SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
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 1-8489
DOMINION RESOURCES, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 54-1229715
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
901 EAST BYRD STREET, RICHMOND, VIRGINIA 23219
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (804) 775-5700
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No _____
At October 31, 1996, the latest practicable date for determination, 180,172,971
shares of common stock, without par value, of the registrant were outstanding.<PAGE>
DOMINION RESOURCES, INC.
INDEX
Page
Number
PART I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Statements of Income - Three 3
and Nine Months Ended September 30, 1996
and 1995
Consolidated Balance Sheets - September 30, 1996 4-5
and December 31, 1995
Consolidated Statements of Cash Flows 6-7
Nine Months Ended September 30, 1996 and 1995
Notes to Consolidated Financial Statements 8-13
Item 2. Management's Discussion and Analysis 14-20
PART II. Other Information
Item 1. Legal Proceedings 22
Item 5. Other Information 22-26
Item 6. Exhibits and Reports on Form 8-K 26
<PAGE>
DOMINION RESOURCES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Millions, except per share amounts
Operating revenues and income:
Electric $1,177.1 $1,276.6 $3,371.0 $3,324.0
Nonutility 109.6 68.4 276.0 193.1
1,286.7 1,345.0 3,647.0 3,517.1
Operating expenses:
Fuel, net 256.6 289.3 745.4 769.8
Purchased power capacity, net 178.9 187.5 539.0 518.2
Other operations 200.4 168.2 556.1 507.9
Maintenance 67.1 62.1 187.0 202.6
Restructuring 4.5 30.6 29.2 36.6
Depreciation and
amortization 155.6 136.6 456.7 407.2
Other taxes 71.9 72.0 217.3 207.0
935.0 946.3 2,730.7 2,649.3
Operating Income 351.7 398.7 916.3 867.8
Other income 1.9 3.9 8.4 8.7
Income before fixed charges
and Federal income taxes 353.6 402.6 924.7 876.5
Fixed charges:
Interest charges, net 102.6 96.0 293.5 287.4
Preferred dividends of
Virginia Power 8.9 11.5 26.7 34.9
Preferred distribution of
Virginia Power affiliate, net 1.7 ____ 5.3 _____
113.2 107.5 325.5 322.3
Income before provision for
Federal income taxes 240.4 295.1 599.2 554.2
Provision for Federal income
taxes 78.2 97.2 192.6 169.7
Net income $ 162.2 $ 197.9 $ 406.6 $ 384.5
Average Common Stock 178.8 174.3 177.6 173.2
Earnings per common share $0.91 $1.14 $2.29 $2.22
Dividends paid per common
share $0.645 $0.645 $1.935 $1.935
_________________
The accompanying notes are an integral part of the Consolidated Financial
Statements.
DOMINION RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
(UNAUDITED)
September 30, December 31,
1996 1995*
(Millions)
Current assets:
Cash and cash equivalents $ 56.0 $ 66.7
Trading securities 23.2 10.8
Customer accounts receivable, net 366.0 362.6
Other accounts receivable 125.2 104.2
Accrued unbilled revenues 154.2 179.5
Accrued taxes 20.4 17.2
Materials and supplies:
Plant and general 148.9 160.2
Fossil fuel 70.6 71.2
Mortgage loans in warehouse 228.1
Other 162.4 124.3
1,355.0 1,096.7
Investments 1,487.5 1,442.7
Property, plant and equipment 16,763.0 15,977.4
Less accumulated depreciation
and amortization 6,230.1 5,655.1
10,532.9 10,322.3
Deferred charges and other assets:
Regulatory assets 688.9 816.4
Other 431.4 225.2
1,120.3 1,041.6
Total assets $14,495.7 $13,903.3
The accompanying notes are an integral part of the Consolidated Financial
Statements.
* The Balance Sheet at December 31, 1995 has been taken from the
audited Consolidated Financial Statements at that date.<PAGE>
DOMINION RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
(UNAUDITED)
September 30, December 31,
1996 1995*
(Millions)
Current liabilities:
Securities due within one year $ 394.4 $ 420.8
Short-term debt 193.9 236.6
Accounts payable, trade 351.7 336.7
Accrued payroll 98.2 77.7
Accrued interest 102.7 110.5
Accrued taxes 81.5 24.3
Severance costs accrued 24.7 42.5
Other 134.8 145.1
1,381.9 1,394.2
Long-term debt:
Utility 3,581.1 3,889.4
Nonrecourse - nonutility 1,067.7 523.5
Other 271.5 199.0
4,920.3 4,611.9
Deferred credits and other liabilities:
Deferred income taxes 1,711.0 1,661.1
Investment tax credits 259.5 272.2
Deferred fuel expenses 11.8 57.7
Other 477.7 340.2
2,460.0 2,331.2
Total liabilities 8,762.2 8,337.3
Virginia Power obligated mandatorily
redeemable preferred securities
of subsidiary trust** 135.0 135.0
Preferred stock:
Virginia Power stock subject to
mandatory redemption 180.0 180.0
Virginia Power stock not subject to
mandatory redemption 509.0 509.0
Common shareholders' equity:
Common stock - no par 3,412.7 3,303.5
Retained earnings 1,487.8 1,427.6
Allowance on available-for-sale
securities (8.1) (6.7)
Other 17.1 17.6
4,909.5 4,742.0
Total liabilities & shareholders'
equity $14,495.7 $13,903.3
The accompanying notes are an integral part of the Consolidated
Financial Statements.
* The Balance Sheet at December 31, 1995 has been taken from the audited
Consolidated Financial Statements at that date.
** As described in Note (I) to NOTES TO CONSOLIDATED FINANCIAL STATEMENTS,
the 8.05% Junior Subordinated Notes totaling $139.2 million principal
amount constitutes 100% of the Trust's assets.
DOMINION RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30,
1996 1995
(Millions)
Cash flows from (used in) operating activities:
Net income $ 406.6 $ 384.5
Adjustments to reconcile net income to
net cash:
Depreciation, depletion, and amortization 521.1 467.7
Deferred income taxes 60.4 33.1
Investment tax credits, net (12.8) (12.7)
Allowance for other funds used
during construction (2.6) (5.4)
Deferred fuel expenses (45.9) 3.4
Deferred capacity expenses 14.8 10.1
Non-cash return on terminated
construction projects (5.0) (6.5)
Changes in assets and liabilities:
Accounts receivable (7.1) (90.2)
Accrued unbilled revenues 25.7 16.9
Materials and supplies 12.0 43.9
Accounts payable, trade 7.6 (26.4)
Accrued interest and taxes 56.9 130.5
Mortgage loans in warehouse (228.1)
Other changes (94.5) 19.1
Net cash flows from operating activities 709.1 968.0
Cash flows from (used in) financing activities:
Issuance of common stock 122.9 119.1
Issuance of long-term debt:
Utility 24.5 240.0
Nonrecourse-nonutility 552.3 109.7
Preferred securities of subsidiary trust 135.0
Repayment of short-term debt, net (41.9) (68.7)
Repayment of long-term debt and
preferred stock (283.0) (226.1)
Common dividend payments (343.8) (335.3)
Other (19.5) 27.2
Net cash flows from financing activities 11.5 0.9
<PAGE>
DOMINION RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(CONTINUED)
Nine Months Ended
September 30,
1996 1995
(Millions)
Cash flows from (used in) investing activities:
Capital expenditures-(excluding
AFC-other funds) $(511.4) $(552.8)
Investments in marketable securities (8.1) (15.4)
Sale of accounts receivable (110.0)
Sale of trust units 16.4
Other (211.8) (157.2)
Net cash flows used in investing
activities (731.3) (819.0)
Increase (decrease) in cash and
cash equivalents (10.7) 149.9
Cash and cash equivalents at beginning
of period 66.7 146.7
Cash and cash equivalents at end of
period $ 56.0 $ 296.6
Supplementary cash flows information:
Cash paid during the period for:
Interest (net of interest capitalized) $ 227.1 $ 282.7
Income taxes 122.6 71.0
Non-cash transactions from investing
and financing activities:
Exchange of available-for-sale
securities $ 4.3 $ 12.3
___________________
The accompanying notes are an integral part of the Consolidated Financial
Statements.<PAGE>
DOMINION RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(a) Dominion Resources, Inc. (Dominion Resources) is a holding company
headquartered in Richmond, Virginia. Its primary business is Virginia
Electric and Power Company (Virginia Power), which 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 government agencies) and to wholesale customers such as rural
electric cooperatives and municipalities. The Virginia service area
comprises about 65 percent of Virginia's total land area, but
accounts for 80 percent of its population.
Dominion Resources also operates business subsidiaries active in independent
power production; the acquisition and sale of natural gas reserves;
financial services; and real estate. Some of the independent power and
natural gas projects are located in foreign countries. Net assets of
approximately $430 million are involved in independent power production
operations in Latin America.
In the opinion of Dominion Resources' management, the accompanying unaudited
Consolidated Financial Statements contain all adjustments, consisting only
of normal recurring accruals, necessary to present fairly the financial
position as of September 30, 1996, the results of operations for the nine-
month periods ended September 30, 1996 and 1995, and cash flows for the
nine-month periods ended September 30, 1996 and 1995.
These Consolidated Financial Statements should be read in conjunction with
the Consolidated Financial Statements and notes thereto included in the
Dominion Resources Annual Report on Form 10-K for the year ended December
31, 1995.
The results of operations for the interim periods are not necessarily
indicative of the results to be expected for the full year.
The consolidated financial statements include the accounts of the Company
and its subsidiaries, with all significant intercompany transactions and
accounts being eliminated on consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(b) Common Stock
At September 30, 1996, there were 300,000,000 shares of common stock
authorized of which 180,003,958 were issued and outstanding.
<PAGE>
DOMINION RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Common shares issued during the referenced periods were as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Automatic Dividend
Reinvestment and
Stock Purchase Plan 815,185 1,418,180 2,189,532
Dominion Direct Investment
Plan 894,936 894,936
Customer Stock Purchase
Plan 1,046,027 1,371,765 1,046,027 1,371,765
Employee Savings Plan 168,602 92,363 291,867 92,363
Stock Repurchase and
Retirement (308,500) (136,800) (685,500)
Other 498 209,027 75,638 241,850
Total Shares 2,110,063 2,179,840 3,589,848 3,210,010
On July 8, 1996, Dominion Resources established the Dominion Direct Investment
plan. The Dominion Direct Investment plan continues and expands the Dominion
Resource Automatic Dividend Reinvestment and Stock Purchase Plan.
(c) Long-Term Incentive Plan
On February 19, 1996, the Organization and Compensation Committee of the
Board of Directors of Dominion Resources awarded participants 47,556 shares
of restricted common stock at an award price of $42.375 per share.
On February 23, 1996, the Organization and Compensation Committee of the
Board of Directors awarded participants 24,728 shares of restricted common
stock at an award price of $42.125 per share. The Stock has a three-year
vesting period.
For the nine-month period ending September 30, 1996, 13,195 shares were
issued. As of September 30, 1996, options from 10,813 shares were
exercisable from previous awards.
(d) Preferred Stock - Virginia Power
As of September 30, 1996, there were 1,800,000 and 5,940,140 issued and
outstanding shares of preferred stock subject to mandatory redemption and
preferred stock not subject to mandatory redemption, respectively. There
are a total of 10,000,000 authorized shares of Virginia Power's preferred
stock.
<PAGE>
DOMINION RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(e) Provision for Federal Income Taxes
Total Federal income tax expense differs from the amount computed by
applying the statutory Federal income tax rate to pre-tax income for the
following reasons:
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
(Millions)
Computation of Provision
for Federal Income Tax:
Pre-tax income $240.4 $295.1 $599.2 $554.2
Tax at statutory federal
income tax rate of 35%
applied to pre-tax income 84.1 103.3 209.7 194.0
Changes in federal income
taxes resulting from:
Preferred dividends
of Virginia Power 3.1 4.0 9.3 12.2
Nonconventional fuel credit (7.0) (6.4) (20.2) (20.1)
Ratable amortization of
investment tax credits (4.2) (4.2) (12.7) (12.7)
Other, net 2.2 0.5 6.5 (3.7)
Provision for Federal
Income Taxes $ 78.2 $ 97.2 $192.6 $169.7
Effective Tax Rate 32.5% 32.9% 32.1% 30.6%
(f) Contingencies
Virginia Power
Nuclear Insurance
The Price-Anderson Act limits the public liability of an owner of nuclear
power plants to $8.9 billion for a single nuclear incident. Virginia Power
is a member of certain insurance programs that provide coverage for property
damage to members' nuclear generating plants, replacement power and
liability in the event of a nuclear incident. Virginia Power may be subject
to retrospective premiums in the event of major incidents at nuclear units
owned by covered utilities (including Virginia Power). For additional
information, see Note P to NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
Site Remediation
With respect to the two Superfund sites located in Kentucky and Pennsylvania
discussed in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, under Note P to CONSOLIDATED FINANCIAL STATEMENTS, the
estimate for future remediation costs has now been revised to fall within
a range of $61.5 million to $72.5 million. Virginia Power's proportionate
share of the cost is expected to be in the range of $1.7 million to $2.5<PAGE>
DOMINION RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
million, based upon allocation formulas and the volume of waste shipped to
the sites. As of September 30, 1996, Virginia Power accrued a reserve of
$1.7 million to meet its obligations at these two sites. Based on a
financial assessment of the PRPs involved at these sites, Virginia Power has
determined that it is probable that the PRPs will fully pay the costs
apportioned to them.
Dominion Energy
Dominion Cogen, Inc., is a wholly owned subsidiary of Dominion Energy with
an investment interest in Clear Lake cogeneration plant near Houston, Texas.
Under terms of the investment agreement, Dominion Resources must provide
contingent equity support to Dominion Energy. While management believes
that the possibility of such support is remote, Dominion Resources could be
required to insure that Dominion Energy has sufficient funds to meet its
guarantee of $59.1 million.
Dominion Energy has guaranteed to fund up to $19.3 million and $3.5 million
for project cost overruns and debt payments, respectively, for Belize
Electric Company Limited, a 95% owned subsidiary of Dominion Energy. The
project cost overrun guarantee remains in place through the project
completion date as defined in the financing agreements. The debt payment
guarantee remains in place until the entire debt has been repaid.
Management currently believes that Dominion Energy will incur no obligation
with respect to these guarantees.
Dominion Energy has general partnership interests in certain of its energy
ventures. Accordingly, Dominion Energy may be called upon to fund future
operation of these investments to the extent operating cash flow is
insufficient.
Dominion Capital
On May 13, 1996, Dominion Mortgage Services, Inc. (Dominion Mortgage) a
wholly-owned subsidiary of Dominion Capital agreed to purchase from Resource
Mortgage Capital, Inc. (Resource Mortgage) certain assets in exchange for
a $47.5 million promissory note (the Note). To secure the obligations of
Dominion Mortgage under the Note, Dominion Resources guarantees to Resource
Mortgage the payment of all amounts due by Dominion Mortgage to Resource
Mortgage.
As of September 30, 1996, Saxon Mortgage, Inc. a wholly-owned subsidiary of
Dominion Capital has entered into commitments of approximately $144.4
million to fund single and multi-family mortgages. The commitments for
single-family and multi-family mortgages have original terms of not more
than 60 days and two years, respectively.
(g) Lines of Credit
Dominion Resources and its subsidiaries have lines of credit agreements that
provide for maximum borrowings of $1,482.8 million. At September 30, 1996,
$371.9 million had been borrowed under such agreements. In addition, these<PAGE>
DOMINION RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
credit agreements supported $297.7 million of Dominion Resources' commercial
paper and $227.0 million of nonrecourse commercial paper issued by Dominion
Resources' subsidiaries which was outstanding at September 30, 1996. A
total of $362.4 million of the commercial paper is classified as long-term
debt since it is supported by revolving credit agreements that have
expiration dates extending beyond one year.
(h) Investments
Investments at September 30, 1996 and December 31, 1995 are as follows:
September 30, December 31,
1996 1995
(Millions)
Investments in affiliates $ 447.7 $ 436.2
Available-for-sale securities 281.3 285.5
Nuclear decommissioning trust funds 394.1 351.4
Investments in real estate 127.4 133.0
Other 237.0 236.6
$1,487.5 $1,442.7
(i) Virginia Power Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trust.
In 1995, Virginia Power established Virginia Power Capital Trust I (VP
Capital Trust). VP Capital Trust sold 5,400,000 shares of Preferred
Securities for $135 million, representing preferred beneficial interests and
97% beneficial ownership in the assets held by VP Capital Trust.
Virginia Power issued $139.2 million of its 1995 Series A, 8.05% Junior
Subordinated Notes (the Notes) in exchange for the $135 million realized
from the sale of the Preferred Securities and $4.2 million of common
securities of VP Capital Trust.
The common securities represent the remaining 3% beneficial ownership
interest in the assets held by VP Capital Trust. The Notes constitute 100%
of VP Capital Trust's assets.
(j) Restructuring Charges
In March 1995, Virginia Power announced the implementation phase of its
Vision 2000 program. For additional information, see Note O to CONSOLIDATED
FINANCIAL STATEMENTS included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1995. Restructuring charges of $4.6 million
and $29.2 million for the three months and nine months, respectively, ended
September 30, 1996, included severance costs, purchase power contract
cancellation and negotiated settlement costs and other costs incurred
directly as a result of the Vision 2000 initiatives. The Vision 2000 review
of operations is expected to continue through 1997. Although most of the
remaining restructuring charges will likely be incurred in the fourth
quarter of 1996, some of those charges may be incurred in 1997. At this
time, Virginia Power management believes several hundred additional
positions may be eliminated, but cannot estimate the additional
restructuring costs yet to be incurred.
DOMINION RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
In May 1995, Virginia Power established comprehensive involuntary severance
packages for employees who lose their positions as a result of these
initiatives. Through September 30, 1996, management had decided to
eliminate 1,219 positions. The recognition of severance costs in 1996
resulted in a charge to operations in the first, second and third quarters
of $3.2 million, $10.6 million and $1.6 million, respectively. At September
30, 1996 1,145 employees have been terminated and severance payments
totaling $38.1 million have been made. Virginia Power estimates that these
staffing reductions will result in annual savings, net of outsourcing costs,
in the range of $66 million to $74 million. These savings will be reflected
in lower construction expenditures as well as lower operation and
maintenance expenses.
As part of re-engineering operations, Virginia Power has adopted a plan to
improve customer service which will require an investment in excess of $100
million over the next several years. That plan includes the installation
of automated electric meters in metropolitan and inaccessible rural and
urban locations. The plan also provides for the installation of mobile data
dispatch technology in Virginia Power's service fleet, accompanied by
digitized mapping of its service territory. Furthermore, technological
changes are being made to enhance Virginia Power's ability to handle
customer calls during power outages. In order to increase service
reliability, Virginia Power has initiated both local and regional
distribution line improvement projects.
(k) Acquisitions
For more information on acquisitions, see Part II, Item 5. Other
Information, The Company.
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Dominion Resources - Consolidated
Financial Condition
Earnings Per Share
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Virginia Power $0.86 $1.09 $2.17 $2.08
Nonutility 0.05 0.05 0.12 0.14
Consolidated $0.91 $1.14 $2.29 $2.22
Virginia Power's earnings decreased 23 cents and increased 11 cents for the
three months ended and nine months ended September 30, 1996, respectively,
when compared to the same periods for 1995. The decrease in the third
quarter earnings is attributed to unusually mild temperatures for the summer
months and heavy damages incurred as a result of severe summer storms,
including Hurricane Fran. The increase in earnings for the nine months
ended September 30, 1996, as compared to the same period in 1995, are
primarily due to the colder weather experienced in the first quarter of
1996, the warmer weather encountered in the second quarter of 1996, and a
reduction in operation and maintenance expenses driven primarily by Virginia
Power's Vision 2000 efforts, offset in part by the higher storm damage costs
incurred during the third quarter of 1996.
Dominion Resources non-utility subsidiaries earnings remained the same for
the three month period and decreased for the nine month period when compared
to the same periods for 1995. The decrease was primarily due to the gain
on the sale of the remaining Black Warrior Trust units in June 1995.
Dividends
On October 18, 1996, the board of directors of Dominion Resources declared
a quarterly common stock dividend of $0.645 per share, payable December 20,
to holders of record at the close of business November 29, 1996.
Financing Activities
Common Stock Issuance
Dominion Resources issued 3,589,848 net shares of common stock primarily
through its Automatic Dividend Reinvestment, Stock Purchase Plan, and
Dominion Direct Plan including the repurchase of 136,800 shares on the open
market (see Note (b) to the Notes to the CONSOLIDATED FINANCIAL STATEMENTS)
during the nine-month period ended September 30, 1996.
The proceeds from issuance of common stock are invested on a short-term
basis by Dominion Resources and ultimately utilized to provide equity
capital to its subsidiaries generally within the same calendar year as the
issuance of the common stock.
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
Virginia Power
Liquidity and Capital Resources
Cash Flows From Operations
Internal generation of cash during the first nine months of 1996 provided
188% of funds required for Virginia Power's capital requirements compared
to 144% during the first nine months of 1995.
With the completion of the Clover Power Station, Virginia Power is in a
period in which internal cash generation should exceed construction
expenditures.
As detailed in the Consolidated Statements of Cash Flows, cash flow from
operating activities for the nine-month period ended September 30, 1996
decreased $27.8 million as compared to the nine-month period ended September
30, 1995 primarily as a result of normal operations.
Cash Flows (Used In) Financing Activities
Cash (used in) financing activities was as follows:
Nine Months Ended
September 30,
1996 1995
(Millions)
Mortgage bonds $ 200.0
Preferred securities of
subsidiary trust 135.0
Medium-term notes 40.0
Issuance (repayment) of short-term debt, net $ (32.9)
Issuance of tax exempt securities 24.5
Repayment of long-term debt
and preferred stock (236.8) (246.6)
Dividends (314.7) (330.3)
Other (10.0) (9.0)
Total $(569.9) $(210.9)
Financing activities for the first nine months of 1996 resulted in a net
cash outflow of $569.9 million.
During the first quarter of 1996, $34.4 million of Medium-Term Notes
matured. In addition, Virginia Power issued $24.5 million of variable rate
solid waste disposal securities to refund $24.5 million of securities
assumed in its acquisition of the North Branch Power station.
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
In the second and third quarters of 1996, $162 million and $15.9 million,
respectively of Medium-Term Notes matured.
Virginia Power's agreement to sell certain accounts receivable expired on
October 1, 1996.
Virginia Power increased its commercial paper program limit to $500 million
in June 1996 with the execution of $500 million of revolving credit
facilities, which replaced existing liquidity support.
As of September 30, 1996, $136.1 million was outstanding under Virginia
Power's commercial paper program, which is a decrease of $32.9 million from
the December 31, 1995 outstanding balance. The proceeds from the sale of
commercial paper were used primarily to replace mandatory debt maturities and
for other capital requirements.
Cash Flows (Used In) Investing Activities
Cash from (used in) investing activities was as follows:
Nine Months Ended
September 30,
1996 1995
(Millions)
Utility plant expenditures $(245.3) $(394.0)
Nuclear fuel (84.2) (46.0)
Nuclear decommissioning
contributions (27.2) (19.5)
Sale of accounts receivable (110.0)
Purchase of subsidiary assets (14.6)
Other (9.9) (7.9)
Total $(381.2) $(577.4)
Investing activities for the first nine months of 1996 resulted in a net cash
outflow of $381.2 million primarily due to $245.3 million of construction
expenditures and $84.2 million of nuclear fuel expenditures. Of the
construction expenditures, approximately $169.5 million was spent on
transmission and distribution projects, and $42.0 million on power production
projects.
Results of Operations
Balance available for Common Stock decreased by $37 million for the three
months ended September 30, 1996, as compared to the same period in 1995,
primarily as a result of the milder summer weather and high storm damage costs
($14.6 million), particularly from Hurricane Fran in 1996.
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
Balance available for Common Stock increased by $25 million for the nine
months ended September 30, 1996, as compared to the same period in 1995,
primarily as a result of the colder weather during the first quarter of 1996,
warmer weather during the second quarter of 1996 and a reduction in operation
and maintenance expenses driven primarily by the Company's Vision 2000
efforts, offset in part by the higher storm damage costs incurred during the
third quarter of 1996.
Operating Revenues
Operating revenues changed primarily due to the following:
Three Months Ended Nine Months Ended
September 30, September 30,
1996 vs. 1995 1996 vs. 1995
(Millions)
Customer growth $ 12.7 $ 31.2
Weather (89.3) 24.3
Base rate variance (42.7) (55.4)
Fuel rate variance (19.4) (59.3)
Other, net 39.6 51.4
Total retail (99.1) (7.8)
Sales for resale (9.6) 34.0
Other operating revenues 9.2 20.8
Total revenue $(99.5) $ 47.0
Customer kilowatt-hour sales changed as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
1996 vs. 1995 1996 vs. 1995
Residential (9.5)% 5.4%
Commercial (1.4) 4.1
Industrial 1.1 0.4
Public authorities (0.4) 2.7
Total retail sales (3.9) 3.7
Resale 18.6 41.5
Total sales (1.2) 8.0
Heating and cooling degree days during the third quarter were as follows:
1996 1995 Normal
Heating degree days 7 15 17
Percentage change compared
to prior year (53.3) 140
Cooling degree days 881 1,167 1,043
Percentage change compared
to prior year (24.5) 13.8
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
Heating and cooling degree days during the first nine months were as follows:
1996 1995 Normal
Heating degree days 2,715 2,219 2,378
Percentage change compared
to prior year 22.4 (9.3)
Cooling degree days 1,349 1,595 1,486
Percentage change compared
to prior years (15.4) 0
The decrease in kilowatt-hour retail sales for the three-month period ended
September 30, 1996, as compared to the same period in 1995 reflects the
milder summer weather experienced in 1996 as compared to 1995.
The increase in kilowatt-hour retail sales for the nine-month period ended
September 30, 1996, as compared to the same period in 1995, reflects the
colder weather experienced in the first quarter of 1996 and the warmer
weather experienced in the second quarter of 1996, offset in part by the
milder weather during the third quarter of 1996.
The increase in sales for resale for the three- and nine-month periods ended
September 30, 1996, as compared to the same period in 1995, was primarily
due to colder weather experienced in the first quarter of 1996 and warmer
weather experienced in the second quarter of 1996 by other utilities in
surrounding regions and increased marketing efforts by Virginia Power.
Fuel, net
Fuel, net decreased for the three- and nine-month periods ended September
30, 1996, as compared to the same periods in 1995, primarily as a result of
a higher recovery of fuel expenses subject to deferral accounting in 1995.
Restructuring
As part of the Vision 2000 programs (see Note (j) to CONSOLIDATED FINANCIAL
STATEMENTS), Virginia Power recorded $4.6 million and $29.2 million of
restructuring charges in the three months and nine months respectively,
ended September 30, 1996. Restructuring charges included severance costs,
purchase power contract cancellation and negotiated settlement costs and
other costs. Virginia Power estimates that the staffing reductions,
including those reported during 1995, will result in annual savings, net of
outsourcing costs, in the range of $66 million to $74 million. Although
most of the remaining restructuring charges will likely be incurred in the
fourth quarter of 1996, some of the charges may be incurred in 1997.
Management believes that several hundred additional positions may be
eliminated, but the amount of restructuring charges yet to be incurred is
not known at this time.
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
Furthermore, because Virginia Power's review of its operations has not been
completed, the amount of savings ultimately to be realized cannot be
estimated at this time. When realized, the savings will ultimately be
reflected in lower construction expenditures as well as lower operation and
maintenance expenses.
As part of re-engineering operations, Virginia Power had adopted a plan to
improve customer service which will require an investment in excess of $100
million over the next several years. That plan includes the installation
of automated electric meters in metropolitan and inaccessible rural and
urban locations. The plan also provides for the installation of mobile data
dispatch technology in Virginia Power's service fleet, accompanied by
digitized mapping of its service territory. Furthermore, technological
changes are being made to enhance Virginia Power's ability to handle
customer calls during power outages. In order to increase service
reliability, Virginia Power has initiated both local and regional
distribution line improvement projects.
Operation-Other and Maintenance
Operation-other and maintenance increased for the three-month period ended
September 30, 1996, as compared to the same period in 1995, due to an
increase in transmission and distribution service restoration costs
resulting from multiple incidents of storm damage and the operating expenses
of A&C Enercom, Inc., a wholly owned subsidiary of Virginia Power, formed
in January 1996.
Income Taxes - Operating
Income taxes-operating decreased for the three-month period ended September
30, 1996, as compared to the same period in 1995, primarily as a result of
decreased income subject to tax.
Future Issues
Competition
On April 24, 1996 the Federal Energy Regulatory Commission (FERC) issued
final rules on open access transmission service, stranded costs, standards
of conduct and open access same-time information systems (OASIS). On July
9, 1996, Virginia Power filed an open access transmission service tariff in
compliance with FERC's Order No. 888, Promoting Wholesale Competition
Through Open Access Non-discriminatory Transmission Services by Public
Utilities. Utilities must also take service under their own tariffs for
wholesale power sales. The rule provides for stranded cost recovery from
departing customers. On October 10, 1996, FERC issued the procedural order
in the filing, scheduling the Hearing for April 28, 1997. Utilities must
participate in an OASIS by January 3, 1997, and comply with standards of
conduct that require separation of transmission operations/reliability
functions from wholesale merchant/marketing functions.
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
FERC also issued a notice of proposed rulemaking (NOPR) proposing
replacement of open access tariffs with a capacity reservation tariff by
December 31, 1997.
On November 8, 1996, Virginia Power gave the Virginia State Corporation
Commission (the Virginia Commission) notice that it intended to institute
a proceeding under a recently enacted statute that allows the Virginia
Commission to consider alternative forms of regulation. On November 12,
1996, the Commission directed its staff and the three largest electric
utilities in Virginia, which include Virginia Power, to provide additional
information relevant to potential changes in and possible emergence of
competition in the Company to provide its information by March 31, 1997.
The Commission also directed that any proposed alternative form of
regulation be filed in the newly instituted proceeding. For additional
information, see discussion under Part II, Item 5. - Other Information,
Regulation, General.
On August 15, 1996, pursuant to the provisions of the Interconnection and
Operating Agreement between Old Dominion Electric Cooperative (ODEC) and
Virginia Power, ODEC gave written notice of its intent to reduce its
supplemental demand purchases under that Agreement to zero within nine
years. This termination of supplemental sales to ODEC will result in an
annual reduction of approximately $22 million of fixed charge recoveries
beginning in 2005.
Other
Except for the historical information contained herein, the matters
discussed in this report are forward-looking statements which involve
risks and uncertainties, including but not limited to regulatory, economic,
competitive, governmental and technological factors affecting Dominion
Resources' operations, rates, markets, products, services and prices, and
other factors discussed herein and in Dominion Resources' other filings with
the Securities and Exchange Commission.
Dominion Resources and its Nonutility Subsidiaries
Liquidity and Capital Resources
During the first nine months of 1996, Dominion Resources' nonutility
subsidiaries expended $271.2 million of their anticipated capital
expenditures. Estimated capital expenditures for 1996 are $319.4 million.
Included in the capital expended during the first nine months of 1996 is the
purchase of assets for approximately $160 million held by Empresa de
Generation Electrica NorPeru, S.A. (EGENOR), in which Dominion Energy
acquired a 60 percent ownership and management interest. For more
information on EGENOR, see PART II, Item 5. Other Information, The Company.
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
Results of Operations
Nonutility earnings decreased for the nine-month period ended September 30,
1996, as compared to the same period in 1995, primarily due to the gain on
the sale of the remaining Black Warrior Trust units in June 1995.
Commitments and Contingencies
For additional information on commitments and contingencies, see Note (f)
to NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
DOMINION RESOURCES, INC.
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
Virginia Power
The civil action filed December 13, 1995 in the United States District Court
for the Eastern District of Virginia, Norfolk Division, was dismissed by the
Federal Court on August 7, 1996. However, two civil actions have been filed
in the Virginia Circuit Court of the City of Norfolk against the City of
Norfolk and Virginia Power, one for $15 million dollars and one for $3
million dollars, by property owners who each allege contamination of their
respective properties by hazardous substances originating on nearby property
now owned by the city and formerly owned by Virginia Power.
Item 5. Other Information
The Company
On November 13, 1996, Dominion Resources announced an offer to purchase,
through a newly created United Kingdom subsidiary, DR Investments, all of
the shares of East Midlands Electricity plc, a regional electricity company
based in the U.K. that serves about 2.3 million customers. DR Investments'
offer will be for 670 pence per ordinary share (the equivalent of $11.06 per
share based on an exchange rate of one pound (U.K.) equaling $1.65) for a
total purchase price of approximately $2.2 billion. The offer has received
the recommendation of East Midlands' Board of Directors and is conditioned
upon the satisfaction, prior to closing, of certain customary conditions,
including non-referral of the transaction to the Monopolies and Mergers
Commission and DR Investments' acquisition of at least 90 percent of the
issued ordinary shares of East Midlands. Assuming the offer is successful
and all necessary conditions are satisfied, Dominion Resources expects the
transaction to be completed during the first quarter of 1997. Dominion
Resources expects formal offer documents to be posted soon although the
exact date has not been determined. Dominion Resources has secured interim
financing for the offer. It expects the permanent financing will be a
combination of debt, issued at the subsidiary level, and equity provided by
Dominion Resources. The offer is not being made directly or indirectly in
or into the United States to any holder of East Midlands shares who may be
a U.S. resident.
With respect to the purchase of the Kincaid Power Station by Kincaid
Generation, L.L.C. (LLC), a subsidiary of Dominion Energy, Inc. (Dominion
Energy), from Commonwealth Edison Company, (ComEd), LLC and ComEd have filed
for removal to federal court and dismissal of the complaint filed by the
International Brotherhood of Electrical Workers, AFL-CIO, Local 15 (IBEW),
which actions have been opposed by the IBEW. In other matters, LLC filed
on October 4, 1996 with the Federal Energy Regulatory Commission (FERC)
applications for approval of certain aspects of the transaction under
Sections 203 and 205 of the Federal Power Act, and on October 7-11, 1996 the
Illinois Commerce Commission (ICC) conducted hearings on ComEd's application
for approval of the proposed transaction. No action has been taken by FERC
or ICC on these applications.
<PAGE>
DOMINION RESOURCES, INC.
PART II. - OTHER INFORMATION
(CONTINUED)
In reference to Dominion Energy's acquisition of a 60 percent ownership and
management interest in Empresa de Generation Electrica NorPeru, S.A.
(EGENOR), Dominion Energy continues to assess the potential to sell a
portion of its interest in EGENOR to a third party.
Virginia Power
Regulation
General
On October 8, 1996, Virginia Power filed with the Virginia State Corporation
Commission (the Virginia Commission) an application for authority to provide
interexchange non-switched dedicated telecommunication services throughout
Virginia. If the application is granted, Virginia Power will be authorized
to provide a range of telecommunications services, including private line
and special access services, dark fiber and high capacity telecommunication
services.
In reference to the Virginia Commission proceeding to review and consider
its policy regarding restructuring of, and competition in, the electric
utility industry, on September 23, 1996 Virginia Power filed its comments
on the Staff Report and a request for oral argument. The comments generally
supported most of the Staff's specific recommendations as well as its
overall recommendation that Virginia should pursue a cautious and measured
approach to the adoption of competitive initiatives, but Virginia Power
stated that it would continue to pursue its Vision 2000 restructuring (see
Note j to CONSOLIDATED FINANCIAL STATEMENTS). The comments stated that the
question of recovery of stranded costs should be addressed now rather than
by adopting the "wait and see" approach recommended by the Staff. On
November 8, 1996 Virginia Power gave the Virginia Commission notice that it
intended to institute a proceeding under a recently enacted statute that
allows the Virginia Commission to consider alternative forms of regulation.
On November 12, 1996, the Virginia Commission directed its staff and the
three largest electric utilities in Virginia, which include Virginia Power,
to provide additional information relevant to potential changes in and
possible emergence of competition in the electric industry. It directed
utilities that have nonutility generation that impacts their Virginia
jurisdictional rates to file, by June 1, 1997, a report detailing efforts
to restructure contracts with nonutility generators (NUGs) to mitigate the
potentially negative effect on current and future rates, and subsequently
to file quarterly reports detailing continuing efforts in this area. The
Commission instituted a new proceeding and directed Virginia Power to
provide other information by March 31, 1997. Information required to be
filed includes detailed cost-of-service studies, suggested adjustments for
eliminating cross subsidies among customer classes, methods for improving
price signals to customers, illustrative tariffs that unbundle rates,
analysis of reserve margin requirements, analysis of whether incremental
capacity needs could be met by a competitive market, evaluation of the
capacity solicitation process, evaluation of conservation and load
management programs and other information. The Virginia Commission also
directed that any proposed alternative form of regulation be filed in the
newly instituted proceeding, and required that a 1996 calendar year be used<PAGE>
DOMINION RESOURCES, INC.
PART II. - OTHER INFORMATION
(CONTINUED)
as the test period, with an anticipated rate year beginning 150 days after
the date of filing. Among the issues that may be considered in the
proceeding is treatment of potential stranded costs that may result with
retail access. It is not presently possible to predict the outcome of this
issue or other issues that may be addressed in this proceeding. Estimates
of the magnitude of potential stranded costs vary widely depending on
assumptions as to when retail competition will be allowed in Virginia
Power's service territory, how quickly customers will respond to such
competition, what market prices will be in the competitive market, and other
factors. Virginia Power believes that stranded costs could be substantial,
and the extent to which recovery of stranded costs will be approved is
uncertain. Virginia Power believes that recovery of such costs is
appropriate.
Rates
FERC
On July 9, 1996, Virginia Power filed an open access transmission service
tariff in compliance with FERC's Order No. 888, Promoting Wholesale
Competition Through Open Access Non-Discriminatory Transmission Services by
Public Utilities. On October 10, 1996, FERC issued the procedural order in
the filing, scheduling the Hearing for April 28, 1997. For additional
information, see Future Issues - Competition under MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Regarding the protest filed by three power marketers with the Department of
Defense on July 15, 1996, challenging the sole source negotiation and
impending sole source contract with Virginia Power, the Department of the
Navy, Naval Facilities Engineering Command issued a decision on October 22,
1996, denying the protest of the three power marketers. The Navy found that
competition between providers other than Virginia Power for the provision
of electrical service to Department of Defense facilities and activities
within Virginia Power franchise areas in Virginia is not currently available
The Navy also noted that the impending contract with Virginia Power was not
in contemplation of a new acquisition, but was the result of periodic review
of, and negotiation of a new rate under an existing indefinite term
contract. The supplemental agreement incorporating the new rate was executed
on October 30, 1996.
On July 31, 1996, FERC denied in part and granted in part, LG&E Westmoreland
Southampton's (Southampton) request for a waiver of the Commission's
operating requirements for Qualifying Facilities (QFs) under PURPA.
Southampton owns and operates a 62.6 MW cogeneration facility located in
Franklin, Virginia and sells the output of the facility to Virginia Power.
FERC's decision preserved Southampton's QF status under the Public Utility
Holding Company Act, but refused to waive Southampton's violation of the QF
operating standards. The Order provided that Southampton refund to Virginia
Power the difference between the amount that Virginia Power paid to
Southampton in 1992 under its QF contract and a Commission-approved rate
equal to Virginia Power's incremental cost of economy energy during 1992.
On August 23, 1996, Southampton filed a Motion for Clarification, and on
August 30, 1996, it filed a Request for Rehearing. Virginia Power filed<PAGE>
DOMINION RESOURCES, INC.
PART II. - OTHER INFORMATION
(CONTINUED)
responses to each Southampton pleading. On September 30, 1996, FERC issued
an order granting rehearing for the purpose of further consideration. On
October 15, 1996, Virginia Power filed the data requested by the FERC order
showing Virginia Power's incremental cost of economy energy during each hour
of 1992. On October 30, 1996, Southampton filed a response to Virginia
Power's data filing. Southampton also filed a Petition for Review on
September 23, 1996, against the FERC in the United States Court of Appeals
for the D.C. Circuit. Virginia Power has filed a Motion to Intervene in
that proceeding.
Virginia
In reference to Virginia Power's application to implement a QF monitoring
program, the Commission Staff filed its legal memorandum on October 10, 1996
and concluded that the Commission had the legal authority to require QFs to
provide it with the operating data identified in Virginia Power's
application and to adopt a monitoring program. Virginia Power must file by
November 22, 1996 a response to the Staff's comments and the twelve QFs
which also filed comments. The Staff will then file an additional report
on December 18, 1996 making its recommendations to the Commission.
In reference to the Virginia Commission proceeding for approval to purchase
a gas-fired combined cycle generator from Richmond Power Enterprise, L.P.
(RPE) and to enter into a purchased power contract with RPE and an affiliate
without competitive bidding, on October 8, 1996, the Staff of the Virginia
Commission filed testimony recommending that the required approvals be
granted.
The Virginia Commission entered an order on October 7, 1996 in its
proceeding regarding spent nuclear fuel disposal in which it directed that
the proceeding be consolidated with Virginia Power's next fuel cost recovery
proceeding. On October 21, 1996, Virginia Power filed its application in
such a proceeding, requesting an increase in its fuel cost recovery factor
from 1.229 cents per kilowatt-hour to 1.322 cents per kilowatt-hour. The
requested change, if approved, would result in an annualized increase in
fuel revenues of approximately $48.2 million. The consolidated proceedings
have been set for hearing on November 26, 1996.
In the proceeding before the Virginia Commission for approval of
arrangements with Chesapeake Paper Products Company to facilitate the
design, construction and financing of a cogeneration plant to meet
Chesapeake's energy requirements for its industrial processes, several
parties oppose the proposed arrangements by which Virginia Power would
provide gas sales, fuel management and fuel procurement services to the
plant as being anticompetitive and beyond Virginia Power's corporate and
regulatory authority. The case has been set for hearing beginning November
12, 1996.
<PAGE>
DOMINION RESOURCES, INC.
PART II. - OTHER INFORMATION
(CONTINUED)
North Carolina
On September 13, 1996, Virginia Power filed an application with the North
Carolina Commission for a $3.2 million decrease in fuel rates. A hearing
is scheduled for November 12, 1996
Purchases and Sales of Power
On August 15, 1996, pursuant to the provisions of the Interconnection and
Operating Agreement between Old Dominion Electric Cooperative (ODEC) and
Virginia Power, ODEC gave written notice of its intent to reduce its
supplemental demand purchases under that Agreement to zero within nine
years. This termination of supplemental sales to ODEC will result in an
annual reduction of approximately $22 million of fixed charge recoveries
beginning in 2005.
Item 6. Exhibits and Reports on Form 8-K
(a) 11 - Statement re: computation of per share earnings (included in this
form 10-Q on page 3)
27 - Financial Data Schedule (filed herewith)
(b) Report on Form 8-K
None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DOMINION RESOURCES, INC.
Registrant
BY JAMES L. TRUEHEART
James L. Trueheart
Vice President and Controller
(Principal Accounting Officer)
November 13, 1996
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