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 June 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 July 31, 1996, 177,958,497 actual 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 3-4
and Six Months Ended June 30, 1996 and 1995
Consolidated Balance Sheets - June 30, 1996 5-6
and December 31, 1996
Consolidated Statements of Cash Flows 7-8
Six Months Ended June 30, 1996 and 1995
Notes to Consolidated Financial Statements 9-14
Item 2. Management's Discussion and Analysis 15-20
PART II. Other Information
Item 1. Legal Proceedings 21
Item 5. Other Information 21-22
Item 6. Exhibits and Reports on Form 8-K 23
<PAGE>
DOMINION RESOURCES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
Millions, except per share amounts
Operating revenues and income:
Electric $ 1,029.1 $ 971.1 $2,193.9 $2,047.4
Nonutility 91.9 71.7 166.4 124.7
1,121.0 1,042.8 2,360.3 2,172.1
Operating expenses:
Fuel, net 225.6 226.5 488.7 480.5
Purchased power capacity, net 165.9 154.7 360.1 330.6
Other operation 186.1 172.6 355.7 340.3
Maintenance 60.3 73.6 119.9 140.5
Restructuring 19.3 1.8 24.7 5.3
Depreciation and amortization 153.0 135.5 301.1 270.7
Other taxes 69.6 65.4 145.4 135.0
879.8 830.1 1,795.6 1,702.9
Operating income 241.2 212.7 564.7 469.2
Other income 3.6 2.5 6.4 4.8
Income before fixed charges and
Federal income taxes 244.8 215.2 571.1 474.0
Fixed charges:
Interest charges, net 95.7 96.2 190.9 191.4
Preferred dividends of Virginia
Power 8.8 11.7 17.8 23.4
Preferred distribution of Va. Power
affiliate, net 1.8 0.0 3.6 0.0
106.3 107.9 212.3 214.8
Income before provision for
Federal income taxes 138.5 107.3 358.8 259.2
Provision for Federal income
taxes 44.3 29.2 114.4 72.6
<PAGE>
DOMINION RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(CONTINUED)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
Millions, except per share amounts
Net income $ 94.2 $ 78.1 $244.4 $186.6
Average Common Stock 177.4 172.9 177.0 172.6
Earnings per common share $ 0.53 $ 0.45 $ 1.38 $ 1.08
Dividends paid per common
share $ 0.645 $ 0.645 $ 1.29 $ 1.29
__________________
The accompanying notes are an integral part of the Consolidated Financial
Statements.
<PAGE>
DOMINION RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
(UNAUDITED)
June 30, December 31,
1996 1995*
(Millions)
Current assets:
Cash and cash equivalents $ 59.8 $ 66.7
Trading securities 14.8 10.8
Customer accounts receivable, net 332.6 362.6
Other accounts receivable 137.7 104.2
Accrued unbilled revenues 186.8 179.5
Accrued taxes 12.9
Materials and supplies:
Plant and general 156.3 160.2
Fossil fuel 59.1 71.2
Mortgage loans in warehouse 165.5
Other 132.0 141.5
1,257.5 1,096.7
Investments 1,444.1 1,442.7
Property, plant and equipment 16,256.6 15,977.4
Less accumulated depreciation
and amortization 5,960.3 5,655.1
10,296.3 10,322.3
Deferred charges and other assets:
Regulatory assets 798.1 816.4
Other 266.2 225.2
1,064.3 1,041.6
Total assets $14,062.2 $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)
June 30, December 31
1996 1995*
(Millions)
Current liabilities:
Securities due within one year $ 400.1 $ 420.8
Short-term debt 353.2 236.6
Accounts payable, trade 322.9 336.7
Severance costs accrued 32.7 42.7
Accrued interest 107.2 110.5
Other 235.1 246.9
1,451.2 1,394.2
Long-term debt:
Utility 3,590.7 3,889.4
Nonrecourse - nonutility 746.8 523.5
Other 262.1 199.0
4,599.6 4,611.9
Deferred credits and other liabilities:
Deferred income taxes 1,700.6 1,661.1
Investment tax credits 263.8 272.2
Deferred fuel expenses 34.1 57.7
Other 356.7 340.2
2,355.2 2,331.2
Total liabilities 8,406.0 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 3,379.9 3,303.5
Retained earnings 1,443.3 1,427.6
Allowance on available-for-sale
securities (8.1) (6.7)
Other 17.1 17.6
4,832.2 4,742.0
Total liabilities & shareholders' equity $14,062.2 $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
constitute 100% of the Trusts assets.<PAGE>
DOMINION RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
1996 1995
(Millions)
Cash flows from operating activities:
Net income $ 244.4 $ 186.6
Adjustments to reconcile net income to
net cash:
Depreciation, depletion and amortization 344.9 307.3
Deferred income taxes 31.6 42.5
Investment tax credits, net (8.6) (8.5)
Allowance for other funds used
during construction (1.8) (3.7)
Deferred fuel expenses (23.6) 2.2
Deferred capacity expenses 6.0 (16.2)
Changes in assets and liabilities:
Accounts receivable 12.7 (5.2)
Accrued unbilled revenues (7.2) 2.2
Materials and supplies 16.1 34.1
Accounts payable, trade (11.7) (41.6)
Accrued interest and taxes (4.4) (10.1)
Mortgage loans in warehouse (165.5) 0.0
Other changes (95.5) 13.6
Net cash flows from operating activities 337.4 503.2
Cash flows from (to) financing activities:
Issuance of common stock 79.0 73.5
Issuance of preferred stock
Issuance of long-term debt:
Utility 24.5 240.0
Nonrecourse-nonutility 264.2 44.8
Issuance (repayment) of short-term debt 117.3 (33.5)
Repayment of long-term debt and preferred stock (267.1) (301.5)
Common dividend payments (228.2) (222.5)
Other (5.5) (10.6)
Net cash flows (to) financing
activities (15.8) (209.8)
<PAGE>
DOMINION RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(CONTINUED)
Six Months Ended
June 30,
1996 1995
(Millions)
Cash flows (used in) investing activities:
Capital expenditures-(excluding
AFC-other funds) $(233.2) $(308.9)
Investments in marketable securities 19.1 (8.7)
Sale of accounts receivable 40.0
Sale of trust units 16.4
Other (114.4) (109.3)
Net cash flows (used in) investing activities (328.5) (370.5)
Decrease in cash and cash equivalents (6.9) (77.1)
Cash and cash equivalents at beginning of
period 66.7 146.7
Cash and cash equivalents at end of period $ 59.8 $ 69.6
Supplementary cash flows information:
Cash paid during the period for:
Interest (net of interest capitalized) $ 205.1 $ 186.7
Income taxes 100.8 70.8
Non-cash transactions from investing and
financing activities:
Exchange of long-term marketable securities $ 4.3 $ 9.8
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 head-
quartered 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 north-
eastern 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; in financial services; and in real estate. Some of the
independent power and natural gas projects are located in foreign
countries. Net assets of approximately $225 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 June 30, 1996, the results of operations for the six-month
periods ended June 30, 1996 and 1995, and cash flows for the six-month
periods ended June 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. Certain amounts in the 1995 Consolidated Financial Statements have
been reclassified to conform to the 1996 presentation.
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 June 30, 1996 there were 300,000,000 shares of common stock authorized
of which 177,893,895 were issued and outstanding. Common shareholders'
equity at June 30, 1996 also includes $18.9 million for amounts received
under the Stock Purchase Plan for Customers of Virginia Power and the
Automatic Dividend Reinvestment and Stock Purchase Plan for which shares
have not yet been issued. Common shares issued during the referenced
periods were as follows:<PAGE>
DOMINION RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
Automatic Dividend
Reinvestment and
Stock Purchase Plan 727,704 728,349 1,418,180 1,374,347
Customer Stock Purchase Plan 0 0 0 0
Employee Savings Plan 122,656 0 123,265 0
Stock Repurchase and Retirement 0 0 (136,800) (377,000)
Other (15) 242 75,140 32,823
Total Shares 850,345 728,591 1,479,785 1,030,170
(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. The
Stock has a three-year vested period.
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
vested period.
For the six-month period ending June 30, 1996, 12,422 shares were issued.
As of June 30, 1996, options from 10,813 shares were exercisable from
previous awards.
(d) Preferred Stock - Virginia Power
As of June 30, 1996, there were 1,800,000 and 5,090,140 issued and
outstanding shares of preferred stock subject to mandatory redemption and
preferred stock not subject to mandatory redemption, respectively. There
are a total of 10,000,000 authorized shares of Virginia Power's preferred
stock.
(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:
<PAGE>
DOMINION RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
(Millions)
Computation of Provision
for Federal Income Tax:
Pre-tax income $138.5 $107.3 $358.8 $259.2
Tax at statutory federal
income tax rate of 35%
applied to pre-tax income $ 48.5 $ 37.5 $125.6 $ 90.7
Changes in federal income
taxes resulting from:
Preferred dividends
of Virginia Power 3.1 4.1 6.2 8.2
Nonconventional fuel credit (6.6) (6.4) (13.2) (13.7)
Ratable amortization of
investment tax credits (4.2) (4.2) (8.5) (8.5)
Other, net 3.5 (1.8) 4.3 (4.1)
Provision for Federal
Income Tax Expense $ 44.3 $ 29.2 $114.4 $ 72.6
Effective Tax Rate 32.0% 27.2% 31.9% 28.0%
(f) Contingencies
Virginia Power
Nuclear Insurance
The Price-Anderson Act limits the total public liability of owners 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 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
million, based upon allocation formulas and the volume of waste shipped to
the sites. As of June 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 RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Nonutility Subsidiaries:
Dominion Energy
Dominion Cogen, Inc., is a wholly owned subsidiary of Dominion Energy with
an investment interest in the 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 $55.5 million.
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 purchased 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 June 30, 1996, Saxon Mortgage, Inc., an indirect wholly-owned
subsidiary of Dominion Capital, has entered into commitments of
approximately $116 million to fund single-family mortgages. The
commitments for single-family mortgages have original terms of not more
than 60 days.
(g) Lines of Credit
Dominion Resources and its subsidiaries have lines of credit and revolving
credit agreements that provide for maximum borrowings of $1,485.8 million.
At June 30, 1996, $145.9 million had been borrowed under such agreements.
In addition, these credit agreements supported $262.1 million of Dominion
Resources' commercial paper and $384.8 million of nonrecourse commercial
paper issued by Dominion Resources' subsidiaries which was outstanding at
June 30, 1996. A total of $352.1 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.
<PAGE>
DOMINION RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(h) Investments
Investments at June 30, 1996 and December 31, 1995 are as follows:
June 30, December 31,
1996 1995
(Millions)
Investments in affiliates $ 431.3 $ 436.2
Available-for-sale securities 262.6 285.5
Nuclear decommissioning trust funds 386.7 351.4
Investments in real estate 126.3 133.0
Other 237.2 236.6
$1,444.1 $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 $135.0 million, representing preferred beneficial interests
and 97% beneficial ownership in the assets held by VP Capital Trust.
Virginia Power issued $139.2 million of its 1995 Series A, 8.05% Junior
Subordinated Notes (the Notes) in exchange for the $135.0 million realized
from the sale of the Preferred Securities and $4.2 million of common
securities of VP Capital Trust. The common securities represent the
remaining 3% beneficial ownership interest in the assets held by VP Capital
Trust. The Notes constitute 100% of VP Capital Trust's assets.
(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 $19.3
million and $24.7 million for the three months and six months, respectively,
ended June 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 1996 and additional costs will
be incurred. At this time, Virginia Power management cannot estimate the
additional restructuring costs yet to be incurred.
In May 1995, Virginia Power established comprehensive involuntary severance
packages for employees who lose their positions as a result of these
initiatives. Through June 30, 1996, management had decided to eliminate
1,195 positions. The recognition of severance costs resulted in a charge
to operations in the first and second quarter of $3.2 million and $10.6
million, respectively. At June 30, 1996, 995 employees have been terminated
and severance payments totaling $28.3 million have been made. Virginia
Power estimates that these staffing reductions will result in annual
savings, net of outsourcing costs, in the range of $55 million to $65 <PAGE>
DOMINION RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
million. These savings will be reflected in lower construction expenditures
as well as lower operation and maintenance expenses.
(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 Six Months Ended
June 30, June 30,
1996 1995 1996 1995
Virginia Power $0.49 $0.38 $1.31 $0.98
Nonutility .04 .07 .07 .10
Consolidated $0.53 $0.45 $1.38 $1.08
Virginia Power's earnings were up 11 cents and 33 cents for the three months
ended and six months ended June 30, 1996, respectively, when compared to the
same periods for 1995. The increases in earnings are primarily due to the
colder weather experienced in the first quarter of 1996 and the warmer
weather encountered in the second quarter of 1996.
Dominion Resources non-utility subsidiaries earnings decreased by 3 cents
for the three month and six month periods when compared to the same periods
for 1995. The decreases were due to the gain on the sale of the remaining
Black Warrior Trust units in June 1995.
Dividends
On July 18, 1996, the board of directors of Dominion Resources declared a
quarterly common stock dividend of $0.645 per share, payable September 20,
to holders of record at the close of business August 30, 1996.
Financing Activities
Common Stock Issuance
Dominion Resources issued 1,479,785 net shares of common stock primarily
through its Automatic Dividend Reinvestment and Stock Purchase 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 six-month
period ended June 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.
<PAGE>
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 six months of 1996 provided
155% of funds required for Virginia Power's capital requirements compared
to 84% during the first six 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 six-month period ended June 30, 1996 increased
$71.3 million as compared to the six-month period ended June 30, 1995
primarily as a result of the colder and warmer weather experienced in the
first six months of 1996.
Cash Flows (To) Financing Activities
Cash from (to) financing activities was as follows:
Six Months Ended June 30,
1996 1995
(Millions)
Mortgage bonds $ 200.0
Medium-term notes 40.0
Issuance of short-term debt, net $125.1 39.5
Issuance of tax exempt securities 24.5
Repayment of long-term debt
and preferred stock (220.9) (246.6)
Dividends (209.5) (219.3)
Other (3.7) (4.7)
Total $(284.5) $(191.1)
Financing activities for the first six months of 1996 resulted in a net cash
outflow of $284.5 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.
In the second quarter of 1996, $162 million of Medium-Term Notes matured.
Virginia Power increased its commercial paper program limit to $500 million in
June 1996 with the execution of a $300 million and a $200 million revolving
credit facility, that replaced existing liquidity support.
As of June 30, 1996, $294.1 million was outstanding under Virginia Power's
commercial paper program, which is an increase of $125.1 million from the <PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
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:
Six Months Ended June 30,
1996 1995
(Millions)
Utility plant expenditures $(157.6) $(283.2)
Nuclear fuel (57.6) (16.9)
Nuclear decommissioning
contributions (18.1) (12.3)
Sale of accounts receivable 40.0
Purchase of subsidiary assets (14.6)
Other (7.2) (8.8)
Total $(255.1) $(281.2)
Investing activities for the first six months of 1996 resulted in a net cash
outflow of $255.1 million primarily due to $157.6 million of construction
expenditures and $57.6 million of nuclear fuel expenditures. Of the
construction expenditures, approximately $107.5 million was spent on
transmission and distribution projects, and $29.6 million on power production.
Results of Operations
Balance available for Common Stock increased by $21.5 million and $62 million
for the three months and six months, respectively, ended June 30, 1996, as
compared to the same periods in 1995, primarily as a result of the colder and
warmer weather experienced in the first six months of 1996.
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
Operating Revenues
Operating revenues changed primarily due to the following:
Three Months Ended Six Months Ended
June 30, June 30,
1996 vs. 1995 1996 vs. 1995
(Millions)
Weather $28.3 $113.6
Customer growth 8.4 18.5
Change in base revenues (7.4) (12.7)
Fuel cost recovery (16.1) (39.9)
Other, net 20.1 12.0
Total retail 33.3 91.5
Sales for resale 19.7 43.4
Other operating revenues 5.0 11.6
Total revenues $ 58.0 $146.5
Customer kilowatt-hour sales changed as follows:
Three Months Ended Six Months Ended
June 30, June 30,
1996 vs. 1995 1996 vs.1995
Residential 12.2% 14.4%
Commercial 6.0 7.4
Industrial 0.6 0.1
Public authorities 3.3 4.4
Total retail sales 6.5 8.2
Resale 62.3 56.9
Total sales 12.0 13.4
Heating and cooling degree days during the second quarter were as follows:
1996 1995 Normal
Heating degree days 374 281 311
Percentage change
compared to prior year 33.1 18.6
Cooling degree days 468 428 436
Percentage change
compared to prior year 9.3 (24.5)
Heating and cooling degree days during the first six months were as follows:
1996 1995 Normal
Heating degree days 2,708 2,204 2,361
Percentage change
compared to prior year 22.9 (9.9)
Cooling degree days 468 428 443
Percentage change
compared to prior year 9.3 (24.9)<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
The increase in kilowatt-hour retail sales for the three- and six-month periods
ended June 30, 1996, as compared to the same periods in 1995, reflects the
colder and warmer weather experienced in 1996.
The increase in sales for resale for the three- and six-month periods ended
June 30, 1996, as compared to the same periods in 1995, was primarily due to
colder and warmer weather experienced by other utilities in surrounding regions
and increased marketing efforts by Virginia Power.
Fuel, net
Fuel, net decreased for the three-month period ended June 30, 1996, as compared
to the same period 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 (i) to CONSOLIDATED FINANCIAL
STATEMENTS), Virginia Power recorded $24.7 million and $5.3 million of
restructuring charges in the first six months of 1996 and 1995, respectively.
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 $55
million to $65 million. Virginia Power will incur additional restructuring
charges in 1996; however, the amount of restructuring charges yet to be
incurred is not known at this time.
Furthermore, because 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 be reflected in lower
construction expenditures as well as lower operation and maintenance expenses.
Operation - Other and Maintenance
Operation - other and maintenance expenses decreased for the three- and six-
month periods ended June 30, 1996, as compared to the same period in 1995,
primarily as a result of decreased production plant outage costs due to fewer
outages and restructuring savings due to implemented Vision 2000 initiatives,
partially offset by an increase in transmission and distribution service
restoration costs resulting from multiple storm damage and the expenses
associated with A&C Enercom, Inc., a wholly owned subsidiary of Virginia Power
formed in January 1996.
Income Taxes
Income taxes increased for the three- and six-month periods ended June 30,
1996, as compared to the same period in 1995, primarily as a result of
increased income subject to tax.
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
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.
Utilities must participate in an OASIS by November 1, 1996, and comply with
standards of conduct that require separation of transmission
operations/reliability functions from wholesale merchant/marketing functions.
FERC also issued a notice of proposed rulemaking (NOPR) proposing replacement
of open access tariffs with a capacity reservation tariff by December 31, 1997.
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 six months of 1996, Dominion Resources' nonutility
subsidiaries expended $68.5 million on capital requirements. Estimated capital
requirements for 1996 are $144.4 million.
Results of Operations
Nonutility revenues and income decreased for the three-month and six-month
periods ended June 30, 1996, as compared to the same periods 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 commitment and contingencies, see Note (f) to
CONSOLIDATED FINANCIAL STATEMENTS.<PAGE>
DOMINION RESOURCES, INC.
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
In reference to the proceeding before the Virginia State Corporation Commission
(Virginia Commission) into the holding company structure and the relationship
between Dominion Resources and Virginia Power, on May 24, 1996, the Virginia
Commission issued an order directing Virginia Power to (i) adopt conflict-of-
interest standards for its board of directors and to report quarterly to the
Commission on its progress, (ii) file an independent certified annual audit of
affiliate transactions with its Annual Report of Affiliate Transactions and
(iii) examine with the Staff at the Commission the extent to which Virginia
Power is paying for duplicate executive services from Dominion Resources, if
any, in the upcoming Annual Informational Filing with the Commission. The
Virginia Commission continued the proceeding to July 12, 1997 to allow the
Commission and its Staff to continue to monitor the corporate governance,
operation efficiency and effectiveness of Virginia Power and Dominion Resources
and to evaluate what further recommendations of the Staff, if any, be
implemented. In a related matter the consent order entered into between
Dominion Resources and Virginia Power on February 20, 1995 expired according
to its terms on July 2, 1996.
Virginia Power
With regard to the civil action filed December 13, 1995 in the United States
District Court for the Eastern District of Virginia. Norfolk Division, against
the City of Norfolk and Virginia Power by a landowner alleging contamination
of his property by toxic pollutants originating on an adjacent property now
owned by the city and formerly owned by Virginia Power, on August 7, 1996, the
Court entered an order dismissing with prejudice the federal law claim, and
dismissing the state law claims without prejudice for the plaintiff to file in
state court on the state law claims.
Item 5. Other Information
The Company
In reference to the purchase of the Kincaid Power Station by Kincaid
Generation, L.L.C. (LLC), a subsidiary of Dominion Energy, Inc. (Dominion
Energy), on July 26, 1996, the International Brotherhood of Electrical Workers,
AFL-CIO, Local Union 15, (IBEW) filed a complaint against Commonwealth Edison
Company (ComEd), LLC and the Illinois Commerce Commission (the ICC) requesting
injunctive relief to prevent ComEd and LLC from proceeding with their petition
before the ICC for approval of LLC's acquisition of the power station. IBEW
claims that the asset sale agreement relating to such acquisition is in
violation of an Illinois statute concerning collective bargaining agreements
because such agreement does not state that LLC will be subject to the current
collective bargaining agreement between ComEd and IBEW. The closing under the
asset sale agreement is subject to various regulatory approvals and other
conditions, including the consent of the ICC.
Dominion Energy acquired a 60-percent ownership and management interest for
approximately $228 million in Empresa de Generation Electrica NorPeru, S.A.
(EGENOR). Dominion Energy expects to sell 50% of its ownership interest in the
EGENOR project to a third party by the end of August, 1996. EGENOR is a
generation company providing power in Peru's northern region. Government-owned
ElectroPeru, S.A., will retain a 40-percent interest in EGENOR. <PAGE>
DOMINION RESOURCES, INC.
PART II. - OTHER INFORMATION
(CONTINUED)
As previously reported, Dominion Capital, Inc. through its wholly-owned
subsidiary, Dominion Mortgage Services, Inc., acquired on May 13, 1996,
Resource Mortgage Capital Inc's single-family mortgage operations for an
aggregate purchase price of approximately $68 million.
Virginia Power
Regulation
General
The Commission Staff issued its Report on July 31, 1996. The Report contained
14 recommendations, including continued monitoring of wholesale and retail
competition in the industry, increased monitoring of service quality,
preservation of state jurisdiction over retail service, improved price signals,
further study of stranded cost recovery, and increased efforts to renegotiate
non-utility generation contracts. Written comments on the Report are due
September 16, 1996.
In reference to the North Carolina Utilities Commission (NCUC) informal
information gathering proceeding into the question of whether retail
competition should be allowed in North Carolina, on May 7, 1996, the NCUC
postponed indefinitely the time for filing comments in this matter. On May 15,
1996, the NCUC issued an order initiating an investigation of emerging issues
in the restructuring of the electric industry. As ordered, Virginia Power
filed comments on July 16, 1996. Reply comments from the NCUC are due August
15, 1996.
Rates
FERC
On July 9, 1996, Virginia Power filed an open access transmission service
tariff in compliance with FERC's Order No. 888, Promotion Wholesale Competition
Through Open Access Non-Discriminatory Transmission Services by Public
Utilities. For additional information, see Future Issues - Competition under
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
On May 14, 1996, the Department of the Navy, on behalf of the Department of
Defense (DOD), filed a Petition requesting FERC to declare DOD a "wholesale
customer" within Virginia. As an alternative, the Navy requested FERC to order
Virginia Power to wheel power to DOD installations in Virginia. An agreement
was subsequently reached in principle for a new power supply contract. On June
24, 1996, the Navy moved to withdraw its Petition, stating that the concerns
expressed in the Petition had been resolved.
On July 15, 1996, three power marketers filed a protest with DOD challenging
the sole source negotiation and impending sole source contract with Virginia
Power and requesting that the Navy withhold contract award until resolution of
the protest. Virginia Power has not yet responded to the protest, but takes
the position that procurement of electricity from other than Virginia Power in
Virginia Power's exclusive territory would violate both state and federal law.<PAGE>
DOMINION RESOURCES, INC.
PART II. - OTHER INFORMATION
(CONTINUED)
Virginia
On May 29, 1996, Virginia Power filed an Application with the Virginia
Commission seeking authority to implement a monitoring program that requires
certain Non-Utility Generators to provide certain information sufficient to
determine continued compliance with the "Qualifying Facility" (QF)
requirements of the Public Utility Regulatory Policies Act of 1978 (PURPA).
On June 13, 1996, the Virginia Commission ordered that the application be
docketed and that any interested party file its responsive memorandum on or
before August 16, 1996.
On June 7, 1996, Virginia Power filed an application with the Virginia
Commission 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 Enron Power Marketing, Inc. (EPMI) without competitive bidding. If
approved, Virginia Power will purchase the generator and the power purchase and
operating agreement (PPOA) will be amended to reduce capacity payments, shorten
the term of the agreement and provide for sales of capacity and energy by RPE's
assignee, EPMI, to Virginia Power from sources outside Virginia Power's service
territory rather than from the generator. Virginia Power estimates this
arrangement will result in a savings of $63 million over the life of the
existing PPOA. The Staff will file its report or testimony by September 4,
1996.
On July 24, 1996, the Virginia Commission authorized expansion of the Real Time
Pricing Schedule to include commercial and industrial customers with loads over
5 Mw. This option was previously available only to industrial customers with
loads in excess of 10 Mw.
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 4)
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 /s/JAMES L. TRUEHEART
James L. Trueheart
Vice President and Controller
(Principal Accounting Officer)
August 12, 1996
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