments to be terminated forthwith,
whereupon the Commitments shall immediately terminate; and (ii) with the consent
of the Majority Lenders, the Administrative Agent may, or upon the request of
the Majority Lenders, the Administrative Agent shall, by notice to the Borrower,
declare the Loans hereunder (with accrued interest thereon) and all other
amounts owing under this Agreement to be due and payable forthwith, whereupon
the same shall immediately become due and payable. Except as expressly provided
above in this Section, presentment, demand, protest and all other notices of any
kind are hereby expressly waived.
<PAGE>
SECTION 4. THE ADMINISTRATIVE AGENT
4.1 Appointment. Each Lender hereby irrevocably designates and
-----------
appoints the Administrative Agent as the agent of such Lender under this
Agreement and the other Loan Documents, and each such Lender irrevocably
authorizes the Administrative Agent, in such capacity, to take such action on
its behalf under the provisions of this Agreement and the other Loan Documents;
and to exercise such powers and perform such duties as are expressly delegated
to the Administrative Agent by the terms of this Agreement and the other Loan
Documents, together with such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary elsewhere in this Agreement, the
Administrative Agent shall not have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with any Lender, and
no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Administrative Agent.
4.2 Delegation of Duties. The Administrative Agent may execute any
--------------------
of its duties under this Agreement and the other Loan Documents by or through
agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Administrative Agent shall
not be responsible for the negligence or misconduct of any agents or attorneys
in-fact selected by it with reasonable care.
4.3 Exculpatory Provisions. Neither the Administrative Agent nor any
----------------------
of its officers, directors, employees, agents, attorneys-in-fact or Affiliates
shall be (i) liable for any action lawfully taken or omitted to be taken by it
or such Person under or in connection with this Agreement or any other Loan
Document (except for its or such Person's own gross negligence or willful
misconduct) or (ii) responsible in any manner to any of the Lenders for any
recitals, statements, representations or warranties made by the Borrower or any
officer thereof contained in this Agreement or any other Loan Document or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Administrative Agent under or in connection with, this
Agreement or any other Loan Document or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other Loan
Document or for any failure of the Borrower to perform its obligations hereunder
or thereunder. The Administrative Agent shall not be under any obligation to
any Lender to ascertain or to inquire as to the observance or performance of any
of the agreements contained in, or conditions of, this Agreement or any other
Loan Document, or to inspect the properties, books or records of the Borrower.
4.4 Reliance by Administrative Agent. The Administrative Agent shall
--------------------------------
be entitled to rely, and shall be fully protected in relying, upon any Note,
writing, resolution, notice, consent, certificate, affidavit, letter, telecopy,
telex or teletype message, statement, order or other document or conversation
believed by it to be genuine and correct and to have been signed, sent or made
by the proper Person or Persons and upon advice and statements of legal counsel
(including, without limitation, counsel to the Borrower), independent
accountants and other experts selected by the Administrative Agent. The
Administrative Agent may deem and treat the payee of any Note as the owner
thereof for all purposes unless a written notice of assignment,
<PAGE>
negotiation or transfer thereof shall have been filed with the Administrative
Agent. The Administrative Agent shall be fully justified in failing or refusing
to take any action under this Agreement or any other Loan Document unless it
shall first receive such advice or concurrence of the Majority Lenders as it
deems appropriate or it shall first be indemnified to its satisfaction by the
Lenders against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action. The Administrative Agent
shall in all cases be fully protected in acting, or in refraining from acting,
under this Agreement and the other Loan Documents in accordance with a request
of the Majority Lenders, and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Lenders and all future holders of
the Loans.
4.5 Notice of Default. The Administrative Agent shall not be deemed
-----------------
to have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Administrative Agent has received notice from a Lender or
the Borrower referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default". In the event
that the Administrative Agent receives such a notice, the Administrative Agent
shall give notice thereof to the Lenders. The Administrative Agent shall take
such action with respect to such Default or Event of Default as shall be
reasonably directed by the Majority Lenders; provided that unless and until the
--------
Administrative Agent shall have received such directions, the Administrative
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of Default as it shall
deem advisable in the best interests of the Lenders.
4.6 Non-Reliance on Administrative Agent and Other Lenders. Each
------------------------------------------------------
Lender expressly acknowledges that neither the Administrative Agent nor any of
its officers, directors, employees, agents, attorneys-in-fact or Affiliates has
made any representations or warranties to it and that no act by the
Administrative Agent hereafter taken, including any review of the affairs of the
Borrower, shall be deemed to constitute any representation or warranty by the
Administrative Agent to any Lender. Each Lender represents to the
Administrative Agent that it has, independently and without reliance upon the
Administrative Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial and other
condition and creditworthiness of the Borrower and made its own decision to make
its Loans hereunder and enter into this Agreement. Each Lender also represents
that it will, independently and without reliance upon the Administrative Agent
or any other Lender, and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents, and to make such investigation as it deems necessary
to inform itself as to the business, operations, property, financial and other
condition and creditworthiness of the Borrower. Except for notices, reports and
other documents expressly required to be furnished to the Lenders by the
Administrative Agent hereunder, the Administrative Agent shall not have any duty
or responsibility to provide any Lender with any credit or other information
concerning the business, operations, property, condition (financial or
otherwise), prospects or creditworthiness of the Borrower which may come into
the possession of the Administrative Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates.
<PAGE>
4.7 Indemnification. The Lenders agree to indemnify the
---------------
Administrative Agent in its capacity as such (to the extent not reimbursed by
the Borrower and without limiting the obligation of the Borrower to do so),
ratably according to their respective Commitment Percentages in effect on the
date on which indemnification is sought (or, if indemnification is sought after
the date upon which the Commitments shall have terminated and the Loans shall
have been paid in full, ratably in accordance with their Commitment Percentages
immediately prior to such date), from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind whatsoever which may at any time
(including, without limitation, at any time following the payment of the Loans)
be imposed on, incurred by or asserted against the Administrative Agent in any
way relating to or arising out of, the Commitments, this Agreement, any of the
other Loan Documents or any documents contemplated by or referred to herein or
therein or the transactions contemplated hereby or thereby or any action taken
or omitted by the Administrative Agent under or in connection with any of the
foregoing; provided that no Lender shall be liable for the payment of any
--------
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting solely from the
Administrative Agent's gross negligence or willful misconduct. The agreements
in this subsection shall survive the payment of the Loans and all other amounts
payable hereunder.
4.8 Administrative Agent in Its Individual Capacity. The
-----------------------------------------------
Administrative Agent and its Affiliates may make loans to, accept deposits from
and generally engage in any kind of business with the Borrower as though the
Administrative Agent were not the Administrative Agent hereunder and under the
other Loan Documents. With respect to the Loans made by it, the Administrative
Agent shall have the same rights and powers under this Agreement and the other
Loan Documents as any Lender and may exercise the same as though it were not the
Administrative Agent, and the terms "Lender" and "Lenders" shall include the
Administrative Agent in its individual capacity.
4.9 Successor Administrative Agent. The Administrative Agent may
------------------------------
resign as Administrative Agent upon 10 days' notice to the Lenders. If the
Administrative Agent shall resign as Administrative Agent under this Agreement
and the other Loan Documents, then the Majority Lenders shall appoint from among
the Lenders a successor agent for the Lenders, which successor agent shall be
approved by the Borrower, whereupon such successor agent shall succeed to the
rights, powers and duties of the Administrative Agent, and the term
"Administrative Agent" shall mean such successor agent effective upon such
appointment and approval, and the former Administrative Agent's rights, powers
and duties as Administrative Agent shall be terminated, without any other or
further act or deed on the part of such former Administrative Agent or any of
the parties to this Agreement or any holders of the Loans. After any retiring
Administrative Agent's resignation as Administrative Agent, the provisions of
this Section 7 shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Administrative Agent under this Agreement and the
other Loan Documents.
<PAGE>
SECTION 5. MISCELLANEOUS
5.1 Amendments and Waivers. The Majority Lenders may, or, with the
----------------------
written consent of the Majority Lenders, the Administrative Agent may, from time
to time, enter into with the Borrower written amendments, supplements,
modifications or waivers hereto and to the other Loan Documents provided,
--------
however, that no such waiver and no such amendment, supplement or modification
- -------
shall (i) reduce the amount or extend the scheduled date of maturity of any
Loan, or reduce the stated rate of any interest or fee payable hereunder or
extend the scheduled date of any payment thereof or increase the amount or
extend the expiration date of any Lender's Commitment, in each case without the
consent of each Lender affected thereby, or (ii) amend, modify or waive any
provision of this subsection, the provision of Section 8.6(a) requiring the
written consent of each Lender for the assignment or transfer by the Borrower of
its rights and obligations under this Agreement, or reduce the percentage
specified in the definition of Majority Lenders, in each case without the
written consent of all the Lenders, or (iii) amend, modify or waive any
provision of Section 7 without the written consent of the then Administrative
Agent.
5.2 Notices. All notices, requests and demands to or upon the
-------
respective parties hereto to be effective shall be in writing (including by
facsimile transmission) and, unless otherwise expressly provided herein, shall
be deemed to have been duly given or made (a) in the case of delivery by hand,
when delivered, (b) in the case of delivery by mail, 5 days after being
deposited in the mails, postage prepaid, or (c) in the case of delivery by
facsimile transmission, when sent and receipt has been confirmed, addressed as
follows in the case of the Borrower and the Administrative Agent, and, in the
case of the other parties hereto, as set forth on the signature page of such
other parties hereto, or to such other address as may be hereafter notified by
the respective parties hereto:
The Borrower: Treasurer
Virginia Electric and Power Company
701 E. Cary Street
P.O. Box 26666
Richmond, VA 23261
Fax: (804) 771-4066
The Administrative Agent: The Chase Manhattan Bank
270 Park Avenue
New York, New York 10017
Attention: Paul Farrell
Fax: 212-270-3089
with a copy to: The Chase Manhattan Bank
Agency Bank Services
One Chase Manhattan Plaza
New York, New York
<PAGE>
provided that any notice, request or demand to or upon the Administrative Agent
- --------
or the Lenders pursuant to subsection 2.2, 2.4, 2.6, 2.7, 2.10 or 2.14 shall not
be effective until received.
5.3 No Waiver; Cumulative Remedies. No failure to exercise and no
------------------------------
delay in exercising, on the part of the Administrative Agent or any Lender, any
right, remedy, power or privilege hereunder or under the other Loan Documents
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
The rights, remedies, powers and privileges herein provided are cumulative and
not exclusive of any rights, remedies, powers and privileges provided by law.
5.4 Survival. All representations and warranties made hereunder, in
--------
the other Loan Documents and in any document, certificate or statement delivered
pursuant hereto or in connection herewith or therewith shall survive the
execution and delivery of this Agreement and the making of the Loans hereunder.
5.5 Payment of Expenses. The Borrower agrees (a) to pay or reimburse
-------------------
the Administrative Agent for all its reasonable out-of-pocket costs and expenses
incurred in connection with the development, preparation and execution of, and
any amendment, supplement or modification to, this Agreement and the other Loan
Documents including, without limitation, the reasonable fees and disbursements
of counsel to the Administrative Agent, (b) to pay or reimburse each Lender and
the Administrative Agent for all its costs and expenses incurred in connection
with the enforcement or preservation of any rights under this Agreement or the
other Loan Documents including, without limitation, the fees and disbursements
of counsel (and the allocated fees and expenses of in-house counsel) to each
Lender and of counsel to the Administrative Agent and (c) to pay, indemnify, and
hold each Lender and the Administrative Agent harmless from and against any and
all other liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever with respect to the execution, delivery, enforcement, performance and
administration of this Agreement and the other Loan Documents (all the foregoing
in this clause (c), collectively, the "indemnified liabilities"), provided, that
--------
the Borrower shall have no obligation hereunder to the Administrative Agent or
any Lender with respect to indemnified liabilities arising from the gross
negligence or willful misconduct of the Administrative Agent or any such Lender
or the failure of the Administrative Agent or any such Lender to comply with
this Agreement. The agreements in this subsection shall survive repayment of
the Loans and all other amounts payable hereunder.
5.6 Transfer Provisions. (a) Successors and Assigns. This Agreement
------------------- ----------------------
shall be binding upon and inure to the benefit of the Borrower, the Lenders, the
Administrative Agent and their respective successors and assigns, except that
the Borrower may not assign or transfer any of its rights or obligations under
this Agreement without the prior written consent of each Lender.
<PAGE>
(b) Participations. Any Lender may, in the ordinary course of its
--------------
commercial banking business and in accordance with applicable law, at any time
sell to one or more banks or other entities ("Participants") participating
------------
interests in any Loan owing to such Lender, any Commitment of such Lender or any
other interest of such Lender hereunder and under the other Loan Documents. In
the event of any such sale by a Lender of a participating interest to a
Participant, such Lender's obligations under this Agreement to the other parties
to this Agreement shall remain unchanged, such Lender shall remain solely
responsible for the performance thereof, such Lender shall remain the holder of
any such Loan for all purposes under this Agreement and the other Loan
Documents, and the Borrower and the Administrative Agent shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and the other Loan Documents.
(c) Assignments. Any Lender may, in the ordinary course of its
-----------
commercial banking business and in accordance with applicable law, at any time
and from time to time assign to any Lender or any affiliate thereof or, with the
consent of the Borrower and the Administrative Agent (which in each case shall
not be unreasonably withheld), to an additional bank or financial institution
("an Assignee") all or any part of its rights and obligations under this
--------
Agreement and the other Loan Documents pursuant to an Assignment and Acceptance,
substantially in the form of Exhibit E, executed by such Assignee, such
assigning Lender (and, in the case of an Assignee that is not then a Lender or
an affiliate thereof, by the Borrower and the Administrative Agent) and
delivered to the Administrative Agent for its acceptance and recording in the
Register, provided that, (i) in the case of any such assignment to an additional
--------
bank or financial institution, the sum of the aggregate principal amount of the
Commitment being assigned shall not be less than $10,000,000 (or such lesser
amount as may be agreed to by the Borrower and the Administrative Agent) and
(ii) any such assignment may, but need not, include rights of the assigning
Lender in respect of Competitive Loans. Upon such execution, delivery,
acceptance and recording, from and after the effective date determined pursuant
to such Assignment and Acceptance, (x) the Assignee thereunder shall be a party
hereto and, to the extent provided in such Assignment and Acceptance, have the
rights and obligations of a Lender hereunder with a Commitment as set forth
therein, and (y) the assigning Lender thereunder shall, to the extent provided
in such Assignment and Acceptance, be released from its obligations under this
Agreement (and, in the case of an Assignment and Acceptance covering all or the
remaining portion of an assigning Lender's rights and obligations under this
Agreement, such assigning Lender shall cease to be a party hereto).
(d) The Register. The Administrative Agent, on behalf of the
------------
Borrower, shall maintain at the address of the Administrative Agent referred to
in subsection 8.2 a copy of each Assignment and Acceptance delivered to it and a
register (the "Register") for the recordation of the names and addresses of the
--------
Lenders and the Commitment of, and principal amounts of the Loans owing to, each
Lender from time to time. The entries in the Register shall be conclusive, in
the absence of manifest error, and the Borrower, the Administrative Agent and
the Lenders may (and, in the case of any Loan or other obligation hereunder not
evidenced by a Note, shall) treat each Person whose name is recorded in the
Register as the owner of a Loan or other obligation hereunder as the owner
thereof for all purposes of this Agreement and the other Loan Documents,
notwithstanding any notice to the contrary. Any assignment of any Loan or other
<PAGE>
obligation hereunder not evidenced by a Note shall be effective only upon
appropriate entries with respect thereto being made in the Register. The
Register shall be available for inspection by the Borrower or any Lender at any
reasonable time and from time to time upon reasonable prior notice.
(e) Recordation. Upon its receipt of an Assignment and Acceptance
-----------
executed by an assigning Lender and an Assignee (and, in the case of an Assignee
that is not then a Lender or an affiliate thereof, by the Borrower and the
Administrative Agent) together with payment by the Assignee or the Assignor (or,
in the event of a replacement of a Lender pursuant to subsection 2.20, the
replacement Lender) to the Administrative Agent of a registration and processing
fee of $1,500, the Administrative Agent shall (i) promptly accept such
Assignment and Acceptance and (ii) on the effective date determined pursuant
thereto record the information contained therein in the Register and give notice
of such acceptance and recordation to the Lenders and the Borrower.
(f) Disclosure. The Borrower authorizes each Lender to disclose to
----------
any Participant or Assignee (each, a "Transferee") and any prospective
----------
Transferee, any and all financial information in such Lender's possession
concerning the Borrower and its Subsidiaries, which has been delivered to such
Lender by or on behalf of the Borrower pursuant to this Agreement or which has
been delivered to such Lender by or on behalf of the Borrower in connection with
such Lender's credit evaluation of the Borrower and its Subsidiaries prior to
becoming a party to this Agreement.
(g) Pledges. For avoidance of doubt, the parties to this Agreement
-------
acknowledge that the provisions of this subsection concerning assignments of
Loans and Notes relate only to absolute assignments and that such provisions do
not prohibit assignments creating security interests, including, without
limitation, any pledge or assignment by a Lender of any Loan or Note to any
Federal Reserve Bank in accordance with applicable law.
5.7 Adjustments. If any Lender (a "benefitted Lender") shall at any
----------- -----------------
time receive any payment of all or part of its Loans, or interest thereon, or
receive any collateral in respect thereof (whether voluntarily or involuntarily,
by set-off, pursuant to events or proceedings of the nature referred to in
Section 6(d) or (e), or otherwise), in a greater proportion than any such
payment to or collateral received by any other Lender, if any, in respect of
such other Lender's Loans that are then due and payable, or interest thereon,
such benefitted Lender shall purchase for cash from the other Lenders a
participating interest in such portion of each such other Lender's Loans, or
shall provide such other Lenders with the benefits of any such collateral, or
the proceeds thereof, as shall be necessary to cause such benefitted Lender to
share the excess payment or benefits of such collateral or proceeds ratably with
each of the Lenders; provided, however, that if all or any portion of such
-------- -------
excess payment or benefits is thereafter recovered from such benefitted Lender,
such purchase shall be rescinded, and the purchase price and benefits returned,
to the extent of such recovery, but without interest.
5.8 Counterparts. This Agreement may be executed by one or more of
------------
the parties to this Agreement on any number of separate counterparts (including
by facsimile transmission),
<PAGE>
and all of said counterparts taken together shall be deemed to constitute one
and the same instrument. A set of the copies of this Agreement signed by all the
parties shall be lodged with the Borrower and the Administrative Agent.
5.9 Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
5.10 Integration. This Agreement and the other Loan Documents
-----------
represent the agreement of the Borrower, the Administrative Agent and the
Lenders with respect to the subject matter hereof, and there are no promises,
undertakings, representations or warranties by the Administrative Agent or any
Lender relative to subject matter hereof not expressly set forth or referred to
herein or in the other Loan Documents.
5.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
-------------
THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
5.12 WAIVERS OF JURY TRIAL. THE BORROWER, THE ADMINISTRATIVE AGENT
---------------------
AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN
ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT.
5.13 Confidentiality. Each Lender agrees to keep confidential any
---------------
written or oral information (a) provided to it by or on behalf of the Borrower
pursuant to or in connection with this Agreement or (b) obtained by such Lender
based on a review of the books and records of the Borrower; provided that
--------
nothing herein shall prevent any Lender from disclosing any such information (i)
to its affiliates, the Administrative Agent or any other Lender, (ii) to any
Transferee which agrees to comply with the provisions of this subsection, (iii)
to its employees, directors, agents, attorneys, accountants and other
professional advisors, (iv) upon the request or demand of any Governmental
Authority having jurisdiction over such Lender, (v) in response to any order of
any court or other Governmental Authority or as may otherwise be required
pursuant to any Requirement of Law, (vi) which has been publicly disclosed other
than in breach of this Agreement, or (vii) in connection with the exercise of
any remedy hereunder. In the event that a Lender determines to disclose
information pursuant to clause (v) of this subsection 8.13, such Lender will, to
the extent permitted by applicable law, notify the Borrower prior to disclosing
such information.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
VIRGINIA ELECTRIC AND POWER COMPANY
By:____________________________
Name:
Title:
<PAGE>
THE CHASE MANHATTAN BANK,
as Administrative Agent and as a Lender
By:______________________________
Name:
Title:
Commitment:
SIGNATURE PAGE TO 364-DAY CREDIT AGREEMENT WITH
VIRGINIA ELECTRIC AND POWER COMPANY
<PAGE>
FIRST UNION NATIONAL BANK,
as a Lender
By:__________________________
Name:
Title:
Address for notices:
For overnight delivery:
901 East Cary Street, 2nd Floor
Richmond, Virginia 23219
Attention:
Facsimile:
For U.S. mail:
Post Office Box 26944
Richmond, Virginia 23261
Attention:
Facsimile:
Commitment:
SIGNATURE PAGE TO 364-DAY CREDIT AGREEMENT WITH
VIRGINIA ELECTRIC AND POWER COMPANY
<PAGE>
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, as a Lender
By:__________________________________
Name:
Title:
Address for notices:
500 Stanton-Christiana Road
Newark, DE 19713
Attention:
Facsimile:
Commitment:
<PAGE>
NATIONSBANK, N.A.,
as a Lender
By:______________________________
Name: Gretchen P. Burud
Title: Vice President
Address for notices:
100 North Tryon, 8th Floor
Charlotte, NC 28255
Attention:
Facsimile:
Commitment:
SIGNATURE PAGE TO 364-DAY CREDIT AGREEMENT WITH
VIRGINIA ELECTRIC AND POWER COMPANY
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO,
as a Lender
By:_______________________________
Name:
Title:
Address for notices:
One First National Plaza
Chicago, IL 60670
Attention:
Facsimile:
Commitment: $15,000,000
SIGNATURE PAGE TO 364-DAY CREDIT AGREEMENT WITH
VIRGINIA ELECTRIC AND POWER COMPANY
<PAGE>
THE SUMITOMO BANK, LIMITED, as a Lender
By:______________________________________
Name:
Title:
Address for notices:
277 Park Avenue
New York, New York 10172
Attention:
Facsimile:
Commitment: 12,000,000
SIGNATURE PAGE TO 364-DAY CREDIT AGREEMENT WITH
VIRGINIA ELECTRIC AND POWER COMPANY
<PAGE>
WACHOVIA BANK, N.A.,
as a Lender
By:________________________________
Name: Diana H. Davis
Title: Assistant Vice President
Address for notices:
100 North Main Street
Winston Salem, NC 27101
Attention:
Facsimile:
Commitment:
SIGNATURE PAGE TO 364-DAY CREDIT AGREEMENT WITH
VIRGINIA ELECTRIC AND POWER COMPANY
<PAGE>
ABN AMRO BANK N.V. (NEW YORK
BRANCH), as a Lender
By:_________________________________
Name:
Title:
By:_________________________________
Name:
Title:
Address for notices:
500 Park Avenue
New York, NY 10022
Attention:
Facsimile:
Commitment:
<PAGE>
THE BANK OF NOVA SCOTIA,
as a Lender
By:_________________________________
Name:
Title:
Address for notices:
One Liberty Plaza
New York, New York 10006
Attention:
Facsimile:
Commitment:
<PAGE>
CRESTAR BANK,
as a Lender
By:_______________________________
Name:
Title:
Address for notices:
919 East Main Street
Richmond, VA 23219
Attention:
Facsimile:
Commitment:
<PAGE>
BAYERISCHE LANDESBANK GIROZENTRALE,
as a Lender
By:_______________________________
Name:
Title:
Address for notices:
560 Lexington Avenue
New York, NY 10022
Commitment:
<PAGE>
MELLON BANK, N.A.,
as a Lender
By:_______________________________
Name:
Title:
Address for notices:
One Mellon Bank Centre
Pittsburgh, PA 15258-001
Commitment:
<PAGE>
FLEET NATIONAL BANK
as a lender
By:____________________________________
Name:
Title:
Address for notices:
1 Federal Street
Boston, MA 02110
<PAGE>
WESTDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH,
as a Lender
By:__________________________________
Name:
Title:
Address for notices:
1211 Avenue of the Americas
New York, NY 10036
Commitment:
<PAGE>
SCHEDULE I
FACILITY FEE/APPLICABLE MARGIN
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Senior Secured Level 1 Level 2 Level 3 Level 4 Level 5
Ratings S&P/Moody's A/A2 or BBB/Baa2
- ------------------- higher A-/A3 BBB+/Baa1 -------- BBB-/Baa3 or lower
------ ----- --------- ------------------
- ---------------------------------------------------------------------------------------------------------------
Facility Fee Rate* 0.07% 0.09% 0.10% 0.15% 0.20%
- ---------------------------------------------------------------------------------------------------------------
Applicable Margins* 0.23% 0.235% 0.275% 0.275% 0.425%
LIBOR 0.355% 0.36% 0.40% 0.40% 0.55%
CD Rate 0.0% 0.0% 0.0% 0.0% 0.0%
ABR
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
* In the event such ratings fall within different Levels, the foregoing will
be based on the Level with the highest rating (i.e., the lower Level
----
number), except that in the event that the lower of such ratings is more
------
than one Level below the higher of such ratings, the Facility Fee Rate and
the Applicable Margin will be determined based on the Level one Level above
the lower of such ratings. In the event that there is no Moody's Bond
Rating or S&P Bond Rating available (other than due to both Moody's
Investor Services, Inc. and Standard & Poor's Ratings Group ceasing to be
engaged in the business of rating corporate debt securities), then the
Facility Fee Rate and the Applicable Margin will be determined based on
Level 5. In the event that both Moody's Investor Services, Inc. and
Standard & Poor's Ratings Group cease to be engaged in the business of
rating corporate debt securities, the parties hereto agree to negotiate in
good faith to establish on an equitable basis new Facility Fee Rates and
Applicable Margins. If on any day the aggregate principal amount of the
Loans outstanding on such day is greater than 50% of the aggregate amount
of the Commitments in effect on such date, the Applicable Margin in effect
on such day for LIBOR and CD Rate shall be increased by 0.10%.
<PAGE>
SCHEDULE II
PERMITTED GUARANTEE OBLIGATIONS
1. Guarantee Agreement between Virginia Electric and Power Company and The Chase
Manhattan Bank dated August 31, 1995.
<PAGE>
Exhibit 10.19
DRI Services Agreement
This DRI Services Agreement (this "Agreement") is entered into as of the
1st day of January, 1999, by and between VIRGINIA ELECTRIC AND POWER COMPANY, a
Virginia public service (the "Company"), DOMINION RESOURCES SERVICES, INC., a
Virginia corporation, ("DRI Services"), and CONSOLIDATED NATURAL GAS SERVICE
COMPANY, INC., a Delaware corporation ("CNG Services"). DRI Services and CNG
Services are sometimes referred to herein as a "Service Company" and,
collectively, as the "Service Companies".
WHEREAS, each of the Company, DRI Services and CNG Services is a direct or
indirect wholly owned subsidiary of Dominion Resources, Inc. ("DRI");
WHEREAS, each of the Service Companies has been formed for the purpose of
providing administrative, management and other services to DRI and its
subsidiaries ("System Companies"); and
WHEREAS, the Company believes that it is in the interest of the Company to
provide for an arrangement whereby the Company may, from time to time and at the
option of the Company, agree to purchase such administrative, management and
other services from either one or both of the Service Companies;
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, hereby
agree as follows:
I. SERVICES OFFERED. Exhibit I hereto lists and describes all of the
----------------
services that are available from either of the Service Companies. Each of the
Service Companies hereby offers to supply those services to Company and to other
subsidiaries of DRI. Such services are and will be provided to the Company only
at the request of the Company.
II. SERVICES SELECTED.
-----------------
A. Initial Selection of Services. Exhibit II lists the services Company
hereby agrees to receive from DRI Services. Exhibit III lists the services
Company hereby agrees to receive from CNG Services.
B. Annual Selection of Services. Each Service Company shall send an
annual service proposal form to the Company on or about December 1 listing
services proposed for the coming calendar year. By December 31, the Company
shall notify each Service Company of the services it has elected to receive from
that Service Company during the following calendar year.
<PAGE>
III. PERSONNEL. The Service Companies will provide services by utilizing
---------
the services of such executives, accountants, financial advisers, technical
advisers, attorneys, engineers, geologists and other persons as have the
necessary qualifications.
If necessary, the Service Companies, after consultation with the Company,
may also arrange for the services of nonaffiliated experts, consultants and
attorneys in connection with the performance of any of the services supplied
under this Agreement.
IV. COMPENSATION AND ALLOCATION. As and to the extent required by law, the
---------------------------
Service Companies will provide such services at cost. Exhibit IV hereof contains
rules for determining and allocating costs for DRI Services and CNG Services.
V. TERMINATION AND MODIFICATION.
----------------------------
A. Modification of Services. The Company may modify its selection of
services at any time during the calendar year by giving the relevant Service
Company written notice of the additional services it wishes to receive, and/or
the services it no longer wishes to receive, from the Service Company. The
requested modification in services shall take effect on the first day of the
first calendar month beginning at least thirty (30) days after the Company sent
written notice to the Service Company.
B. Modification of Other Terms and Conditions. No other amendment,
change or modification of this Agreement shall be valid, unless made in writing
and signed by all parties hereto.
C. Termination of this Agreement. The Company may terminate this
Agreement as to either or both of the Service Companies by providing sixty (60)
days advance written notice of such termination to the applicable Service
Company or Companies. Either Service Company may terminate this Agreement as to
the Company by providing sixty (60) days advance written notice of such
termination to the Company. The parties expressly agree that termination of this
Agreement by the Company as to one of the Service Companies shall not constitute
a termination of this Agreement with respect to the other Service Company and
that termination of this Agreement by either Service Company shall not affect
the obligations of the other Service Company hereunder to the Company.
This Agreement is subject to termination or modification at any time to the
extent its performance may conflict with the provisions of the Public Utility
Holding Company Act of 1935, as amended ("1935 Act), or with any rule,
regulation or order of the Securities and Exchange Commission ("SEC") adopted
before or after the making of this Agreement. This Agreement shall be subject to
the approval of any state commission or other state regulatory body whose
approval is, by the laws of said state, a legal prerequisite to the execution
and delivery or the performance of this Agreement.
2
<PAGE>
VI. NOTICE. Where written notice is required by this Agreement, said
------
notice shall be deemed given when mailed by United States registered or
certified mail, postage prepaid, return receipt requested, addressed as follows:
a. To the Company:
Virginia Electric and Power Company
701 East Cary Street
Richmond, VA 23219-3932
b. To DRI Services:
Dominion Resources Services, Inc.
120 Tredegar Street
Richmond, VA 23219
c. To CNG Services:
Consolidated Natural Gas Service Company, Inc.
CNG Tower
625 Liberty Avenue
Pittsburgh, PA 15222-3199
VII. GOVERNING LAW. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the respective states of incorporation of the
Service Companies, without regard to their respective conflict of laws
provisions.
VIII. ENTIRE AGREEMENT. This Agreement, together with its exhibits,
----------------
constitutes the entire understanding and agreement of the parties with respect
to its subject matter, and effective upon the execution of this Agreement by the
respective parties hereof and thereto, any and all prior agreements,
understandings or representations with respect to this subject matter (except
for completion of obligations of CNG Services and Consolidated Natural Gas
Company ("CNG") and its subsidiaries arising before the merger of DRI and CNG
became effective) are hereby terminated and canceled in their entirety and are
of no further force or effect.
IX. WAIVER. No waiver by any party hereto of a breach of any provision of
------
this Agreement shall constitute a waiver of any preceding or succeeding breach
of the same or any other provision hereof.
X. ASSIGNMENT. This Agreement shall inure to the benefit of and shall be
----------
binding upon the parties and their respective successors and assigns. No
assignment of this Agreement or any party's rights, interests or obligations
hereunder may be made without the other party's consent, which shall not be
unreasonably withheld, delayed or conditioned.
3
<PAGE>
XI. SEVERABILITY. If any provision or provisions of this Agreement shall
------------
be held to be invalid, illegal, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall in no way be affected or
impaired thereby.
XII. EFFECTIVE DATE. This Agreement is effective as to DRI and its
--------------
subsidiaries, including DRI Services, as of January 1, 2000 and is effective as
to Consolidated Natural Gas Company ("CNG") and its subsidiaries, including CNG
Services, as of the closing of the proposed merger between DRI and CNG.
XIII. VSCC APPROVAL. Pursuant to the Virginia State Corporation
-------------
Commission's Order Approving Merger in Joint Petition of Dominion Resources,
Inc. and Consolidated Natural Gas Company, For approval of agreement and plan of
merger under Chapter 5 of Title 56 of the Code of Virginia, Case No. PUA990020,
issued on September 17, 1999, neither Virginia Power, Virginia Natural Gas, Inc.
nor any other DRI affiliate subject to regulation by the Commission shall have
any obligation under this Agreement except to the extent the Commission has
approved such obligation.
XIV. NCUC APPROVAL. Pursuant to the North Carolina Utilities Commission's
-------------
("NCUC") Order Approving Merger In the Matter of Application by Dominion
Resources, Inc., for Authorization under G.S. 62-111 to Engage in a Business
Combination Transaction, Docket No. E-22, Sub 380, issued on October 18, 1999,
Virginia Electric and Power Company, d/b/a North Carolina Power:
(i) may not make or incur a charge under this Agreement except in
accordance with North Carolina law and the rules, regulations
and orders of the NCUC promulgated thereunder; and
(ii) may not seek to reflect in rates any cost incurred or revenue
level earned under an agreement subject to the 1935 Act to the
extent disallowed by the NCUC.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above mentioned.
Attest: By Company:
_____________________________ _______________________________________
_______________________________________
4
<PAGE>
Attest: By DRI Services:
_____________________________ _______________________________________
_______________________________________
Attest: By CNG Services:
_____________________________ _______________________________________
_______________________________________
5
<PAGE>
EXHIBIT I
DESCRIPTION OF SERVICES OFFERED BY EACH
SERVICE COMPANY UNDER THIS AND SIMILAR SERVICE CONTRACTS
1. Accounting. Provide advice and assistance to System Companies in
----------
accounting matters, including the development of accounting practices,
procedures and controls, the maintenance of the general ledger and related
subsidiary systems, the preparation and analysis of financial reports, and the
processing of certain accounts such as accounts payable, payroll, customer and
cash management.
2. Auditing. Periodically audit the accounting records and other
--------
records maintained by System Companies and coordinating their examination, where
applicable, with that of independent public accountants. The audit staff will
report on their examination and submit recommendations, as appropriate, on
improving methods of internal control and accounting procedures.
3. Legal and Regulatory. Provide advice and assistance with respect
--------------------
to legal and regulatory issues as well as regulatory compliance, including 1935
Act authorizations and compliance and regulatory matters under other Federal and
State laws.
4. Information Technology, Electronic Transmission and Computer
------------------------------------------------------------
Services. Provide the organization and resources for the operation of an
- --------
information technology function including the development, implementation and
operation of a centralized data processing facility and the management of a
telecommunications network. This function includes the central processing of
computerized applications and support of individual applications in System
Companies. Develop, implement, and process those computerized applications for
System Companies that can be economically best accomplished on a centralized
basis.
5. Software Pooling. Accept from System Companies ownership of and
----------------
rights to use, assign, license or sub-license all software owned, acquired or
developed by or for System Companies which System Companies can and do transfer
or assign to it. Preserve and protect the rights to all such software to the
extent reasonable and appropriate under the circumstances; license System
Companies, on a non-exclusive, no-charge or at-cost basis, to use all software
which the relevant Service Company has the right to sell, license or sub-
license; and, at the relevant System Companies' expense, permit System Companies
to enhance any such software and license others to use all such software and
enhancements to the extent that the relevant Service Companies shall have the
legal right to so permit.
<PAGE>
6. Employee Benefits/Pension Investment. Provide central accounting
------------------------------------
for employee benefit and pension plans of System Companies. Advise and assist
System Companies in the administration of such plans and prepare and maintain
records of employee and company accounts under the said plans, together with
such statistical data and reports as are pertinent to the plans.
7. Employee Relations. Advise and assist System Companies in the
------------------
formulation and administration of employee relations policies and programs
relating to the relevant System Companies' labor relations, personnel
administration, training, wage and salary administration and safety.
8. Operations. Advise and assist System Companies in the study,
----------
planning, engineering and construction of energy plant facilities of each System
Company and of the System as a whole, and advise, assist and manage the
planning, engineering (including maps and records) and construction operations
of System Companies. Develop long-range operational programs for all the System
Companies and advise and assist each such System Company in the coordination of
such programs with the programs of the other System Companies.
9. Executive and Administrative. Advise and assist System Companies
----------------------------
in the solution of major problems and in the formulation and execution of the
general plans and policies of System Companies. Advise and assist System
Companies as to operations, the issuance of securities, the preparation of
filings arising out of or required by the various Federal and State securities,
business, public utilities and corporation laws, the selection of executive and
administrative personnel, the representation of System Companies before
regulatory bodies, proposals for capital expenditures, budgets, financing,
acquisition and disposition of properties, expansion of business, rate
structures, public relationships and other related matters.
10. Business and Operations Services. Advise and assist System
--------------------------------
Companies in all matters relating to operational capacity and the preparation
and coordination of operating studies. Manage System Companies' purchase, sale,
movement, transfer and accounting of volumes to ensure continued recovery of all
prudently incurred energy purchase costs through local jurisdictional cost
recovery mechanisms. Compile and communicate information relevant to system
operation. Perform general business and operations support services, including
business, plant and facilities operation, maintenance and management, travel,
aviation, fleet and mail services.
11. Exploration and Development. Advise and assist System Companies
---------------------------
in all geological and exploration matters including the acquisition and
surrender of acreage and the development of underground storage facilities.
12. Risk Management. Advise and assist System Companies in securing
---------------
requisite insurance, in the purchase and administration of all property,
casualty and marine insurance, in the settlement of insured claims and in
providing risk prevention advice.
2
<PAGE>
13. Marketing. Plan, formulate and implement marketing programs, as
---------
well as provide associated marketing services to assist System Companies with
improving customer satisfaction, load retention and shaping, growth of energy
sales and deliveries, energy conservation and efficiency. Assist System
Companies in carrying out policies and programs for the development of plant
locations and of industrial, commercial and wholesale markets and assist with
community redevelopment and rehabilitation programs.
14. Medical. Direct and administer all medical and health activities
-------
of System Companies. Provide systems of physical examination for employment and
other purposes and direct and administer programs for the prevention of
sickness.
15. Corporate Planning. Advise and assist System Companies in
------------------
studying and planning in connection with operations, budgets, economic
forecasts, capital expenditures and special projects.
16. Procurement. Advise and assist System Companies in the
-----------
procurement of real and personal property, materials, supplies and services,
conduct purchase negotiations, prepare procurement agreements and administer
programs of material control.
17. Rates. Advise and assist System Companies in the analysis of
-----
their rate structure in the formulation of rate policies and in the negotiation
of large contracts. Advise and assist System Companies in proceedings before
regulatory bodies involving the rates and operations of System Companies and of
other competitors where such rates and operations directly or indirectly affect
System Companies.
18. Research. Investigate and conduct research into problems
--------
relating to production, utilization, testing, manufacture, transmission, storage
and distribution of energy. Keep abreast of and evaluate for System Companies
all research developments and programs of significance affecting System
Companies and the energy industry, conduct research and development in promising
areas and advise and assist in the solution of technical problems arising out of
System Companies' operations.
19. Tax. Advise and assist System Companies in the preparation of
---
Federal and other tax returns, and generally advise System Companies as to any
problems involving taxes including the provision of due diligence in connection
with acquisitions.
20. Corporate Secretary. Provide all necessary functions required of
-------------------
a publicly held corporation; coordinating information and activities among
shareholders, the transfer agent, and Board of Directors; providing direct
services to security holders; preparing and filing required annual and interim
reports to shareholders and the SEC; conducting the annual meeting of
shareholders and ensuring proper maintenance of corporate records.
21. Investor Relations. Provide fair and accurate analysis of DRI
------------------
and its operating subsidiaries and its outlook within the financial community,
enhancing DRI's
3
<PAGE>
position in the energy industry; balancing and diversifying shareholder
investment in DRI through a wide range of activities; providing feedback to DRI
and its operating subsidiaries regarding investor concerns, trading and
ownerships; holding periodic analysts meetings; and providing various operating
data as requested or required by investors.
22. Environmental Compliance. Provide consulting, cleanup, and other
------------------------
activities as required by System Companies to ensure full compliance with
applicable environmental statutes and regulations.
23. Customer Services. Provide services and systems dedicated to
-----------------
customer service, including billing, remittance, credit, collections, customer
relations, call centers, energy conservation support and metering.
24. Energy Marketing. Provide services and systems dedicated to
----------------
energy marketing, including marketing and trading of gas and electric power, and
energy price risk management and development of marketing and sales programs in
physical and financial markets.
25. Treasury/Finance. Provide services related to managing all
----------------
administrative activities associated with financing, including management of
capital structure; cash, credit and risk management activities; investment and
commercial banking relationships; oversight of decommissioning trust funds and
general financing activities.
26. External Affairs. Provide services in support of corporation
----------------
strategies for managing relationships with federal, state and local governments,
agencies and legislative bodies. Formulate and assist with public relations and
communications programs and administration of corporate contribution and
community affairs programs.
4
<PAGE>
EXHIBIT II
SERVICES THE COMPANY AGREES TO RECEIVE FROM DRI SERVICES
SERVICE YES NO
1. Accounting __ __
2. Auditing __ __
3. Legal and Regulatory __ __
4. Information Technology, Electronic Transmission
and Computer Services __ __
5. Software Pooling __ __
6. Employee Benefits/Pension Investment __ __
7. Employee Relations __ __
8. Operations __ __
9. Executive and Administrative __ __
10. Business and Operations Services __ __
11. Exploration and Development __ __
12. Risk Management __ __
13. Marketing __ __
14. Medical __ __
15. Corporate Planning __ __
16. Procurement __ __
17. Rates __ __
18. Research __ __
19. Tax __ __
20. Corporate Secretary __ __
21. Investor Relations __ __
22. Environmental Compliance __ __
23. Customer Services __ __
24. Energy Marketing __ __
25. Treasury/Finance __ __
26. External Affairs __ __
<PAGE>
EXHIBIT III
SERVICES THE COMPANY AGREES TO RECEIVE FROM CNG SERVICES
SERVICE YES NO
1. Accounting __ __
2. Auditing __ __
3. Legal and Regulatory __ __
4. Information Technology, Electronic Transmission
and Computer Services __ __
5. Software Pooling __ __
6. Employee Benefits/Pension Investment __ __
7. Employee Relations __ __
8. Operations __ __
9. Executive and Administrative __ __
10. Business and Operations Services __ __
11. Exploration and Development __ __
12. Risk Management __ __
13. Marketing __ __
14. Medical __ __
15. Corporate Planning __ __
16. Procurement __ __
17. Rates __ __
18. Research __ __
19. Tax __ __
20. Corporate Secretary __ __
21. Investor Relations __ __
22. Environmental Compliance __ __
23. Customer Services __ __
24. Energy Marketing __ __
25. Treasury/Finance __ __
26. Public Affairs __ __
<PAGE>
EXHIBIT IV
METHODS OF ALLOCATION FOR CNG SERVICES AND DRI SERVICES
CNG Services and DRI Services shall allocate costs independently. Each Service
Company shall allocate costs among companies receiving service from it under
this and similar service contracts using the following methods:
I. The costs of rendering service by the Service Company will include all
costs of doing business including interest on debt but excluding a return
for the use of equity capital for which no charge will be made to System
Companies.
II. A. The Service Company will maintain a separate record of the expenses of
each department. The expenses of each department will include:
1. those expenses that are directly attributable to such department,
and
2. an appropriate portion of those office and housekeeping expenses
that are not directly attributable to a department but which are
necessary to the operation of such department.
B. Expenses of the department will include salaries and wages of
employees, rent and utilities, materials and supplies, depreciation,
and all other expenses attributable to the department. The expenses of
a department will not include:
1. those incremental out-of-pocket expenses that are incurred for
the direct benefit and convenience of an individual company or
group of companies,
2. Service Company overhead expenses, including expenses of the
corporate secretary's department that are attributable to
maintaining the corporate existence of the Service Company, and
all other incidental overhead expenses including those auditing
fees, internal auditing department expenses and accounting
department expenses attributable to the Service Company.
C. The Service Company will establish annual budgets for controlling the
expenses of each department and for determining estimated costs to be
included in interim monthly billing.
III. A. Employees in each department will be divided into two groups:
<PAGE>
1. Group A will include those employees rendering service to System
Companies, and
2. Group B will include those office and general service employees,
such as secretaries, file clerks and administrative assistants,
-----------------------------
who generally assist employees in Group A or render other
housekeeping services and who are not engaged directly in
rendering service to each Company or a group of companies.
B. Expenses set forth in Section II. above will be separated to show:
1. salaries and wages of Group A employees, and
2. all other expenses of the department.
C. There will be attributed to each dollar of a Group A employee's salary
or wage, that percentage of all other expenses of his department (as
defined in B above), that his salary or wage is to the total Group A
salaries and wages of that department.
D. Group A employees in each department will maintain a record of the
time they are employed in rendering service to each company or group
of companies. An hourly rate will be determined by dividing the total
expense attributable to a Group A employee as determined under
subsection C above by the productive hours reported by such employee.
IV. The charge to the Company for a particular service will be determined by
multiplying the hours reported by Group A employees in rendering such
service to each Company by the hourly rates applicable to such employees.
When such employees render service to a group of companies, the charge to
each Company will be determined by multiplying the hours attributable to
the Company under the allocation formulas set forth in Section IX of this
Exhibit by the hourly rates applicable to such employees.
V. To the extent appropriate and practical, the foregoing computations of
hourly rates and charges may be determined for groups of employees within
reasonable salary range limits.
VI. Those expenses of the Service Company that are not included in the annual
expense of a department under Section II. above will be charged to System
Companies receiving service as follows:
A. Incremental out-of-pocket costs incurred for the direct benefit and
convenience of a company or group of companies will be charged
directly to such company or group of companies. Such costs incurred
for a group of companies will be allocated on the basis of an
appropriate formula.
2
<PAGE>
B. Service Company overhead expenses referred to in Section II. above
will be charged to the Company in the proportion that the charges
made to the Company for costs, other than those set forth in this
Section VI., are to the total of such charges to all companies
receiving service.
VII. Notwithstanding the foregoing basis of determining cost allocations for
billing purposes, cost allocations for certain services involving machine
operations and production units will be determined on an appropriate
basis established by the Service Company relating to the direct use of
machine equipment or production units .
VIII. Monthly bills will be issued for the services rendered to the Company on
an actual or estimated basis. Estimates will normally be predicated on
service department budgets and estimated productive hours of employees
for the year. At the end of each year, estimated figures will be revised
to reflect actual experience during such year and adjustments will be
made in amounts billed to give effect to such revision.
IX. When Group A employees render services to a group of companies, the
following formulas shall be used to allocate the time of such employees
to the individual companies receiving such service:
A. The Service Department or Function formulas to be used when
employees render services to all companies participating in such service, for
the services indicated are set forth below. When necessary during period
1999-2002, the allocation formulas described below will be calculated (in part
or in whole) using data based on services performed for System Companies by
Dominion Resources, Inc., prior to the merger of Dominion Resources, Inc. and
Consolidated Natural Gas Company.
<TABLE>
<CAPTION>
Service Department
or Function Basis of Allocation
---------- -------------------
<S> <C>
Employee Benefits/ The number of employee and annuitant accounts as
Pension Investments of the preceding December 31st.
Human Resources The number of employees as of the preceding
December 31st.
Corporate Planning:
- Capital Budgets Total investment in plant recorded at preceding
December 31st.
- Operating &
Maintenance Budgets Total operating expenses, excluding purchased gas
expense, purchased power expense (including fuel
expenses), other purchased products and royalties,
for the preceding year ended December 31st.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Service Department
or Function Basis of Allocation
---------- -------------------
<S> <C>
Business and Operations Energy sale and deliveries for the preceding year
Services ended December 31st.
Risk Management Insurance premiums for the preceding year ended
December 31st.
Rates Total regulated company operating expenses,
excluding purchased gas expense, purchased power
expense (including fuel expense), other purchased
products and royalties, for the preceding year
ended December 31st.
Research Gross revenues from the sale of natural gas
(including intercompany sales) and electricity,
recorded during the preceding year ended December
31st.
Tax The sum of the total income and total deductions
as reported for Federal Income Tax purposes on the
last return filed.
Corporate Secretary/ The weighted average of the previous three years
Investor Relations of total Service Company billings for the prior
years ended December 31st.
Customer Services For metering, the number of gas or electric meters
for the preceding year ended December 31st;
otherwise the number of customers for the
preceding year ended December 31st.
System Services Group:
Information Technology:
LDC/EDC Computer Applications Number of residential and commercial customers at
the end of the preceding year ended December 31st.
Other Computer Applications Number of users or usage of specific computer
systems at the end of the preceding year ended
December 31st.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Service Department
or Function Basis of Allocation
---------- -------------------
<S> <C>
Network Computer Applications Number of network devices at the end of the
preceding year ended December 31st.
Telecommunications Applications Number of telecommunications units at the end of
the preceding year ended December 31st.
Facility Services:
Building Services Square footage of office space as of the preceding
year ended December 31st.
Processing Services:
Payroll Number of employees on the previous December 31st
or the number of payroll payments generated during
the previous year ending December 31st.
Cash Management & Number of customer payments processed during the
Customer Payment Processing preceding year ended December 31st.
Accounts Payable Processing Number of accounts payable documents processed
during the preceding year ended December 31st.
Fleet Administration Number of vehicles at December 31st.
Purchasing Dollar value of contract purchases for the
preceding year ended December 31st.
Regulated Business Support Group:
Engineering Services:
General Services Gas pipeline and/or electric supply line footage
as of the preceding year ended December 31st.
Transmission and Storage Services Total investment in storage and transmission plant
as of the preceding year ended December 31st.
Gas Supply: Gas volumes purchased for each affiliate for the
preceding year ended December 31st.
Electricity Supply: Electricity load purchased for each affiliate for
the preceding year ended December 31st.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Service Department
or Function Basis of Allocation
---------- -------------------
<S> <C>
Marketing
Shared Projects Annual marketing plan budget for the current year
of allocation.
Other Indirect Costs Total marketing direct and shared project costs
billed to each System Company for the preceding
year ended December 31st.
Material Management Material inventory assets as of the preceding year
ended December 31st.
System Accounting:
Financial Accounting and Reporting Number of financial related transactions, records
and reports generated, and account code
combinations for the preceding year ended December
31st.
Regulated Fixed Assets Regulated companies fixed assets added, retired or
transferred during the preceding year ended
December 31st.
</TABLE>
B. Company Group Formulas to be used in the absence of a service
department or function formula or when service rendered by employees
is for a different group of companies than those companies regularly
participating in such service:
<TABLE>
<CAPTION>
Company Group Basis of Allocation
<S> <C>
All companies (includes all Total operating expenses, excluding purchased gas
System Companies except Service expense, purchased power expense (including fuel
Company) expense), other purchased products and royalties,
for the preceding year ended December 31st.
All retail companies Volume of gas and quantity of electricity sold at
retail during the preceding year ended December
31st (converted to dollar value).
All wholesale companies Gross revenues from sales for resale recorded
during the preceding year ended December 31st.
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
All companies having Gross investment in transmission plant recorded at
transmission lines preceding December 31st.
All production companies Production plant budget for the current year of
allocation.
Appalachian production Gross investment in Appalachian production plant
companies recorded at preceding December 31st.
All storage companies Gross investment in storage plant, excluding
non-current inventory, recorded at preceding
December 31st.
All Companies/ The weighted average of the previous three years
Shareholder Activities of Service Company billings.
All unregulated companies Total unregulated companies' operating expenses,
excluding purchased gas expense, purchased power
expense (including fuel expense), other purchased
products and royalties, for the preceding year
ending December 31st.
All regulated companies Total regulated companies' operating expenses,
excluding purchased gas expense, purchased power
expense (including fuel expense), other purchased
products and royalties, for the preceding year
ended December 31st.
</TABLE>
C. If the use of a basis of allocation would result in an inequity
because of a change in operations or organization, then the Service
Company may adjust the basis to effect an equitable distribution.
7
<PAGE>
Exhbit 10.20
VIRGINIA POWER SUPPORT AGREEMENT
THIS AGREEMENT is entered into as of the 1st day of January, 2000, by and
between Virginia Electric and Power Company, a Virginia public service company
("Virginia Power") and Dominion Resources Services, Inc., a Virginia corporation
("DRI Services").
WHEREAS, Virginia Power is an electric utility engaged in the sale of
electric service at retail within its service territories in Virginia and North
Carolina and at wholesale within those territories and elsewhere in the United
States;
WHEREAS, DRI Services is a wholly owned subsidiary of Dominion Resources,
Inc. ("DRI") which was formed in anticipation of DRI becoming a registered
utility holding company under the Public Utility Holding Company Act of 1935
("PUHCA");
WHEREAS, under PUHCA, DRI will be prohibited from providing services to its
subsidiaries and affiliates and, upon approval of the form Service Agreement
under which DRI Services and Consolidated Natural Gas Service Company, Inc. will
provide services to their affiliates, sought contemporaneously herewith, all of
the services currently offered by DRI to its subsidiaries will be offered
through DRI Services (including those services currently offered by DRI to
Virginia Power under the Cost Allocation and Service Agreement approved by the
Virginia State Corporation Commission in Case No. PUE830060 (the "CASA"));
WHEREAS, under the CASA and certain other existing agreements which have
been approved by the Virginia State Corporation Commission (the "Commission"),
Virginia Power currently provides services to DRI and/or DRI's subsidiaries (the
"Pre-Approved Services");
WHEREAS, as a result of DRI becoming a registered holding company, it will
no longer be desirable or efficient for Virginia Power to continue to provide
the Pre-Approved Services directly to DRI;
WHEREAS, Virginia Power now desires to provide certain services to DRI
Services, and DRI Services wishes to receive such services from Virginia Power,
in an effort to promote efficiencies and effectively utilize Virginia Power
resources and expertise; and
WHEREAS, DRI Services is an "affiliated interest" of Virginia Power within
the meaning of the Utility Affiliates Act, Chapter 4 of Title 56 of the Code of
Virginia, and therefore contracts and arrangements for the furnishing of
services by Virginia Power to DRI Services are subject to approval of the
Commission;
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
<PAGE>
1. General Services to be Provided by Virginia Power. Exhibit A hereto
-------------------------------------------------
lists and describes all of the services that may be provided by Virginia Power
to DRI Services for the benefit of DRI Services and/or the existing or future
subsidiaries or affiliates of DRI. Such services are and will be provided to DRI
Services only on the mutual agreement of Virginia Power and DRI Services and in
accordance with the terms and conditions set forth herein.
2. Compensation and Allocation. Virginia Power and DRI Services recognize
---------------------------
the importance of DRI Services paying the appropriate compensation for the
services provided hereunder, so that there is no subsidization of either party
by the other. To that end, Virginia Power will maintain accurate records of its
operations that will enable it to determine the costs of the services that it
provides to DRI Services, and those books and records will be open to
examination by any state or federal commission having jurisdiction over
arrangements and services to be furnished, and the staffs of those commissions.
DRI Services will compensate Virginia Power for the services provided hereunder
by payment of the costs incurred to provide those services. Exhibit B hereto
contains rules for determining and allocating costs for services provided to DRI
Services by Virginia Power.
3. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the Commonwealth of Virginia, without regard to
their conflicts of law provisions.
4. Entire Agreement. This Agreement, together with its exhibits,
----------------
constitutes the entire understanding and agreement of the parties with respect
to its subject matter, and effective upon the execution of this Agreement by the
respective parties hereof, any and all prior agreements, understanding, or
representations with respect to this subject matter are hereby terminated and
cancelled in their entirety.
5. Waiver. No waiver by any party hereto of a breach of any provision of
------
this Agreement shall constitute a waiver of any preceding or succeeding breach
of the same or any other provision hereof.
6. Non - Exclusive Rights and Obligations. Nothing herein shall be
--------------------------------------
construed to require DRI Services to obtain any of the services enumerated
herein from Virginia Power, nor to require Virginia Power to provide any of such
services to DRI Services.
7. Effective Date and Term. This Agreement shall become effective when
-----------------------
it has been approved by the Commission and executed by the parties, and it shall
continue in effect until terminated by either Virginia Power or DRI Services
giving the other sixty (60) days advance written notice of termination.
This Agreement is subject to termination or modification at any time
to the extent its performance may conflict with the provisions of PUHCA, as
amended or with any rule,
2
<PAGE>
regulation or order of the Securities and Exchange Commission adopted before or
after the making of this Agreement. This Agreement shall be subject to the
approval of any state commission or other state regulatory body whose approval
is, by the laws of such state, a legal prerequisite to the execution and
delivery or the performance of this Agreement.
8. VSCC Approval. Pursuant to the Virginia State Corporation
-------------
Commission's Order Approving Merger in Joint Petition of Dominion Resources,
Inc. and Consolidated Natural Gas Company, For approval of agreement and plan of
merger under Chapter 5 of Title 56 of the Code of Virginia, Case No. PUA990020,
issued on September 17, 1999, neither Virginia Power, Virginia Natural Gas, Inc.
nor any other DRI affiliate subject to regulation by the Commission shall have
any obligation under this Agreement except to the extent the Commission has
approved such obligation.
9. NCUC APPROVAL. Pursuant to the North Carolina Utilities Commission's
-------------
("NCUC") Order Approving Merger In the Matter of Application by Dominion
Resources, Inc., for Authorization under G.S. 62-111 to Engage in a Business
Combination Transaction, Docket No. E-22, Sub 380, issued on October 18, 1999,
Virginia Electric and Power Company, d/b/a North Carolina Power:
(i) may not make or incur a charge under this Agreement except in
accordance with North Carolina law and the rules, regulations
and orders of the NCUC promulgated thereunder; and
(ii) may not seek to reflect in rates any cost incurred or revenue
level earned under an agreement subject to the 1935 Act to the
extent disallowed by the NCUC.
10. Severability. If any provision or provisions of this Agreement shall
------------
be held to be invalid, illegal or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall in no way be affected or
impaired thereby.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of this 1st day of January, 2000.
Attest: By Virginia Electric and Power Company:
______________________________________
___________ ______________________________________
Attest: By Dominion Resources Services, Inc.:
______________________________________
___________ ______________________________________
3
<PAGE>
EXHIBIT A
DESCRIPTION OF APPROVED SERVICES TO BE OFFERED BY VIRGINIA ELECTRIC AND POWER
COMPANY TO DOMINION RESOURCES SERVICES, INC. UNDER THE AFFILIATE SERVICES
AGREEMENT
1. Accounting. Provide advice and assistance in accounting matters, including
----------
the development of accounting practices, procedures and controls, the
maintenance of the general ledger and related systems, the preparation and
analysis of financial statement reports, and the processing of certain accounts
payable, payroll, customer and cash management transactions.
2. Auditing. Periodically audit accounting records and other records and
--------
coordinating audit examinations where applicable, with that of independent
public accountants. The audit staff will report on their examination and submit
recommendations, as appropriate, on improving methods of internal control and
accounting procedures.
3. Legal and Regulatory. Provide advice and assistance with respect to legal
--------------------
and regulatory issues as well as regulatory compliance under Federal and State
laws.
4. Information Technology, Electronic Transmission and Computer Services.
---------------------------------------------------------------------
Assist with the operation of an information technology function including the
development, implementation and operation of a centralized data processing
facility and the management of a telecommunications network. This function
includes the central processing of computerized applications and support of
individual applications. Provide computer resource/network availability,
including enterprise telecommunications infrastructure, mainframe and
distributed computing hardware, operating systems, business systems and
applications, internet, intranet and mail environments, software licenses and
maintenance agreements.
5. Employee Benefits/Pension Investment. Advise and assist in the
------------------------------------
administration of employee benefit and pension plans and prepare and maintain
records of employee and company accounts under the said plans, together with
such statistical data and reports as are pertinent to the plans.
6. Employee Relations. Advise and assist in the formulation and administration
------------------
of employee relations policies and programs relating to labor relations,
personnel administration, training, wage and salary administration and safety.
7. Operations. Advise and assist in the study, planning, engineering and
----------
construction of energy plant facilities. Assist in the development of long-
range operational programs. Offer management, consulting and advisory/technical
services with respect to the physical operation of energy plant facilities and
the purchase, sale and transfer of affiliated companies.
4
<PAGE>
8. Executive and Administrative. Advise and assist in the solution of major
----------------------------
problems and in the formulation and execution of general plans and policies.
Advise and assist as to operations, the issuance of securities, the preparation
of filings arising out of or required by the various Federal and State
securities, business, public utilities and corporation laws. The selection of
executive and administrative personnel, representation before regulatory bodies,
proposals for capital expenditures, budgets, financings, acquisition and
disposition of properties, expansion of business, rate structures, public
relationships and other related matters.
9. Business and Operations Services. Advise and assist in all matters relating
--------------------------------
to operational capacity and the preparation and coordination of operating
studies. Provide assistance with management of the purchase, sale, movement,
transfer and accounting of volumes to ensure continued recovery of all prudently
incurred energy purchase costs through local jurisdictional cost recovery
mechanisms. Compile and communicate information relevant to operations. Perform
general business and operations support services, including travel services,
fleet, mail, plant and facilities operation, maintenance and management.
10. Exploration and Development. Advise and assist in geological and
---------------------------
exploration matters including the acquisition and surrender of acreage and the
development of underground storage facilities.
11. Risk Management. Risk management services such as the securing of
---------------
requisite insurance, the purchase and administration of property, casualty and
marine insurance, the settlement of insured claims and the provision of risk
prevention advice.
12. Marketing. Assist in the planning, formulation and implementation of
---------
marketing programs, as well as provide associated marketing services to assist
with improving customer satisfaction, load retention and shaping, growth of
energy sales and deliveries, energy conservation and efficiency. Assist in
carrying out policies and programs for the development of plant locations and of
industrial, commercial and wholesale markets and assist with community
redevelopment and rehabilitation programs.
13. Budgeting and Planning. Advise and assist in studying and planning in
----------------------
connection with operations, budgets, economic forecasts, rate structures,
capital expenditures and special projects.
14. Purchasing. Advise and assist in the purchase of materials, supplies and
----------
services and the preparation and negotiation of purchasing agreements.
15. Rates. Advise and assist in the analysis of rate structures, the
-----
formulation of rate policies and the negotiation of large contracts. Provide
consulting in connection with proceedings before regulatory bodies involving
rates and operations.
16. Research. Investigate and conduct research into problems relating to
--------
production utilization, testing, manufacture, transmission, storage and
distribution of energy. Evaluate and
5
<PAGE>
conduct research and development in promising areas and advise and assist in the
solution of technical problems arising out of operations.
17. Tax. Advise and assist in the preparation of separate and consolidated tax
---
returns (Federal and State), interpretations of tax laws, administration of tax
audits, payment of taxes and related matters.
18. Environmental Compliance. Provide consulting and related services to
------------------------
ensure full compliance with applicable environmental statutes and regulations.
19. Customer Service. Provision of services and systems dedicated to customer
----------------
service, including billing, remittance, credit, collections, customer relations,
call centers, energy conservation support and metering.
20. Energy Marketing. Provide services and systems dedicated to energy
----------------
marketing, including marketing and trading of gas and electric power, energy
price risk management, and development of marketing and sales programs in
physical and financial markets.
21. Treasury/Finance. Provide services related to managing all administrative
----------------
activities associated with financing, including management of capital structure;
cash, credit and risk management activities; investment and commercial banking
relationships; oversight of decommissioning trust funds and general financing
activities.
22. Office Space and Equipment. Leasing of land, buildings, furnishings
--------------------------
and equipment, including computer hardware and software and transportation
equipment.
23. External Affairs. Provide services in support of corporate strategies for
----------------
managing relationships with federal, state and local governments, agencies and
legislative bodies. Formulate and assist with public relations and
communications programs and administration of corporate contribution and
community affairs programs.
6
<PAGE>
EXHIBIT B
METHODS OF ALLOCATION FOR VIRGINIA POWER
Virginia Power shall allocate costs independently to DRI Services using the
following methods:
I. The costs of rendering service by Virginia Power will include all costs of
doing business including interest on debt but excluding a return for the
use of equity capital for which no charge will be made to DRI Services.
II. A. Virginia Power will maintain a separate record of the expenses of
each department. The expenses of each department will include:
1. those expenses that are directly attributable to such
department, and
2. an appropriate portion of those office and housekeeping
expenses that are not directly attributable to a department
but which are necessary to the operation of such department.
B. Expenses of the department will include salaries and wages of
employees, rent and utilities, materials and supplies,
depreciation, and all other expenses attributable to the
department. The expenses of a department will not include:
1. those incremental out-of-pocket expenses that are incurred
for the direct benefit and convenience of an individual
company or group of companies,
2. Virginia Power overhead expenses, including expenses of the
corporate secretary's department that are attributable to
maintaining the corporate existence of Virginia Power, and
all other incidental overhead expenses including those
auditing fees, internal auditing department expenses and
accounting department expenses attributable to Virginia
Power.
C. Virginia Power will establish annual budgets for controlling the
expenses of each department and for determining estimated costs
to be included in interim monthly billing.
III. A. Employees in each department will be divided into two groups:
1. Group A will include those employees who may render service
to DRI Services, and
7
<PAGE>
2. Group B will include those office and general service
employees, such as secretaries, file clerks and
administrative assistants, who generally assist employees in
Group A or render other housekeeping services and who are
not engaged directly in rendering service to DRI Services.
B. Expenses set forth in Section II. above will be separated to show:
1. salaries and wages of Group A employees, and
2. all other expenses of the department.
C. There will be attributed to each dollar of a Group A employee's salary
or wage, that percentage of all other expenses of his department (as
defined in B above), that his salary or wage is to the total Group A
salaries and wages of that department.
D. Group A employees in each department will maintain a record of the
time they are employed in rendering service to DRI Services. An hourly
rate will be determined by dividing the total expense attributable to
a Group A employee as determined under subsection C above by the
productive hours reported by such employee.
IV. The charge to DRI Services for a particular service will be determined by
multiplying the hours reported by Group A employees in rendering such
service to DRI Services by the hourly rates applicable to such employees.
V. To the extent appropriate and practical, the foregoing computations of
hourly rates and charges may be determined for groups of employees within
reasonable salary range limits.
VI. Those expenses of Virginia Power that are not included in the annual
expense of a department under Section II. above will be charged to DRI
Services as follows:
A. Incremental out-of-pocket costs incurred for the direct benefit and
convenience of DRI Services will be charged directly to such company.
B. Virginia Power overhead expenses referred to in Section II. above will
be charged to DRI Services in the proportion that the charges made to
DRI Services for costs, other than those set forth in this Section VI,
are to the total of all department costs as defined in Section II.
VII. Notwithstanding the foregoing basis of determining cost allocations for
billing purposes, cost allocations for certain services involving machine
operations and
8
<PAGE>
production units will be determined on an appropriate basis established by
Virginia Power relating to the direct use of machine equipment or
production units.
VIII. Monthly bills will be issued for the services rendered to DRI Services on
an actual or estimated basis. Estimates will normally be predicated on
service department budgets and estimated productive hours of employees for
the year. At the end of each year, estimated figures will be revised to
reflect actual experience during such year and adjustments will be made in
amounts billed to give effect to such revision.
IX. If the use of a basis of allocation would result in an inequity because of
a change in operations or organization, then Virginia Power may adjust the
basis to effect an equitable distribution.
9
<PAGE>
Exhibit 10.21
APPENDIX 1
The Alliance Agreement
Establishing The
Alliance Independent Transmission System Operator, Inc.,
Alliance Transmission Company, Inc., And
Alliance Transmission Company, LLC
Dated May 27, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I DEFINITIONS...................................................... 1
ARTICLE II
PURPOSE OF AGREEMENT....................................................... 1
2.1 Purpose of this Agreement....................................... 1
-------------------------
2.2 Attachments and Appendices...................................... 2
--------------------------
ARTICLE III
INITIAL DETERMINATION OF FORM OF REGIONAL TRANSMISSION ORGANIZATION........ 3
3.1 Owner Declarations.............................................. 3
------------------
3.2 Evaluation of Transco Trigger Conditions........................ 4
----------------------------------------
3.3 Transmission Owner Post-Trigger Evaluation Rights............... 4
-------------------------------------------------
3.4 Transmission Owner Post-Trigger Failure Evaluation Rights....... 4
---------------------------------------------------------
ARTICLE IV
ALLIANCE PUBLICO........................................................... 4
4.1 Formation of Alliance Publico................................... 4
-----------------------------
ARTICLE V
ALLIANCE TRANSCO........................................................... 5
5.1 Formation of Alliance Transco................................... 5
-----------------------------
5.2 LLC Agreement................................................... 6
-------------
5.3 Alliance Transco Operations..................................... 6
---------------------------
ARTICLE VI
ALLIANCE ISO............................................................... 6
6.1 Formation of the Alliance ISO................................... 6
-----------------------------
6.2 Alliance ISO Operations......................................... 7
-----------------------
ARTICLE VII
ALLIANCE RTO START UP AND TRANSITION PERIODS............................... 8
7.1 Start-up Period and Initial Funding............................. 8
-----------------------------------
7.2 Reimbursement of Start-Up Expenditures.......................... 8
--------------------------------------
7.3 Location for Alliance RTO Operations............................ 8
------------------------------------
7.4 Transition from Alliance ISO to Alliance Transco................ 8
------------------------------------------------
7.5 Alliance RTO Transition and Operating Conditions................ 9
------------------------------------------------
7.6 Regional Power Exchange......................................... 9
-----------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE VIII
NEW PARTICIPANTS.......................................................... 9
8.1 Admission of New Participants.................................. 9
-----------------------------
ARTICLE IX
TERMINATION OF PARTICIPATION IN ALLIANCE.................................. 10
ARTICLE X
SHARING OF EXPENSES....................................................... 10
ARTICLE XI
REGULATORY AND TAX AUTHORIZATIONS......................................... 10
11.1 Regulatory Approvals........................................... 10
--------------------
11.2 Tax Approvals.................................................. 11
-------------
ARTICLE XII
NON-SEVERABILITY OF AGREEMENT............................................. 11
ARTICLE XIII
MISCELLANEOUS PROVISIONS.................................................. 11
13.1 Descriptive Headings: Appendices and Exhibits.................. 11
---------------------------------------------
13.2 Governing Law.................................................. 12
-------------
13.3 Counterparts................................................... 12
------------
13.4 Successors and Assigns......................................... 12
----------------------
13.5 No Implied Waivers............................................. 12
------------------
13.6 Representations and Warranties................................. 12
------------------------------
13.7 Further Assurances............................................. 13
------------------
13.8 Delivery of Notices............................................ 13
-------------------
13.9 Limitations on Liability....................................... 13
------------------------
13.10 Entire Agreement............................................... 13
----------------
13.11 Good Faith Efforts............................................. 13
------------------
13.12 Third Party Agreements......................................... 14
----------------------
13.13 No Partnership................................................. 14
--------------
13.14 Dispute Resolution............................................. 14
------------------
13.15 Transmission Owner Participation Agreement..................... 14
------------------------------------------
13.16 Transmission Owner Consent..................................... 14
--------------------------
13.17 Effective Date and Termination................................. 14
------------------------------
13.18 Amendments..................................................... 15
----------
</TABLE>
<PAGE>
Appendix 1
THE ALLIANCE AGREEMENT
This Alliance Agreement (the "Alliance Agreement" or this "Agreement") is
made and entered into as of May 27, 1999, by and among the undersigned
Transmission Owners in order to set forth their agreements with respect to the
creation of a regional transmission organization, on the terms and subject to
the conditions stated herein.
The Transmission Owners intend to seek governmental approvals for the
creation of a Regional Transmission Organization ("RTO"). The Alliance RTO will
be either a Transco, referred to herein as the Alliance Transmission Company,
LLC ("Alliance Transco"), or an ISO, referred to herein as the Alliance
Independent Transmission System Operator, Inc. (the "Alliance ISO"). In the
former event, Alliance Transco will be owned in part and managed solely by a
newly-created public company, Alliance Transmission Company, Inc. ("Alliance
Publico").
The Transmission Owners believe that formation and approval of the Alliance
RTO will further the goal of a more competitive electric market in the North
American Eastern Interconnection.
The Transmission Owners are willing to proceed with the approval and
formation of the Alliance Transco and Alliance ISO subject to the terms and
conditions described herein, including the unilateral right to withdraw from
this endeavor at any time on the terms provided herein.
THEREFORE, the undersigned parties agree as follows:
ARTICLE I
DEFINITIONS
Capitalized terms used in this Agreement without other definition shall
have the meanings specified in Exhibit A.
ARTICLE II
PURPOSE OF AGREEMENT
2.1 Purpose of this Agreement.
-------------------------
2.1.1 The purpose of this Agreement is to create an independent
Regional Transmission Organization. The Alliance RTO will be either a
Transco or an ISO that will perform system operator functions. The
form of the Alliance RTO will be determined by the Transmission Owners
in accordance with Article III of this Agreement. Through an
Operation Agreement with the Alliance RTO, the Alliance RTO will have
Functional Control over certain transmission facilities owned by the
Transmission Owners for the following purposes:
<PAGE>
(a) independent operation of the transmission facilities;
(b) non-discriminatory open access transmission service over the
Transmission System to eligible customers pursuant to the OATT;
(c) collection and distribution of transmission revenues from
Transmission Users in accordance with the Pricing Protocol; and
(d) management of regional reliability and system security
consistent with the provisions of the Operating Protocol and the
Planning Protocol.
2.1.2 The purpose of this Agreement is also to describe a mechanism
for the start up of, or transition to, an independent, for-profit
transmission company referred to herein as Alliance Transco. This
Agreement describes the conditions which must be satisfied before
Alliance Transco is formed. These conditions, referred to herein as
the "Transco Trigger Conditions," may be satisfied either before or
after the beginning of Alliance ISO operations. If such conditions
are met before the Transmission Service Date, the Transmission Owners
will proceed directly to the Alliance Transco structure. If the
conditions are satisfied after the Transmission Service Date, the
Transmission Owners will undertake a transition to the Alliance
Transco structure in accordance with the terms of Article VII of this
Agreement.
2.1.3 This Agreement also describes how Alliance Transco will be
managed independently from Transmission Users, including Transmission
Owners that will be Transmission Users. Alliance Transco will be
controlled by a newly-organized public company -- Alliance Publico.
Alliance Publico will be the managing member of Alliance Transco and
will have authority to manage the business and affairs of Alliance
Transco. Alliance Publico will be a corporation so that it can raise
capital in the public financial markets through an initial public
offering. The public ownership of Alliance Publico is also intended
to provide Alliance Transco with management which is independent from
the Transmission Users.
2.2 Attachments and Appendices. The following attachments and
--------------------------
appendices are incorporated herein and made a part of this Agreement:
Appendix 2: Term Sheet for Alliance Transmission Company, Inc.
Appendix 3: Term Sheet for Alliance Transmission Company, LLC
Appendix 4: Bylaws for Governance of the Alliance Independent Transmission
System Operator Inc., a Delaware non-stock corporation
Appendix 5: Alliance Regional Transmission Organization Operating Protocol
2
<PAGE>
Appendix 6: Alliance Regional Transmission Organization Planning Protocol
Appendix 7: Alliance Regional Transmission Organization Protocol for
Transmission Service Pricing, Discounting, Revenue Distribution,
and Grandfathered Contracts
Appendix 8: Alliance Regional Transmission Organization Operation Agreement
Appendix 9: Alliance Regional Transmission Organization Agency Agreement
ARTICLE III
INITIAL DETERMINATION OF FORM OF REGIONAL
TRANSMISSION ORGANIZATION
3.1 Owner Declarations. After the Required Regulatory Approvals have been
------------------
obtained, the Transmission Owners shall take the following actions to determine
whether the initial form of the Regional Transmission Organization will be the
Alliance Transco or Alliance ISO:
(i) each Transmission Owner shall make an Owner Declaration as to
whether such Transmission Owner intends to maintain ownership of its
transmission facilities and transfer operational control to the Alliance
RTO or to divest its transmission facilities to the Alliance RTO and the
Owner Declaration shall be made in the form of a certificate from the Chief
Executive Officer or President of the Transmission Owner which sets forth
the information and plans required in this Agreement;
(ii) if the Owner Declaration indicates that the Transmission Owner
wishes to maintain ownership of some or all of its transmission facilities,
such declaration shall include (A) a commitment on the part of such
Transmission Owner to enter into an Operation Agreement with the Alliance
RTO, (B) a detailed description of any remaining regulatory or other
consents required to complete the transfer to Alliance RTO control and any
known legal impediments to obtaining such consents, and (C) a detailed
description of the transmission facilities to be subject to the Operation
Agreement;
(iii) if the Owner Declaration indicates that the Transmission Owner
wishes to divest ownership of some or all of its transmission facilities to
the Alliance RTO, such declaration shall include (A) a detailed description
of any remaining regulatory or other consents required to complete the
divestiture and any known legal impediments to obtaining such consents, (B)
a detailed description of the transmission facilities to be divested, (C) a
statement as to whether such Transmission Owner wishes to sell such
transmission facilities to Alliance Transco and/or contribute such
facilities to Alliance Transco in exchange for membership interests in
Alliance Transco, (D) an acknowledgment that neither the Transmission Owner
nor Alliance Transco will be legally bound to consummate the divestiture
until such time as such parties have negotiated, executed and delivered
mutually
3
<PAGE>
acceptable definitive agreements with respect to such divestiture setting
forth the material terms and conditions of such a transaction, and (E) a
comprehensive proposal regarding the material terms, conditions, and
provisions of the Alliance Transco LLC Agreement and other documents
necessary to create the Alliance Transco and carry out the divestiture in
conformance with the Transco and Publico Term Sheets, which proposal shall
serve as the foundation for such negotiations to develop definitive
agreements; and
(iv) each Transmission Owner agrees to provide the other Transmission
Owners with an Owner Declaration within 90 days after the Required
Regulatory Approvals have been obtained.
3.2 Evaluation of Transco Trigger Conditions. Upon receipt of the Owner
----------------------------------------
Declarations, the Transmission Owners will determine whether the Transco Trigger
Conditions have been satisfied. Following such determination, the Alliance RTO
will implement the transition and transfer of either, or both, asset ownership
and operational control of transmission facilities from each Transmission Owner
to the appropriate RTO structure as provided in this Agreement.
3.3 Transmission Owner Post-Trigger Evaluation Rights. Non-Divesting
-------------------------------------------------
Transmission Owner(s), after the Transco Trigger Conditions have been satisfied,
shall have the right to seek to terminate their participation in the Alliance
Agreement in accordance with the provisions in Article IX.
3.4 Transmission Owner Post-Trigger Failure Evaluation Rights. If the
---------------------------------------------------------
Transco Trigger Conditions are not satisfied, Transmission Owner(s) shall have
the right to seek to terminate their participation in the Alliance Agreement in
accordance with the provisions in Article IX.
ARTICLE IV
ALLIANCE PUBLICO
4.1 Formation of Alliance Publico.
-----------------------------
4.1.1 If, at the completion of the process set forth in Article III,
the Transco Trigger Conditions have been satisfied, the Transmission
Owners shall organize Alliance Publico as a for-profit, Delaware
corporation. Alliance Publico will be formed as a public utility
holding company and will own membership interests in Alliance Transco.
4.1.2 In order to facilitate the commencement of operations by
Alliance Transco, Alliance Publico will seek to raise capital through
an initial public offering of its capital stock and such other public
or private debt financing transactions (with persons independent of
the Transmission Owners) as deemed appropriate. The goal of Alliance
Publico's financing activities will be to:
4
<PAGE>
8. Executive and Administrative. Advise and assist in the solution of major
----------------------------
problems and in the formulation and execution of general plans and policies.
Advise and assist as to operations, the issuance of securities, the preparation
of filings arising out of or required by the various Federal and State
securities, business, public utilities and corporation laws. The selection of
executive and administrative personnel, representation before regulatory bodies,
proposals for capital expenditures, budgets, financings, acquisition and
disposition of properties, expansion of business, rate structures, public
relationships and other related matters.
9. Business and Operations Services. Advise and assist in all matters relating
--------------------------------
to operational capacity and the preparation and coordination of operating
studies. Provide assistance with management of the purchase, sale, movement,
transfer and accounting of volumes to ensure continued recovery of all prudently
incurred energy purchase costs through local jurisdictional cost recovery
mechanisms. Compile and communicate information relevant to operations. Perform
general business and operations support services, including travel services,
fleet, mail, plant and facilities operation, maintenance and management.
10. Exploration and Development. Advise and assist in geological and
---------------------------
exploration matters including the acquisition and surrender of acreage and the
development of underground storage facilities.
11. Risk Management. Risk management services such as the securing of
---------------
requisite insurance, the purchase and administration of property, casualty and
marine insurance, the settlement of insured claims and the provision of risk
prevention advice.
12. Marketing. Assist in the planning, formulation and implementation of
---------
marketing programs, as well as provide associated marketing services to assist
with improving customer satisfaction, load retention and shaping, growth of
energy sales and deliveries, energy conservation and efficiency. Assist in
carrying out policies and programs for the development of plant locations and of
industrial, commercial and wholesale markets and assist with community
redevelopment and rehabilitation programs.
13. Budgeting and Planning. Advise and assist in studying and planning in
----------------------
connection with operations, budgets, economic forecasts, rate structures,
capital expenditures and special projects.
14. Purchasing. Advise and assist in the purchase of materials, supplies and
----------
services and the preparation and negotiation of purchasing agreements.
15. Rates. Advise and assist in the analysis of rate structures, the
-----
formulation of rate policies and the negotiation of large contracts. Provide
consulting in connection with proceedings before regulatory bodies involving
rates and operations.
16. Research. Investigate and conduct research into problems relating to
--------
production utilization, testing, manufacture, transmission, storage and
distribution of energy. Evaluate and
5
<PAGE>
conduct research and development in promising areas and advise and assist in the
solution of technical problems arising out of operations.
17. Tax. Advise and assist in the preparation of separate and consolidated tax
---
returns (Federal and State), interpretations of tax laws, administration of tax
audits, payment of taxes and related matters.
18. Environmental Compliance. Provide consulting and related services to
------------------------
ensure full compliance with applicable environmental statutes and regulations.
19. Customer Service. Provision of services and systems dedicated to customer
----------------
service, including billing, remittance, credit, collections, customer relations,
call centers, energy conservation support and metering.
20. Energy Marketing. Provide services and systems dedicated to energy
----------------
marketing, including marketing and trading of gas and electric power, energy
price risk management, and development of marketing and sales programs in
physical and financial markets.
21. Treasury/Finance. Provide services related to managing all administrative
----------------
activities associated with financing, including management of capital structure;
cash, credit and risk management activities; investment and commercial banking
relationships; oversight of decommissioning trust funds and general financing
activities.
22. Office Space and Equipment. Leasing of land, buildings, furnishings
--------------------------
and equipment, including computer hardware and software and transportation
equipment.
23. External Affairs. Provide services in support of corporate strategies for
----------------
managing relationships with federal, state and local governments, agencies and
legislative bodies. Formulate and assist with public relations and
communications programs and administration of corporate contribution and
community affairs programs.
6
<PAGE>
The Alliance ISO intends to file an application with the Internal
Revenue Service for recognition of exemption from federal taxation
pursuant to Section 501 of the Code. No part of the net earnings, if
any, of the Alliance ISO shall inure to the benefit of any
Transmission Owner or other ISO Member, or any director, officer,
employee, or other affiliate of any Transmission Owner, ISO Member or
the Alliance ISO itself. The Alliance ISO will be authorized to pay
reasonable compensation for services rendered and to make payments or
distributions in furtherance of the purposes and objectives set forth
in this Agreement and the OATT. No substantial part of the activities
of the Alliance ISO shall be in attempting to influence legislation in
any jurisdiction. The Alliance ISO shall not participate in or
intervene in any political campaign on behalf of any candidate for
public office.
6.1.3 Notwithstanding any other provision of this Agreement, if the
Internal Revenue Service determines that the Alliance ISO qualifies as
a tax-exempt corporation under Section 501 of the Code, the Alliance
ISO shall not conduct or carry on any activities not permitted to be
conducted or carried on by an organization exempt from taxation under
such provision of the Code. If the Alliance ISO does not qualify for
such tax exemption, the Alliance ISO shall, consistent with its other
obligations under this Agreement, take such actions as are reasonably
necessary to minimize its federal and state tax obligations.
6.2 Alliance ISO Operations.
-----------------------
6.2.1 Upon formation of the Alliance ISO, each Transmission Owner
shall execute an Operation Agreement with the Alliance ISO
substantially in the form of Appendix 8 and an Agency Agreement
substantially in the form of Appendix 9. Legal and equitable title to
the respective properties comprising the transmission facilities,
including all real property rights and rights to additional
transmission facilities built or acquired by the Transmission Owner,
shall remain with each respective Transmission Owner. The respective
Transmission Owners shall retain all rights incident to such legal and
equitable title, including, but not limited to, the right, subject to
applicable federal or state regulatory approvals, to build, acquire,
sell, dispose of, use as security, convey any part of their property,
or use such property for purposes other than providing transmission
services (such as the use of such property for telecommunications or
natural gas transportation purposes), provided that the exercise of
any such rights shall not impair the reliability of such transmission
facilities.
6.2.2 The operation of the Alliance ISO shall be governed in
accordance with the ISO Bylaws, as amended from time to time. The ISO
Bylaws are located in Appendix 4.
7
<PAGE>
ARTICLE VII
ALLIANCE RTO START UP AND TRANSITION PERIODS
7.1 Start-up Period and Initial Funding. The Transmission Owners may
-----------------------------------
select and employ persons or entities to perform such administrative and start-
up functions, and may provide by contribution, loan or otherwise for sufficient
capital to finance such functions, as in their judgment may be necessary or
desirable in respect of the Alliance RTO.
7.2 Reimbursement of Start-Up Expenditures. Each Transmission Owner may
--------------------------------------
submit to the Alliance RTO requests for reimbursement of all reasonable and
proper sums expended by such Transmission Owner in connection with the formation
and seeking of governmental approvals in connection with the Alliance RTO. The
Alliance RTO shall be required to make such reimbursements with interest as
computed in accordance with 18 C.F.R. (S) 35.19(a) from and after the date of
submission of reimbursement requests by a Transmission Owner, which shall not be
before the Transmission Service Date.
7.3 Location for Alliance RTO Operations. The Alliance RTO shall promptly
-------------------------------------
choose the location for Alliance RTO operations. The Alliance RTO shall review
and give consideration to the report of any independent consultant hired by the
Transmission Owners, by the Alliance RTO or by any stakeholder to identify
and/or evaluate locations for Alliance RTO operations.
7.4 Transition from Alliance ISO to Alliance Transco.
------------------------------------------------
7.4.1 At any time, any Transmission Owner may initiate an evaluation
of the Transco Trigger Conditions for the purpose of determining
whether to begin a transition to the Alliance Transco structure. Such
initiation of the trigger evaluation by the Transmission Owner shall
be in the form of a formal notice to the Transmission Owners and the
Alliance RTO Board of Directors. Upon receipt of such notice, each
Transmission Owner will make an Owner Declaration as described in
Article III hereof within 90 days of such request. The objective of
this evaluation process will be to determine whether there is
sufficient interest among the Transmission Owners to begin the
transition from the Alliance ISO to the Alliance Transco structure.
7.4.2 In the event that the Transco Trigger Conditions are satisfied
in response to an inquiry made under Section 7.4.1 hereof, the
Transmission Owners will begin the transition to the Alliance Transco
structure described in Articles IV and V of this Agreement. When the
Alliance Transco becomes operational as an owner and operator of the
transmission facilities, the Alliance ISO shall be dissolved and its
affairs wound up.
8
<PAGE>
7.4.3 In the event that an inquiry is made pursuant to Section 7.4.1
hereof and the Transco Trigger Conditions are not satisfied, the
structure of the Alliance RTO shall continue as the Alliance ISO,
described in Article VI of this Agreement.
7.5 Alliance RTO Transition and Operating Conditions.
------------------------------------------------
7.5.1 The Alliance RTO, whether in the form of the Alliance ISO or
Alliance Transco, shall be operated in accordance with the Operating
Protocol, Planning Protocol, and Pricing Protocol as such may be
amended from time to time.
7.5.2 The Alliance RTO shall not accept the transfer of operational
Transmission System control until after a satisfactory three-month
demonstration of simulated operational capability as described in the
Operating Protocol. This simulated operation shall be conducted in
order to demonstrate to the satisfaction of the Transmission Owners
all aspects of the system operation.
7.6 Regional Power Exchange. The Transmission Owners agree that it is an
-----------------------
objective of the Alliance RTO to cooperate with other entities to facilitate the
development of one or more Regional Power Exchanges as may be proposed by market
participants.
ARTICLE VIII
NEW PARTICIPANTS
8.1 Admission of New Participants. The Transmission Owners agree that
-----------------------------
additional parties may be added to this Agreement after the original date of its
execution. Such additional parties must meet minimum qualification criteria as
follows:
(i) the entity must have filed with FERC and have in effect an open access
transmission tariff or a tariff which FERC has found to be an
"acceptable reciprocity tariff" under Order No. 888-A;
(ii) the entity must own or control transmission facilities which are
physically interconnected with the transmission facilities of one or
more of the Transmission Owners; and
(iii) if the Alliance RTO has commenced operations, the entity must agree
to execute an Operation Agreement, unless the entity chooses to become
a Divesting Transmission Owner.
Upon notification of a prospective new participant in this Agreement, the
Transmission Owners will promptly meet to formally accept or decline admission.
A simple majority of the Transmission Owners is necessary for acceptance of a
new party to this Agreement. Upon execution of this
9
<PAGE>
Agreement by the new party, such participant will be obligated to tender its
share of any payments due hereunder which payment obligations were incurred on
and after November 11, 1998. The Transmission Owners may waive the requirement
set forth in clause (ii) above if allowing the additional party to join in this
Agreement will result in material benefits to the Alliance RTO. Following
commencement of operations of the Alliance Transco, the admission of new
Transmission Owners shall be subject to the terms of the governing documents of
such entity.
ARTICLE IX
TERMINATION OF PARTICIPATION IN ALLIANCE
The Transmission Owners agree that, prior to the election of the Board of
Directors of Alliance Publico or the Alliance ISO, as applicable, any party
hereto may unilaterally and in its sole discretion withdraw from this Agreement.
Such withdrawal must be effected by written notice to each of the other parties
hereto 30 days prior to the effectiveness of such withdrawal. Before said
withdrawal is effective the party seeking to withdraw must tender its share of
any payments due under this Agreement. Upon withdrawal, the withdrawing party
will forfeit its right to receive any reimbursements or other payments otherwise
due under this Agreement from the Alliance RTO. Following the election of the
Board of Directors of the Alliance Publico or Alliance ISO, the withdrawal of
Transmission Owners will be subject to the terms of the governing documents of
such entity.
ARTICLE X
SHARING OF EXPENSES
The Transmission Owners agree to share on an equal basis all reasonable
costs incurred for carrying out the terms of this Agreement and to bear
currently their own expenses subject to reimbursement pursuant to Section 7.2
for internal work undertaken to that end; provided, however, that the
Transmission Owners shall not bear any expenses of the Alliance RTO that are
incurred after the election of the Board of Directors of Alliance Publico or the
Alliance ISO as applicable. Procedures for cost contributions will be developed
by separate understandings of the Transmission Owners.
ARTICLE XI
REGULATORY AND TAX AUTHORIZATIONS
11.1 Regulatory Approvals. It is intended that execution of this
--------------------
Agreement by the Transmission Owners will not be subject to any prior Required
Regulatory Approvals either at the federal or the state level. The Transmission
Owners recognize, however, that implementation of the terms of the appendices
hereto and the OATT may be subject to acceptance or approval by the FERC and
possibly other federal and state authorities. In the event that the Required
Regulatory Approvals
10
<PAGE>
Appendix 1
are deemed to be obtained as provided in this Agreement but a regulatory
authority disapproves, or refuses to approve the exhibits or appendices hereto
in whole or in part, or the OATT or any filing associated therewith, or imposes
any condition upon, or change to, this Agreement or its exhibits or appendices
adverse to any Transmission Owner, in the sole judgment of such Transmission
Owner, then (i) such Transmission Owner will negotiate in good faith with the
other Transmission Owners and/or such regulatory authority in an attempt to
resolve such disagreements, and (ii) if such parties are not able to reach
agreement in respect of the matters deemed adverse to such Transmission Owner
during such period, including any extension thereof consented to by such
Transmission Owner, such Transmission Owner shall give written notice to the
other Transmission Owners and this Agreement will be deemed to have terminated
with respect to the notifying Transmission Owner. Following such a termination,
the other Transmission Owners will expeditiously attempt in good faith to
negotiate a new agreement in respect of the Alliance RTO among themselves. A
Transmission Owner may be adversely affected within the meaning of this Section
11.1 even if the regulatory authority in question lacks jurisdiction over such
signatory.
11.2 Tax Approvals. If the Internal Revenue Service or any other
-------------
federal or state taxing authority issues any ruling or imposes any requirement
or obligation, in connection with this Agreement adverse to any Transmission
Owner, in the sole judgment of such Transmission Owner, then this Agreement
shall be deemed to have terminated with respect to such Transmission Owner over
which such tax authority has jurisdiction. In that event, the adversely affected
Transmission Owner shall promptly give notice of such termination to the other
parties, and the remaining parties shall expeditiously attempt in good faith to
negotiate a substitute agreement.
ARTICLE XII
NON-SEVERABILITY OF AGREEMENT
This Agreement is entire of itself. The Transmission Owners do not agree to
be bound by some parts hereof and not others. Therefore, no contractual
authorization exists for the parties to go forward with one portion of this
Agreement or one Appendix hereto while not following the remaining terms of this
Agreement.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
13.1 Descriptive Headings: Appendices and Exhibits. The descriptive
---------------------------------------------
headings of Articles and other provisions of this Agreement have been inserted
for convenience of reference only and will not define, modify, restrict,
construe or otherwise affect the construction or interpretation of any of the
provisions of this Agreement. In the event of a conflict between this Agreement
and any Appendix or Exhibit hereto, the Appendix or Exhibit shall prevail as the
intent of the parties hereto. In the event of a conflict between this Agreement,
including any Appendices or Exhibit, and the OATT, the OATT shall prevail as to
the intent of the parties hereto.
11
<PAGE>
13.2 Governing Law. This Agreement will be interpreted, construed and
-------------
governed by the laws of the State of Delaware, except to the extent preempted by
the laws of the United States of America.
13.3 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same instrument.
13.4 Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of, and be binding upon, the Transmission Owners, their respective successors
and assigns permitted hereunder, but shall not be assignable by any of the
Transmission Owners (except by assignment to a wholly-owned affiliate of a
Transmission Owner) by operation of law or otherwise, without the approval of
the remaining parties, which approval shall not be unreasonably withheld. A
Transmission Owner may not assign an obligation under this Agreement to an
assignee that is not capable of fulfilling the assigned obligation. If a
Transmission Owner assigns this Agreement to an affiliated or unaffiliated
entity that is a successor-in-interest to the assigning Transmission Owner's
Transferred Facilities but not to its Non-transferred Transmission Facilities,
the assigning Transmission Owner must assign the obligation to execute an Agency
Agreement contained in Section 5.3 and Section 6.2.1 to the owner of the Non-
transferred Transmission Facilities.
13.5 No Implied Waivers. The failure of a Transmission Owner to insist
------------------
upon or enforce strict performance of any of the specific provisions of this
Agreement at any time will not be construed as a waiver or relinquishment to any
extent of such Transmission Owner's right to assert or rely upon any such
provisions, rights or remedies in that or any other instance, or as a waiver to
any extent of any specific provision of this Agreement.
13.6 Representations and Warranties. Each Transmission Owner represents
------------------------------
and warrants to the other parties that, as of the date it executes this
Agreement:
(i) The Transmission Owner is duly organized, validly existing and in
good standing under the laws of the jurisdiction in which it is
incorporated.
(ii) Subject to any necessary approvals by federal and state regulatory
authorities, the Transmission Owner's participation in this Agreement, the
execution and delivery by the Transmission Owner of this Agreement and the
performance of its obligations hereunder have been duly and validly
authorized by all requisite action on the part of the Transmission Owner
and do not conflict with any applicable law. This Agreement has been duly
executed and delivered by the Transmission Owner and this Agreement
constitutes the legal, valid and binding obligation on the part of the
Transmission Owner enforceable against it in accordance with its terms
except insofar as the enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium
or other similar laws affecting the enforcement of creditor's rights
generally, and by general
12
<PAGE>
principles of equity regardless of whether such principles are considered
in a proceeding at law or in equity.
(iii) There are no actions at law, suits in equity, proceedings or claims
pending or, to the knowledge of the Transmission Owner, threatened against
the Transmission Owner before or by any federal, state, foreign or local
court, tribunal or governmental agency or authority that might materially
delay, prevent or hinder the performance by the Transmission Owner of its
obligations hereunder.
13.7 Further Assurances. Each Transmission Owner agrees that it shall
------------------
hereafter execute and deliver such further instruments, provide all information
and take or forbear such further acts and things as may be reasonably required
or useful to carry out the intent and purpose of this Agreement and as are not
inconsistent with the provisions of this Agreement.
13.8 Delivery of Notices. Notices required under this Agreement shall
-------------------
be in writing and shall be sent to a Transmission Owner by U.S. mail, overnight
courier, hand delivery, facsimile or other reliable electronic means. Any
notice required under this Agreement shall be deemed to have been given either
upon delivery, if by U.S. mail, overnight courier or hand delivery, or upon
confirmation, if given by telecopier or other reliable electronic means to the
respective Secretary of each of the Transmission Owners at the principal place
of business of such Transmission Owner.
13.9 Limitations on Liability. No signatory Transmission Owner shall be
------------------------
liable to any other signatory Transmission Owner for any claim for indirect,
incidental, special, consequential, or exemplary damages, including, but not
limited to, the loss of profits or revenues, cost of financing, loss of goodwill
and cost of replacement power arising from such Transmission Owner's carrying
out, or failing to carry out, any obligations contemplated by this Agreement.
13.10 Entire Agreement. This Agreement, including any Appendix or
----------------
Exhibit to this Agreement, constitute the entire agreement among the
Transmission Owners with respect to the subject matter of this Agreement, and no
previous or contemporary oral or written representations, agreements, or
understandings made by any officer, agent, or employee of any Transmission Owner
shall be binding unless contained in this Agreement, including the Appendices
and Exhibit attached hereto.
13.11 Good Faith Efforts. Each Transmission Owner agrees that it shall
------------------
in good faith take all reasonable actions necessary to permit such Transmission
Owner to fulfill its obligations under this Agreement. Where the consent,
agreement or approval of any Transmission Owner must be obtained hereunder, such
consent, agreement or approval shall not be unreasonably withheld, conditioned
or delayed. To the extent that the jurisdiction of any federal or state
regulatory authority applies to any part of this Agreement and/or the
transactions or actions covered by this Agreement, each Transmission Owner will
cooperate with all other parties to secure any necessary or desirable approval
or acceptance of such regulatory authorities of such part of this Agreement
and/or such transactions or actions. Each Transmission Owner shall notify the
other Transmission Owners of
13
<PAGE>
any delay in its ability to fulfill its obligations under this Agreement or any
inability to fulfill its obligations under this Agreement.
13.12 Third Party Agreements. This Agreement shall not be construed,
----------------------
interpreted or applied in such a manner as to cause any Transmission Owner to be
in material breach, anticipatory or otherwise, of any agreement (in effect on
the later of the effective date of this Agreement or the date that it becomes a
Transmission Owner under this Agreement) between such Transmission Owner and one
or more third parties who are not parties under this Agreement (regardless of
the inclusion of one or more other parties as parties to such agreement) for the
joint ownership, operation or maintenance of any electrical facilities affected
by this Agreement.
13.13 No Partnership. This Agreement is not intended, and shall not be
--------------
construed, interpreted or applied, to create a partnership or joint venture, and
no Transmission Owner shall be entitled to act as an agent for any other
Transmission Owner with respect to the Alliance RTO.
13.14 Dispute Resolution. If any dispute arises among any of the
------------------
Transmission Owners regarding the terms of this Agreement, it will be resolved
in accordance with these provisions. First the Transmission Owners should
attempt to resolve any said dispute in the normal course of business. If such
efforts are not successful, one or more of the Transmission Owners shall give
written notice to the other Transmission Owners of the dispute and its need for
resolution. Within thirty days of receiving such a notice the Chief Executive
Officer of each of the Transmission Owners shall appoint an officer of his
company to serve as company representative on a negotiation panel. Said panel
shall promptly convene and negotiate in good faith a resolution of the dispute.
If the dispute has not been resolved within sixty days after the panel is
convened, each of the Transmission Owners may avail themselves of any process or
means legally available to them to resolve the dispute.
13.15 Transmission Owner Participation Agreement. This Agreement
------------------------------------------
supersedes the Alliance process "Phase III Participation Agreement," effective
November 30, 1998, which was signed by some of the Transmission Owners to
develop this Agreement and filings for the FERC and other governmental agencies.
13.16 Transmission Owner Consent. Whenever a provision in this Agreement
--------------------------
calls for the consent or approval of, or another determination by, a majority of
the Transmission Owners or some other percentage of the Transmission Owners
which is less that all of the Transmission Owners, such consent, approval or
determination shall be made among the Transmission Owners based on each
Transmission Owner having one vote without regard to the value of their
respective transmission facilities or any other such factor.
13.17 Effective Date and Termination. This Agreement shall be deemed to
------------------------------
be effective as of the date of its execution and delivery among the initial
signatories hereto. This Agreement will terminate at such time as the Alliance
Transco commences operation or on such earlier date as provided in Article IX or
Article XI or as agreed among each of the Transmission Owners.
14
<PAGE>
13.18 Amendments. Any amendments shall require unanimous consent of the
----------
Transmission Owners, which consent shall not be unreasonably withheld.
15
<PAGE>
Signature Page to the Alliance Agreement
establishing the
Alliance Independent Transmission System Operator, Inc.,
Alliance Transmission Company, Inc. and
Alliance Transmission Company, LLC
----------------------------------
American Electric Power Service Corporation
on Behalf of:
Applachian Power Company
Columbus Southern Power Company
Indiana Michigan Power Company
Kentucky Power Company
Kingsport Power Company
Ohio Power Company
Wheeling Power Company
Signature: /s/
----------------------------
Name: William J. Lhota
----------------------------
Title: Executive Vice President
----------------------------
Date: May 27, 1999
----------------------------
<PAGE>
Signature Page to the Alliance Agreement
establishing the
Alliance Independent Transmission System Operator, Inc.,
Alliance Transmission Company, Inc. and
Alliance Transmission Company, LLC
----------------------------------
Consumers Energy Company
Signature: /s/
---------------------------------
Name: David W. Joos
---------------------------------
Title: President and CEO - Electric
---------------------------------
Date: May 27, 1999
---------------------------------
<PAGE>
Signature Page to the Alliance Agreement
establishing the
Alliance Independent Transmission System Operator, Inc.,
Alliance Transmission Company, Inc. and
Alliance Transmission Company, LLC
----------------------------------
The Detroit Edison Company
Signature: /s/
--------------------------------------
Name: Robert L. Buckler
--------------------------------------
Title: President, DTE Energy Distribution
--------------------------------------
Date: May 27, 1999
----------------------------------------
<PAGE>
Signature Page to the Alliance Agreement
establishing the
Alliance Independent Transmission System Operator, Inc.,
Alliance Transmission Company, Inc. and
Alliance Transmission Company, LLC
----------------------------------
FirstEnergy Corp.
on Behalf of:
The Cleveland Electric Illuminating Company
Ohio Edison Company
Pennsylvania Power Company
The Toledo Edison Company
Signature: /s/
-----------------------
Name: Stanley F. Szwed
-----------------------
Title: Vice President
-----------------------
Date: May 27, 1999
-----------------------
<PAGE>
Signature Page to the Alliance Agreement
establishing the
Alliance Independent Transmission System Operator, Inc.,
Alliance Transmission Company, Inc. and
Alliance Transmission Company, LLC
----------------------------------
Virginia Electric and Power Company
Signature: /s/
----------------------------------------
Name: James T. Earwood, Jr.
----------------------------------------
Title: Vice President & General Manager, Bulk
----------------------------------------
Power Delivery
----------------------------------------
Date: May 27, 1999
----------------------------------------
<PAGE>
Exhibit 10.22
[Virginia Power Letterhead]
May 26, 1989
Mr. James P. O'Hanlon
4680 Township Walk
Marietta, Georgia 30066
Dear Jim:
We were delighted to hear from you this morning confirming your decision to join
the Virginia Power team. As discussed yesterday, your initial salary will be
$135,000 per year as Vice President--Nuclear Services reporting directly to me.
You will be given an up-front payment of $50,000, and an additional $25,000 at
the completion of your first year of employment.
In addition to yur base salary, you are eligible to participate in the following
two incentive plans with awards paid as a percentage of your salary grade
midpoint:
o Annual Management Incentive Plan -
Target Award = 20% of midpoint.
Eligibility will begin January 1, 1990.
o Long-term (3 year cycle) Performance Achievement Plan -
Target Shares = 10% of midpoint. You will be eligible
for a prorata award from the 1989-91 Plan.
Your coverage under Virginia Power's Retirement Plan will begin after six (6)
months of employment. To assist you with your retirement income, you will be
credited with 20 years of service upon attaining age 55, and 30 years of service
at age 60 when your actual service will be approximately 14 years.
I think you will find Virginia Power offers a competitive employment package. I
understand Max Bartholomew provided you with information on the flexible
benefits program. In addition, I am attaching/enclosing the following:
o Benefits Summary - Attachment I
o 1989 Policy Guidelines for Selection,
Purchase, and Disposal of Executive
Vehicles (Reference Group 3) - Enclosure I
o Transfer/Relocation Policy
and Guide (Reference Plan A--with an additional
transfer allowance of three times gross monthly
salary) Enclosure II
<PAGE>
Mr. James P. O'Hanlon
Page 2
May 26, 1989
We would like you to report on Thursday, June 15, 1989 at our Innsbrook
Technical Center, 5000 Dominion Boulevard, Short Pump, Virginia. If our offer
as outlined here is acceptable, please sign in the space below and return a copy
to me for our files. If you have any questions, please feel free to call me
collect at (804) 273-3551.
Jim, once again, let me welcome you aboard and I look forward to working with
you on the challenges and opportunities presented by our nuclear program.
Sincerely,
/s/ W. L. Stewart
- -------------------------------
William L. Stewart
Senior Vice President - Nuclear
Enclosures
I accept the offer as described above.
/s/ James P. O'Hanlon
- ----------------------------------
James P. O'Hanlon
May 31, 1989
- -----------------------------
Date
<PAGE>
ATTACHMENT I
VIRGINIA POWER
--------------
BENEFITS SUMMARY
----------------
I. FLEXIBLE BENEFITS PLANS
-----------------------
Immediately eligible to enroll yourself, your spouse, and your unmarried
dependent children up to age 23. The premium is shared by the employee
(25%) and the Company (75%). The Plan includes options for the following:
o Medical (Comprehensive)
o Vision
o Dental
o Long-term Disability
o Employee Life Insurance
o Employee Accidental Death and Dismemberment
o Dependent Life Insurance
o Health Care Account
o Dependent Care Account
II. EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
--------------------------------------
Eligible after 5 years employment to receive a benefit equal to 25% of
final earnings (base + annual incentive) for 10 years.
III. AIR TRAVEL ACCIDENT PLAN
------------------------
The Plan pays $200,000 to your beneficiary if you should die. The Plan
pays from $50,000 to $200,000 for loss of limb or sight.
IV. SAVINGS PLAN
------------
Eligible to participate after 6 months of employment. Contributions of up
to 6% of pay are matched at 50% by the Company. An additional contribution,
up to 10% (for a total of 16%) may be made by the employee. You may direct
your contributions to a Stock Fund or an Interest Bearing Account Fund.
The Plan provides a tax deferred income option (401k). Certain restrictions
regarding contributions apply to highly compensated employees.
<PAGE>
V. GROUP UNIVERSAL LIFE INSURANCE
------------------------------
You have the option to elect additional life insurance coverage at a group
rate.
Page 2
BENEFIT SUMMARY
VI. VEHICLE
-------
The company provides elected officers with a vehicle. Option information
is included in Enclosure II.
VIII. VACATION
--------
One week after 6 months employment.
Two weeks after 1 year employment.
Three weeks after 6 years employment.
Four weeks after 14 years employment.
Five weeks after 22 years employment.
Six weeks after 30 years employment.
IX. HOLIDAYS
--------
The company provides 11 paid holidays.
ADDITIONAL INFORMATION OF THESE BENEFITS WILL BE PROVIDED TO YOU DURING
YOUR EMPLOYEE ORIENTATION.
<PAGE>
Virginia Electric & Power Company
Arrangement Regarding Additonal Credited Years
----------------------------------------------
of Service for Retirement and Retirement Life Insurance Purposes
----------------------------------------------------------------
The executive officer shown below has an arrangement with Virginia Electric
& Power Company, described in a May 26, 1989 letter (the Letter), relating to
inter alia, the payment of a supplemental retirement benefit. The letter is
- ----- ----
revised as provided below.
The supplemental retirement benefit described in paragraph 3 of the Letter
will be based on additional years of credited service, contingent upon the
executive officer's attaining the specified age and remaining in the employ of
Dominion Resources or one of its subsidiaries, as follows:
James P. O'Hanlon
-----------------
Actual Service
at Specified Age
55 8 years
60 13 years
Credited Service
at Specified Age
55 20 years
60 30 years
The monthly supplemental retirement benefit payable to the executive
officer pursuant to the Letter will be computed in accordance with this
paragraph. First, compute the monthly benefit that would be payable to or on
behalf of the executive officer under the tax-qualified defined benefit pension
plan maintained by Dominion Resources, Inc. or a subsidiary in which the
executive officer participates (the Retirement Plan) using the years of credited
service earned in accordance with the table set forth above. The amount
determined under the preceding sentence will be reduced, but not below zero, by
the sum of (i), (ii), and, to the extent applicable, (iii) below where:
(i) is the monthly benefit payable to or on behalf of the executive
officer under the Retirement Plan;
(ii) is the monthly benefit payable to or on behalf of the executive
officer from his Credited Service Account under the Dominion
Resources, Inc. Retirement Benefit Funding Plan (the Funding Plan);
and
<PAGE>
-2-
(iii) is the sum of the amounts previously distributed to the
executive officer from his Credited Service Account under section 6.01
of the Funding Plan multiplied by a fraction. The numerator of the
fraction is one (1) and the denominator of the fraction is the number
of months for which benefits are payable from the Credited Service
Account. If the executive officer receives a distribution from his
Credited Service under section 6.01 of the Funding Plan after the
commencement of the supplemental retirement benefit, the amount
described in this item (iii) with respect to subsequent supplemental
retirement benefits shall include the product of the amount of each
such distribution multiplied by a fraction. The numerator of that
fraction is one (1) and the denominator is the number of months for
which a benefit remains payable from the executive officer's Credited
Service Account.
The amounts described in items (i) and (ii) shall be computed using the same
actuarial assumptions and methods and will assume that benefits will be paid in
the same form as the executive officer's benefit under the Retirement Plan.
Item (iii) above shall not apply (and the monthly supplemental retirement
benefit payable to the executive pursuant to the Letter shall not be reduced on
account of the amounts described in item (iii) above), to the extent that the
application of item (iii) would result in the payment of an after-tax benefit
pursuant to the Letter, the Retirement Plan, and the Credited Service Account of
the Funding Plan that is less than the monthly supplemental retirement benefit
otherwise payable pursuant to the Letter, the Retirement Plan on an after-tax
basis. The amount payable pursuant to the Letter, the Retirement Plan and the
Credited Service Account of the Funding Plan on an after-tax basis shall be
determined using the policy or guidelines adopted by the Virginia Electric &
Power Company Organization and Compensation Committee for purposes of Section
6.01 of the Funding Plan and, in the absence of such policy or guidelines, shall
be determined using the maximum rates of federal, state, and local income taxes
that are applicable to the executive officer or if applicable, his surviving
spouse, beneficiary, or contingent annuitant.
The monthly supplemental retirement benefit payable to the executive
officer shall be paid from the general corporate assets of Virginia Electric &
Power Company.
In addition, the executive officer will be provided additional retirement
life insurance benefits based on the additional years of credited service shown
above, contingent upon the executive officer's attaining the stated age and
remaining in the employ of Dominion Resources or one of its subsidiaries.
<PAGE>
For Virginia Electric &
Power Company
/s/ James P. O'Hanlon /s/ J. T. Rhodes
- -------------------------- ---------------------------
James P. O'Hanlon James T. Rhodes
President & Chief
Executive Officer
Date: Dec. 11, 1990 Date: 12/14/90
-------------------- ---------------
<PAGE>
Exhibit 10.23
MEMORANDUM
TO: Mr. J.P. O'Hanlon Human Resources, Corporate Center
FROM: R. M. Hugo October 8, 1999
SPECIAL CONTRACTUAL PAYMENT
As outlined in your June 23, 1994 agreement, you were approved to receive on the
date you retire or leave the employment of the Company a special severance
benefit equal to your annual base salary.
In lieu of waiting for a future payment, you have been authorized to receive
it at this time. The total amount of the payment will be $351,000 less
applicable taxes and withholdings. By accepting this payment now, you agree
that any and all future payments that would have been due under the June 23,
1994 agreement will be null and void.
Please acknowledge your acceptance of this arrangement by signing in the space
provided below. We will then process the payment and this document will be made
a part of your permanent file.
/s/ R. M. Hugo
- ------------------------------
R. M. Hugo
Executive Compensation Analyst
Authorized by: /s/ Thomas F. Farrell, II
-------------------------
Thomas F. Farrell, II
Acknowledged and Accepted by: /s/ James P. O'Hanlon
-------------------------
James P. O'Hanlon
<PAGE>
Exhibit 23.1
Virginia Electric and
Power Company
Richmond, Virginia 23261
Virginia Electric and Power Company
Form 10-K
Gentlemen:
We consent to the incorporation by reference into the statements made in
regard to our firm in the Registration Statements and related prospectuses of
Virginia Electric and Power Company on Form S-3 (File Nos. 33-60271 and
333-76155) of the legal conclusions that relate to the Company's franchises
and title to properties included in this Annual Report on Form 10-K.
Sincerely,
McGuire, Woods, Battle and Boothe, LLP
<PAGE>
Exhibit 23.2
Virginia Electric and Power Company
Richmond, Virginia 23261
Re: Virginia Electric and Power Company
Form 10-K
Gentlemen:
We consent to the incorporation by reference into the registration
statements of Virginia Electric and Power Company on Form S-3 (File No. 33-60271
and File No. 333-76155) of the statements, included in this Annual Report on
Form 10-K, made in regard to our firm that are governed by the laws of West
Virginia and that relate to franchises, title to properties, limitations upon
the issuance of bonds and preferred stock, rate and other regulatory matters,
and litigation.
Sincerely yours,
JACKSON & KELLY PLLC
<PAGE>
Exhibit 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference into the Registration Statements
No. 33-50425, 333-60271, 333-20561, and 333-76155 of Virginia Electric and Power
Company on Form S-3 of our report dated January 28, 2000, appearing in this
Annual Report on Form 10-K Virginia Electric and Power Company for the year
ended December 31, 1999.
DELOITTE & TOUCHE LLP
Richmond, Virginia
February 28, 2000
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