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, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to ______
Commission file number 1-8489
DOMINION RESOURCES, INC.
------------------------
(Exact name of registrant as specified in its charter)
Virginia 54-1229715
- ------------------------------ ----------
(State or other jurisdiction (I.R.S. employer
incorporation or organization) identification no.)
901 East Byrd Street,
Suite 1700, Richmond, Virginia 23219-6111
- ------------------------------ ----------
(Address of principal executive offices) (Zip Code)
(804) 775-5700
-----------------------------
Registrant's telephone number
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
At October 31, 1998, the latest practicable date for determination, 195,365,554
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, 1998 and 1997
Consolidated Balance Sheets - September 30, 1998 4-5
and December 31, 1997
Consolidated Statements of Cash Flows 6-7
Nine Months Ended September 30, 1998 and 1997
Consolidated Statements of Changes in 7
Other Comprehensive Income
Notes to Consolidated Financial Statements 8-15
Item 2. Management's Discussion and Analysis of Financial 16-35
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About 36-37
Market Risk
PART II. Other Information
Item 1. Legal Proceedings 38
Item 5. Other Information 38-40
Item 6. Exhibits and Reports on Form 8-K 40
<PAGE>
<TABLE>
DOMINION RESOURCES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Operating revenues and income: (Millions, except per share amounts)
Virginia Power $ 2,611.8 $1,498.3 $5,429.6 $3,721.7
East Midlands 432.9 1,009.5 1,453.5
Nonutility 196.7 163.6 589.1 467.6
-------- ------- ------- -------
2,808.5 2,094.8 7,028.2 5,642.8
-------- ------- ------- -------
Operating expenses:
Fuel, net 1,507.7 493.4 2,824.8 1,104.4
Purchased power capacity, net 216.7 198.2 601.0 542.1
Impairment of regulatory assets 28.3 158.6 31.1
Supply and distribution-East Midlands 315.6 654.9 1,099.6
Other operation and maintenance 341.7 316.2 1,045.2 917.9
Depreciation, depletion
and amortization 176.4 200.7 564.2 590.6
Other taxes 91.1 74.1 242.6 220.6
-------- ------- ------- -------
2,333.6 1,626.5 6,091.3 4,506.3
-------- ------- ------- -------
Operating income 474.9 468.3 936.9 1,136.5
--------- ------- ------- ---------
Other income (expense):
Gain on sale of East Midlands 332.3 332.3
Windfall profits tax (156.6) (156.6)
Other 1.1 14.5 19.9 43.0
-------- ------- ------- ---------
333.4 (142.1) 352.2 (113.6)
-------- ------- ------- ---------
Income before fixed charges,
income taxes and minority interests 808.3 326.2 1,289.1 1,022.9
-------- ------- -------- ---------
Fixed charges:
Interest charges, net 131.2 162.4 469.1 458.3
Preferred dividends and distributions
of subsidiary trusts 11.6 11.7 44.9 34.9
------- ------- -------- --------
142.8 174.1 514.0 493.2
------- ------- -------- --------
Income before provision for
income taxes and minority interests 665.5 152.1 775.1 529.7
Provision for income taxes 234.9 97.6 269.2 214.8
Minority interests 6.1 4.0 24.5 15.5
------ ------ ------ -------
Net income $ 424.5 $ 50.5 $ 481.4 $ 299.4
====== ====== ======= =======
Average shares of common stock 196.1 186.0 194.8 184.5
Earnings per common share $ 2.17 $ 0.27 $ 2.47 $ 1.62
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.
3
<PAGE>
DOMINION RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
(UNAUDITED)
<CAPTION>
September 30, December 31,
1998 1997*
-----------------------------------------------
(Millions)
Current assets:
Cash and cash equivalents $ 965.2 $ 321.6
Trading securities 276.2 240.7
Customer accounts receivable, net 510.5 601.0
Other accounts receivable 253.2 333.6
Accrued unbilled revenues 224.5 245.2
Materials and supplies:
Plant and general 143.7 163.3
Fossil fuel 92.5 67.4
Mortgage loans in warehouse 377.1 88.2
Commodity contract assets 158.2 40.6
Other 266.9 209.1
-------- ---------
3,268.0 2,310.7
-------- ---------
Investments:
Loans receivable, net 1,478.5 932.2
Other 1,456.1 1,483.8
-------- --------
2,934.6 2,416.0
-------- --------
Property, plant and equipment: 18,437.6 19,519.2
Less accumulated depreciation, depletion
and amortization 7,487.6 6,986.6
-------- ---------
10,950.0 12,532.6
-------- ---------
Deferred charges and other assets:
Regulatory assets 624.5 711.5
Goodwill 178.3 1,932.0
Other 209.2 261.7
-------- ---------
1,012.0 2,905.2
-------- ---------
Total assets $18,164.6 $20,164.5
========= =========
- ------------------
The accompanying notes are an integral part of the Consolidated Financial
Statements.
* The Balance Sheet at December 31, 1997 has been derived from the audited
Consolidated Financial Statements at that date.
4
<PAGE>
DOMINION RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
(UNAUDITED)
<CAPTION>
September 30, December 31,
1998 1997*
--------------------------------------------
(Millions)
Current liabilities:
Securities due within one year $ 1,714.1 $ 1,613.6
Short-term debt 252.0 375.1
Accounts payable, trade 788.9 679.3
Accrued interest 107.9 185.1
Accrued payroll 67.3 77.5
Accrued taxes 234.9 125.4
Commodity contract liabilities 212.6 52.9
Other 312.8 504.6
-------- --------
3,690.5 3,613.5
-------- --------
Long-term debt:
Virginia Power 3,356.5 3,514.6
Nonrecourse - nonutility 1,468.4 707.8
Dominion UK 312.8 2,673.6
Other 300.0 300.0
-------- --------
5,437.7 7,196.0
-------- --------
Deferred credits and other liabilities:
Deferred income taxes 1,737.2 2,018.4
Investment tax credits 225.7 238.4
Other 228.3 580.8
-------- --------
2,191.2 2,837.6
-------- --------
Total liabilities 11,319.4 13,647.1
-------- --------
Minority interest 329.4 402.9
-------- --------
Obligated mandatory redeemable preferred
securities ** 385.0 385.0
-------- --------
Virginia Power preferred stock:
Subject to mandatory redemption 180.0 180.0
-------- --------
Not subject to mandatory redemption 509.0 509.0
-------- --------
Common shareholders' equity:
Common stock - no par 3,974.2 3,673.6
Retained earnings 1,459.5 1,354.0
Accumulated other comprehensive
income (8.1) (3.3)
Other 16.2 16.2
-------- --------
5,441.8 5,040.5
-------- --------
Total liabilities & shareholders'
equity $18,164.6 $20,164.5
========= =========
The accompanying notes are an integral part of the Consolidated Financial
Statements.
* The Balance Sheet at December 31, 1997 has been derived from the audited
Consolidated Financial Statements at that date.
** As described in Note(F)to NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, the
7.83% and 8.05% Junior Subordinated Notes totaling $257.7 and $139.2
million principal amounts constitute 100% of the Trusts' assets.
5
<PAGE>
DOMINION RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30,
1998 1997
----------------------------
(Millions)
Cash flows from (used in) operating activities:
Net income $ 481.4 $ 299.4
Adjustments to reconcile net income to net cash:
Depreciation, depletion and amortization 636.1 657.1
Gain on sale of East Midlands (332.3)
Purchase and originations of mortgage loans (1,586.3) (1,496.1)
Proceeds from sales and principal collections
of mortgage loans 1,297.4 1,412.6
Deferred income taxes 60.4 55.4
Impairment of regulatory assets 158.6 31.1
Changes in assets and liabilities:
Accounts receivable (43.5) (2.3)
Accounts payable, trade 156.9 (44.6)
Accrued interest and taxes 154.7 303.3
Other changes (165.8) (18.7)
-------- -------
Net cash flows from operating activities 817.6 1,197.2
-------- -------
Cash flows from (used in) financing activities:
Issuance of common stock 354.3 135.0
Repurchase of common stock (56.2)
Issuance of long-term debt:
Virginia Power 150.0 270.0
Dominion UK 1,940.9
Nonrecourse-nonutility 2,702.3 3,360.4
Issuance of short-term debt 429.4
Repayment of long-term debt (3,101.4) (3,585.6)
Repayment of short-term debt (148.7) (194.3)
Common dividend payments (378.2) (357.4)
Other (32.4) 37.8
--------- --------
Net cash flows from (used in) financing activities (80.9) 1,606.8
--------- ---------
Cash flows from (used in) investing activities:
Utility capital expenditures-(excluding AFC) (462.8) (341.1)
Nonutility capital expenditures (75.1) (201.0)
Purchase of East Midlands (1,901.5)
Loan originations (1,951.4) (706.5)
Proceeds from sale of East Midlands 1,409.4
Repayment of loan originations 1,377.9 696.9
Acquisition of business, net of cash (339.0) (116.4)
Other (52.1) (102.3)
------- -------
Net cash flows used in investing activities (93.1) (2,671.9)
------- -------
Increase in cash and cash equivalents 643.6 132.1
Cash and cash equivalents at beginning of period 321.6 110.8
-------- -------
Cash and cash equivalents at end of period $ 965.2 $ 242.9
======== =======
6
<PAGE>
DOMINION RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(CONTINUED)
<CAPTION>
Nine Months Ended
September 30,
1998 1997
-------------------------
(Millions)
Supplementary cash flows information:
Cash paid during the period for:
Interest (net of interest capitalized) $ 399.4 $430.2
Income taxes 179.6 78.4
Non-cash transactions from investing and
financing activities:
Equity contribution for Wolverine acquisition $ 21.4
Issuance of loan notes-East Midlands acquisition 18.4
Exchange of securities $ 11.9 22.8
- ----------------------
The accompanying notes are an integral part of the Consolidated Financial
Statements.
DOMINION RESOURCES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN OTHER COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
-------------------------- -----------------------
(Millions)
Other Comprehensive Income:
Unrealized gains (losses) on
investment securities:
Pre-tax $(2.6) $ 19.5 $ 2.0 $ 20.5
Tax (expense) benefit 0.9 (6.8) (0.7) (7.2)
---- ------ ---- ------
Net of tax (1.7) 12.7 1.3 13.3
Foreign currency translation
adjustment (11.9) 7.2 (6.1) (7.9)
----- ------ ----- ------
Increase (decrease) in other
comprehensive income (13.6) 19.9 (4.8) 5.4
Other comprehensive income at
beginning of period 5.5 (15.6) (3.3) (1.1)
---- ------ ---- ------
Other comprehensive income at
end of period $ (8.1) $ 4.3 $ (8.1) $ 4.3
====== ====== ====== ======
- ----------------------
The accompanying notes are an integral part of the Consolidated Financial
Statements.
</TABLE>
7
<PAGE>
DOMINION RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(A) DOMINION RESOURCES AND INTERIM REPORTING POLICIES
GENERAL
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. Virginia Power is 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, power marketers and municipalities. The Virginia
service area comprises about 65 percent of Virginia's total land area, but
accounts for 80 percent of its population. Virginia Power's wholesale power
group engages in off-system wholesale purchases and sales of electricity and
purchases and sales of natural gas beyond the geographic limits of Virginia
Power's service territory.
Dominion Resources also owns and operates subsidiaries active in independent
power production, the acquisition and sale of natural gas and oil reserves,
financial services, and real estate. Some of the independent power and natural
gas and oil businesses are located in foreign countries. Dominion Resources' net
investment through its subsidiaries in foreign operations is approximately
$325.1 million.
Dominion Resources' United Kingdom subsidiary, Dominion U.K. Holding, Inc., owns
an 80% interest in Corby Power Station, a 365 megawatt natural gas fired
facility located in Northamptonshire, about 90 miles north of London.
Dominion Resources translates foreign currency financial statements by adjusting
balance sheet accounts using the exchange rate at the balance sheet date and
income statement accounts using the average exchange rate for the reporting
period.
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, 1998, the results of operations for the three-month and
nine-month periods ended September 30, 1998 and 1997, and cash flows for the
nine-month periods ended September 30, 1998 and 1997.
These Consolidated Financial Statements should be read in conjunction with the
Consolidated Financial Statements and notes included in the Dominion Resources
Annual Report on Form 10-K for the year ended December 31, 1997.
The consolidated financial statements include the accounts of Dominion Resources
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
8
<PAGE>
<TABLE>
DOMINION RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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.
The results of operations for the interim periods are not necessarily indicative
of the results expected for the full year. Information for quarterly periods is
affected by seasonal variations in sales, rate changes, timing of fuel expense
recovery and other factors.
Certain amounts in the 1997 financial statements have been reclassified to
conform to the 1998 presentation.
(B) GAIN ON SALE OF DR INVESTMENTS
On July 27, 1998, Dominion Resources sold East Midlands Electricity plc (East
Midlands) to PowerGen plc, an electricity generator and supplier in the United
Kingdom. East Midlands is principally an electricity supply and distribution
company serving 2.3 million homes and businesses in the East Midlands region of
the United Kingdom.
PowerGen acquired 100 percent of DR Investments in a transaction valued at $3.2
billion. DR Investments is the holding company for DR Investments (UK) PLC and
East Midlands. Dominion Resources recorded an after-tax gain of $200.7 million
or $1.03 cents per share.
Dominion Resources continues to retain an 80 percent ownership interest in the
Corby Power Station.
(C) PROVISION FOR INCOME TAXES
Income before provision for income taxes, classified by source of income, before
minority interest was as follows:
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
(Millions)
<S> <C> <C> <C> <C>
U.S. $285.8 $289.5 $331.7 $603.0
Non U.S. 379.7 (137.4) 443.4 (73.3)
----- ----- ----- ----
Total $665.5 $152.1 $775.1 $529.7
===== ===== ===== =====
</TABLE>
9
<PAGE>
<TABLE>
DOMINION RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The statutory U.S. federal income tax rate reconciles to the effective income
tax rates as follows:
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
Percents
--------
<S> <C> <C> <C> <C>
U.S. statutory rate 35.0 35.0 35.0 35.0
Utility plant differences .9 1.1 3.1 .2
Amortization of investment tax credits (.6) (2.8) (1.6) (2.4)
Preferred dividends of Virginia Power .5 2.1 1.2 1.8
Nonconventional fuel credit (1.0) (4.2) (2.4) (3.6)
Benefits and taxes related to foreign
operations (2.8) (4.4) (4.5) (3.5)
State taxes, net of federal benefit .2 1.0 1.0 .4
Windfall profits tax 32.5 9.3
Other, net 3.1 3.8 2.9 3.4
---- ----- ---- ----
Effective tax rate 35.3 64.1 34.7 40.6
==== ==== ==== ====
The effective income tax rate includes state and foreign income taxes.
(D) COMMON STOCK
At September 30, 1998, there were 300,000,000 shares of common stock authorized
of which 195,363,222 were issued and outstanding. Common shares issued and
purchased during the referenced periods were as follows:
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
------------------------------ --------------------------------
Employee Savings Plans 38,458 230,190 437,814 699,485
Dominion Direct Investment 107,884 966,461 1,695,238 2,941,009
Acquisition of
Dominion Midwest Energy 1,879,974
Public Offering 6,775,000
Stock Repurchase (1,359,000) (1,359,000)
Other 67,742 (6,391) 14,727 53,319
--------- -------- -------- ---------
Total Shares (1,144,916) 1,190,260 7,563,779 5,573,787
========= ========= ========= =========
</TABLE>
On July 20, 1998, the Dominion Resources Board of Directors authorized the
repurchase of up to $650 million (approximately 8 percent) of Dominion Resources
common stock outstanding. Dominion Resources currently plans to buy back between
$100 and $200 million of common stock over the next year, depending upon market
conditions.
Also, effective August 1, 1998, purchases of shares required by Dominion Direct
Investment and the Employee Savings Plans will be acquired on the open market
instead of issuing new shares.
10
<PAGE>
DOMINION RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(E) PREFERRED STOCK - VIRGINIA POWER
As of September 30, 1998, there were 1,800,000 and 5,090,140 issued and
outstanding shares of preferred stock subject to mandatory redemption and
preferred stock not subject to mandatory redemption, respectively. There is a
total of 10,000,000 authorized shares of Virginia Power's preferred stock.
(F) OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES
In December 1997, Dominion Resources established Dominion Resources Capital
Trust I (DR Capital Trust). DR Capital Trust sold 250,000 shares of capital
securities for $250 million, representing preferred beneficial interests and 97
percent beneficial ownership in the assets held by DR Capital Trust.
Dominion Resources issued $257.7 million of 7.83% Junior Subordinated Debentures
(Debentures) in exchange for the $250 million realized from the sale of the
Capital Securities and $7.7 million of common securities of DR Capital Trust.
The common securities represent the remaining 3 percent beneficial ownership
interest in the assets held by DR Capital Trust. The Debentures constitute 100
percent of DR Capital Trust's assets.
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.
11
<PAGE>
DOMINION RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(G) CONTINGENCIES
VIRGINIA POWER
Nuclear Insurance
The Price-Anderson Act limits the public liability of an owner of a nuclear
power plant to $9.9 billion for a single nuclear incident. 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 Q to
CONSOLIDATED FINANCIAL STATEMENTS included in Dominion Resources' Annual Report
on Form 10-K for the year ended December 31, 1997.
Site Remediation
The Environmental Protection Agency (EPA) has identified Virginia Power and
several other entities as Potentially Responsible Parties (PRPs) at two
Superfund sites located in Kentucky and Pennsylvania. The estimated future
remediation costs for the sites are in the range of $61.8 million to $69.5
million. Virginia Power's proportionate share of the cost is expected to be in
the range of $1.7 million to $2.3 million, based upon allocation formulas and
the volume of waste shipped to the sites. Virginia Power has accrued adequate
reserves 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.
Virginia Power generally seeks to recover its costs associated with
environmental remediation from third party insurers. At September 30, 1998, no
pending or possible claims have been recognized as an asset or offset against
recorded obligations of Virginia Power.
DOMINION RESOURCES AND ITS NONUTILITY SUBSIDIARIES
Dominion Resources
Effective July 27, 1998, Dominion Resources guaranteed for 90 days DR Group
Holdings' revolving credit agreement. DR Group Holdings is the indirect holder
of Dominion Resources' 80% ownership interest in the Corby Power Station. The
revolving credit agreement is with Bayerische Landesbank Girozentrale and
National Westminister Bank Plc. As of September 30, 1998, the total commitment
and outstanding balance of the agreement was 33.5 million pounds sterling ($56.9
million).
12
<PAGE>
DOMINION RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
On October 30, 1998, DR Group Holdings entered into a revolving credit agreement
with Bayerische Landesbank Girozentrale. The total commitment and outstanding
balance of the agreement is 33.5 million pounds sterling ($56.1 million). The
term of the agreement is five years. This agreement replaces the short-term and
five-year credit agreements with Bayerische Landesbank Girozentrale and National
Westminister Bank which totaled 33.5 million pounds sterling. Dominion Resources
is guarantor to DR Group Holdings for this revolving credit agreement.
Dominion Energy
Subsidiaries of Dominion Energy have general partnership interests in certain of
its energy ventures. These subsidiaries may be required to fund future
operations of these investments, if operating cash flow is insufficient.
Under an agreement related to the acquisition of the Kincaid Power Station,
Dominion Energy's wholly-owned subsidiary, Dominion Energy Construction Company
(DECCO), must make certain improvements to the facility. Dominion Energy has
provided a guarantee of DECCO's financial obligation under this agreement. Also,
until the improvements are completed, Dominion Energy must fund up to $100
million, less cash generated, in additional equity that may be required by
Kincaid Generation LLC (KGL), the owner of the Kincaid Power Station. Dominion
Resources has guaranteed Dominion Energy's obligation to make such equity
infusions to KGL.
Dominion Capital
As of September 30, 1998, Dominion Capital had commitments to fund loans of
approximately $724.9 million.
For additional information regarding Contingencies, see Note Q to CONSOLIDATED
FINANCIAL STATEMENTS included in Dominion Resources' Annual Report on Form 10-K
for the year ended December 31, 1997.
(H) LINES OF CREDIT
Dominion Resources and its subsidiaries have lines of credit, revolving credit
agreements and bank commitments that provide for maximum borrowings of $4,682.7
million. At September 30, 1998, $1,963.1 million had been borrowed under such
agreements. In addition, these credit agreements supported $398.2 million of
Dominion Resources' commercial paper and $149.6 million of non-recourse
commercial paper issued by Dominion Resources' subsidiaries which was
outstanding at September 30, 1998. At September 30, 1998, $371.7 million of
Dominion Resources commercial paper is classified as long-term debt since it is
supported by revolving credit agreements that have expiration dates extending
beyond one year.
13
<PAGE>
DOMINION RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(I) VIRGINIA RATES
On June 8, 1998, Virginia Power, the Staff of the Virginia State Corporation
Commission (Virginia Commission), the office of the Virginia Attorney General,
the Virginia Committee for Fair Utility Rates and the Apartment and Office
Building Association of Metropolitan Washington joined in an agreement to settle
Virginia Power's then pending rate proceedings before the Virginia Commission.
The Virginia Commission by Order dated August 7, 1998 adopted the settlement
with only a minor redistribution of the agreed rate reduction among customer
classes.
The settlement defines a new regulatory framework for Virginia Power's
transition to electric competition. The major provisions of the settlement are
as follows:
o A two-phased base rate reduction: $100 million per annum beginning March 1,
1998 with one additional $50 million per annum reduction beginning March 1,
1999;
o A base rate freeze through February 28, 2002 unless a change is necessary
to protect the legitimate interests of Virginia Power, its shareholders or
ratepayers;
o An immediate, one-time refund of $150 million for the period March 1, 1997
through February 28, 1998;
o A discontinuation of deferral accounting for purchased power capacity
expenses effective February 28, 1998;
o A write-off of a minimum of $220 million of regulatory assets in addition
to normal amortization thereof during the base rate freeze period;
o An incentive mechanism through February 1, 2002 for earnings above the
following return on equity (ROE) benchmarks: 10.5 percent in 1998; after
1998 - 30-year Treasury bond rates plus 450 basis points. For rate
incentive mechanism purposes, all earnings up to the ROE benchmark would
benefit Virginia Power's shareholder. Any earnings above the benchmark
would be allocated one-third to Virginia Power's shareholder and two-thirds
to the $220 million write-off of regulatory assets; except that all
earnings above the ROE benchmark plus 270 basis points (initially 13.2
percent), would be allocated to the write-off of regulatory assets.
14
<PAGE>
DOMINION RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
As a result of the requirement to write-off a minimum of $220 million of
regulatory assets in addition to normal amortization thereof during the rate
freeze period, Virginia Power performed an impairment review in accordance with
SFAS No. 71, Accounting for the Effects of Certain Types of Regulation. Based on
the uncertainty of Virginia Power's earnings potential during the rate freeze
period, management could no longer conclude that recovery of the $220 million is
probable, i.e., that earnings above its authorized rate of return would be
available to offset the $220 million write-off of regulatory assets.
Accordingly, Virginia Power charged $158.6 million to second quarter 1998
earnings, which when combined with the reserve for accelerated cost recovery
accrued in 1996 and 1997, provides for the impairment of regulatory assets
resulting from the settlement. See Note Q to CONSOLIDATED FINANCIAL STATEMENTS
included in Dominion Resources' Annual Report on Form 10-K for the year ended
December 31, 1997.
Substantially all customer refunds required by the settlement had been made as
of October 31, 1998.
15
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING INFORMATION
This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains "forward-looking statements" as defined by the Private
Securities Litigation Reform Act of 1995, including (without limitation)
discussions as to expectations, beliefs, plans, objectives and future financial
performance, or assumptions underlying or concerning matters discussed in this
document. These discussions, and any other discussions, including certain
contingency matters (and their respective cautionary statements) discussed
elsewhere in this report, that are not historical facts, are forward-looking
and, accordingly, involve estimates, projections, goals, forecasts, assumptions
and uncertainties that could cause actual results or outcomes to differ
materially from those expressed in the forward-looking statements. The following
important factors should be considered with respect to any forward-looking
statements made herein:
Current governmental policies and regulatory actions both domestic and
international (including those of FERC, the Environmental Protection Agency
(EPA), the NRC, and the Virginia Commission), industry and rate structure,
general industry trends, operation of nuclear power facilities, acquisition and
disposal of assets and facilities, operation and storage facilities, recovery of
the cost of purchased power, nuclear decommissioning costs, the ability of
Dominion Resources, its suppliers and its customers to successfully address Year
2000 compliance issues, economic and geographic factors including political and
economic risks (particularly those associated with international development and
operations, including currency fluctuation), changes in and compliance with
environmental laws and policies, weather conditions and catastrophic weather
related damage, competition, including competition for retail and wholesale
customers, pricing and transportation of commodities, exposure to changes in the
fair value of commodity contracts, market demand for energy, inflation, capital
market conditions, unanticipated development project delays or changes in
project cost, unanticipated changes in operating expenses and capital
expenditures, competition for new energy development opportunities, counterparty
credit risk and legal and administrative proceedings. All such factors are
difficult to predict, contain uncertainties that may materially affect actual
results, and may be beyond the control of Dominion Resources. New factors emerge
from time to time and it is not possible for management to predict all of such
factors, nor can it assess the impact of each such factor on the businesses of
Dominion Resources.
Any forward-looking statement speaks only as of the date on which such statement
is made, and Dominion Resources undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made.
16
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
DOMINION RESOURCES - CONSOLIDATED
RESULTS OF OPERATIONS
Earnings Per Share Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
-------------------------- ------------------------
Virginia Power $ 1.00 $ 1.04 $ 0.81 $ 1.93
Dominion UK 1.03 (0.88) 1.17 (0.66)
Nonutility 0.14 0.11 0.49 0.35
------ ------ ----- ----
Consolidated $ 2.17 $ 0.27 $ 2.47 $ 1.62
====== ===== ===== =====
The results of operations for the interim periods are not necessarily indicative
of the results expected for the full year. Information for quarterly periods is
affected by seasonal variations in sales, rate changes, timing of fuel expense
recovery and other factors.
Consolidated earnings increased $1.90 per share for the third quarter of 1998
when compared to the same time period in 1997. The increase was primarily due to
the gain on the sale in July 1998 of East Midlands and the recognition of the
windfall profits tax by East Midlands in the third quarter of 1997.
Consolidated earnings increased by 85 cents per share during the nine-month
period ended September 30, 1998 as compared to the nine-month period ended
September 30, 1997. The reasons for the increase were:
o gain on the sale of East Midlands in July 1998;
o recognition of the windfall profits tax by East Midlands in the third
quarter of 1997; offset by
o impact of Virginia Power's rate case settlement in the second quarter of
1998.
Operating Revenues
Operating revenues increased by $713.7 million during the third quarter of 1998
as compared to the same period in 1997 primarily due to:
o increased retail sales at Virginia Power because of warmer weather;
o increased sales of wholesale power at Virginia Power; offset by
o decreased revenues from East Midlands due to its sale in July 1998.
17
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
During the nine months ended September 30, 1998, operating revenues rose by $1.4
billion when compared to nine months ended September 30, 1997. This revenue
growth was primarily due to:
o increase in Virginia Power's power marketing and natural gas sales
revenues;
o strong performance from Dominion Capital's financial services businesses;
offset by;
o provision for the rate refund at Virginia Power and decreased sales at East
Midlands.
Operating Expenses
Operating expenses increased by $705.6 million during the third quarter of 1998
as compared to the same period in 1997, primarily due to:
o increase in fuel costs at Virginia Power which reflects the costs of the
power marketing and natural gas sales; offset by
o decrease in operating expenses at East Midlands.
During the nine months ended September 30, 1998, operating expenses increased by
$1.6 billion when compared to the same period in 1997, primarily due to:
o Virginia Power's increased purchases of energy from other wholesale power
suppliers and purchases of natural gas;
o increase in purchased power capacity at Virginia Power;
o Virginia Power's settlement of rate proceedings before the Virginia
Commission, reflected in Impairment of regulatory assets; offset by,
o decrease in operating expenses at East Midlands.
Other Income
Other income increased for the three-month and nine-month periods ended
September 30, 1998, as compared to the same periods in 1997. The increases were
primarily due to the gain on the sale of East Midlands in the third quarter of
1998 and the recognition of the windfall profits tax by East Midlands in the
third quarter of 1997.
Provision for Income Taxes
The provision for income taxes increased during the third quarter 1998 as
compared to the same period in 1997, primarily due to the taxes associated with
the gain on the sale of East Midlands.
18
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
The provision for income taxes increased for the nine-month period ended
September 30, 1998 as compared to the same period in 1997 primarily due to the
taxes on the gain on the sale of East Midlands. The taxes related to the sale of
East Midlands were offset by the income tax provisions associated with Virginia
Power's Virginia rate proceeding settlement.
Contingencies
For information on contingencies, see Note (G) to the NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows From Operating Activities
Cash flows from operating activities for the nine months ended September 30,
1998 decreased by $379.6 million as compared to the same period in 1997. The
decrease was primarily due to cash flows used in net mortgage originations and
sales and normal operations.
Cash Flows Used In Financing Activities
Cash flows used in financing activities during the nine-month period ending
September 30, 1998 were $80.9 million and were due to:
o the repayment of debt at Virginia Power and Dominion Holding UK;
o the repurchase of common stock by Dominion Resources; offset by
o the issuance of debt at Dominion Energy and Dominion Capital.
On October 16, 1998, the Board of Directors of Dominion Resources declared a
quarterly common stock dividend of $0.645 per share, payable December 20, 1998
to holders of record at the close of business November 27, 1998.
Dominion Resources issued 146,342 shares of common stock through its Dominion
Direct Investment and Employee Savings Plans (see Note (D) to the NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS) during the three-month period ended September
30, 1998. The proceeds from the issuance of common stock under these plans are
used to provide equity capital to Dominion Resources' subsidiaries.
In addition, Dominion Resources repurchased 1,359,000 shares of common stock
($56.2 million) during the third quarter of 1998. On July 20, 1998, the Dominion
Resources Board of Directors approved the repurchase of up to $650 million of
Dominion Resources common stock.
19
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Cash Flows Used In Investing Activities
Net cash flows used in investing activities during the nine-month period ending
September 30, 1998 were $93.1 million. The primary reasons for the cash outflows
were:
o increase in loan originations at Dominion Capital's financial services
subsidiaries;
o utility plant (including nuclear fuel) expenditures at Virginia Power;
o investments by Dominion Energy in natural gas and independent power plants;
offset by,
o the proceeds from the sale of East Midlands.
FUTURE ISSUES
Year 2000 Compliance
Dominion Resources is preparing its computer systems and computer-driven
equipment and devices for the year 2000. Virtually every computer operation
could be affected in some way by the rollover of the two-digit year value from
99 to 00. Systems that do not properly recognize date-sensitive information when
the year changes to 2000 could fail or generate erroneous data. The year 2000
problem could affect traditional information systems and embedded systems. It
could also affect software or computer applications that use, store, transmit or
receive information involving dates.
If not properly addressed, the year 2000 problem could result in computer and
other equipment failures at the company and our suppliers and customers. Because
of the extensive use of computers and embedded systems throughout our business
and the businesses of our suppliers and customers, if failures occur, they could
have a material impact on our business.
Dominion Resources' objective is to be year 2000 ready. "Year 2000 ready" means
that critical systems, devices, applications and business relationships have
been evaluated and are expected to be suitable for continued use into and beyond
the year 2000.
20
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Dominion Resources and its subsidiaries have organized formal year 2000 project
teams to identify, correct or reprogram and test its systems for year 2000
readiness. These teams are addressing all critical aspects of our business
pertaining to this issue, including information systems, embedded systems and
external relationships with business partners. Information systems encompass
traditional information technology systems such as financial reporting,
accounting, billing, and purchasing systems. Embedded systems primarily
represent specialized computers used to control, monitor, or assist the
operations of equipment. External relationships include suppliers and other
service providers. The teams are overseen by company officers who report
regularly to management and the Boards of Directors.
Our year 2000 program involves completing four major phases: (1) inventorying of
computer systems and embedded systems that could potentially be affected by the
year 2000 problem; (2) screening to determine date sensitivity within the
inventoried systems; (3) impact assessment and planning for remediation and
contingencies; and (4) remediation and testing. We have completed our internal
inventory and screening process. The following tables summarize our status and
projected timetable for preparing our company for year 2000.
Percent of Critical Systems Year 2000 Ready
-------------------------------------------------------
Actual Planned
------ -----------------------------------------
9/30/98 12/31/98 7/31/99 10/31/99
------- -------- ------- --------
Virginia Power 83 91 99 100
Dominion Resources 5 10 100 100
Dominion Energy 5 30 70 100
Dominion Capital 11 25 100 100
In addition to these internal efforts, Dominion Resources is assessing the state
of readiness of its critical suppliers and service providers. We have also
implemented initiatives to prevent future procurement of non-year 2000 compliant
technology or services. Additionally, Virginia Power is participating in
numerous industry groups sharing common information with other utilities to
ensure continuity of service to its customers. Dominion Energy's representatives
are making inquiries of appropriate authorities in countries where the
transmission network used for delivery of energy is operated by the local
government. Virginia Power is also meeting with the independent power producers
who supply the company energy under power purchase contracts to share
information about year 2000 readiness.
21
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Based on our efforts to date, we expect year 2000 costs to be within the range
of $45 million to $55 million dollars, of which $8.5 million (including $7.8
million for Virginia Power) has been expended to date. Of this amount, $40
million to $50 million is for Virginia Power. Year 2000 costs at our other
subsidiaries are not expected to be material. These ranges are a function of
Dominion Resources ongoing evaluation as to whether certain systems and
equipment will be corrected or replaced, which is dependent on information which
is still being obtained from suppliers and other external sources. Maintenance
and modification costs will be expensed as incurred, while the costs of new
software and hardware will be capitalized and amortized over the asset's useful
life. These costs do not include capital expenditures for major information
systems (hardware and software) that were initiated for normal business reasons
without regard for year 2000 issues.
Of primary importance to Dominion Resources' energy businesses is the
reliability of the transmission network for delivery of energy to its customers.
This reliability is achieved by participation of many utilities in the supply
to, and control of, their individually owned portions of the network. Failure of
an individual utility to successfully manage its transmission network could
affect this reliability which could have a material adverse affect on the total
operations of Dominion Resources.
Congress has directed the Department of Energy (DOE) to ascertain the readiness
of all electric utilities for year 2000. The DOE is working with the North
American Reliability Council (NERC) to coordinate and monitor year 2000
activities of the electric utility industry to ensure continued supply of energy
to all customers. NERC is comprised of ten regional councils whose members
represent the major bulk power suppliers of the electric industry. Virginia
Power is actively participating with other NERC members, including its local
council, the Southeastern Electric Reliability Council (SERC).
22
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Dominion Resources is also in the process of contingency planning to ensure
continuous operation of its businesses. Contingency planning involves an ongoing
evaluation of our internal efforts as well as the efforts of critical third
parties to successfully address the year 2000 issue. As part of this process,
Dominion Resources must consider and evaluate the most reasonably likely worst
case scenarios and their impact on continuous operations of its businesses.
Based on our preliminary considerations, the most reasonably likely worst case
scenarios could include:
o minor variations in voltage or frequency with no significant effect on
electric service;
o temporary loss of a portion of generation capacity including possibly
non-utility generation, however, such loss is not expected to be sufficient
to adversely affect electric supplies;
o temporary loss of some telecommunications functionality and other services
with no impact expected on electric service; and
o temporary loss of a small portion of commercial and industrial customer
loads.
Dominion Resources cannot estimate or predict the potential adverse
consequences, if any, that could result from a third party's failure to
effectively address the year 2000 issue, but believes that any impact would be
short-term in nature and would not have a material adverse impact on results of
operations. Based on Dominion Resources' and industry analyses to date, we do
not believe the most reasonably likely worst case scenarios identified above, if
they were to occur, would have a material adverse affect on Dominion Resources'
businesses or results of operations. We plan to have all contingency plans
identified and tested prior to year end 1999.
The descriptions herein of the elements of Dominion Resources' year 2000 efforts
are forward-looking statements as defined in the Private Securities Litigation
Reform Act of 1995. Of necessity, this effort is based on estimates of
assessment, remediation, testing and contingency planning activities and
perceived problems not yet identified. There can be no assurance that actual
results will not differ materially from expectations.
23
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
VIRGINIA POWER
RESULTS OF OPERATIONS
Revenue
Revenues changed from the same period in the prior year primarily due to the
following:
Three Months Ended Nine Months Ended
September 30, September 30,
1998 vs. 1997 1998 vs. 1997
------------- -------------
Revenue - Electric Service
Weather $ 50.8 $ 44.7
Customer growth 14.7 32.5
Provision for rate refund (32.3) (218.3)
Fuel rate variance (43.1) (92.8)
Other retail 18.4 89.0
------- -------
Total retail 8.5 (144.9)
Other electric service 8.0 4.0
-------- -------
Total electric service 16.5 (140.9)
------- -------
Revenue - Other
Wholesale-power marketing 1,012.5 1,520.2
Natural gas 79.3 318.1
Other, net 5.2 10.5
------- -------
Total revenue - other 1,097.0 1,848.8
------- -------
Total revenue $ 1,113.5 $ 1,707.9
======= =======
Electric service revenue includes sales to retail customers in Virginia Power's
service territory at rates authorized by the Virginia and North Carolina
commissions and sales to cooperatives and municipalities at wholesale rates
authorized by FERC. The primary factor affecting this revenue in the first nine
months of 1998 was a rate refund and rate reduction arising from settlement of
Virginia Power's rate proceedings before the Virginia Commission. See Virginia
Rates under Note (I) to CONSOLIDATED FINANCIAL STATEMENTS. In addition this
revenue was also affected by customer growth, weather and fuel rates.
24
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Weather - Mild weather in the first quarter of 1998 caused customers to use less
electricity for heating. Weather in the third quarter of 1998 was warmer than
normal, and this increased use of electricity for cooling. The warm weather in
1998 compared to a mild summer in 1997 has increased sales by $44.7 million in
the first nine months of 1998 over sales in the first nine months in 1997.
Customer growth - Sales resulting from new customer connections increased our
revenue by $14.7 million and $32.5 million for the three-month and nine-month
periods ended September 30, 1998 as compared to the same periods in 1997.
Fuel rates - The decrease in fuel rate revenue is attributable to lower fuel
rates that went into effect December 1, 1997 and an additional reduction
effective March 1, 1998. These reductions decreased fuel revenues by
approximately $43.1 million for the three months ended September 30, 1998 and
$92.8 million for the nine months ended September 30, 1998.
Heating and cooling degree-days for the third quarter were as follows:
1998 1997 Normal
---- ---- ------
Heating degree days 6 10 18
Percentage change compared
to prior year (40.0)% 42.9%
Cooling degree days 1,148 973 1,072
Percentage change compared
to prior year 18.0% 10.4%
Heating and cooling degree-days for the first nine months were as follows:
1998 1997 Normal
---- ---- ------
Heating degree days 2,035 2,334 2,431
Percentage change compared
to prior year (12.8)% (14.0)%
Cooling degree days 1,612 1,282 1,521
Percentage change compared
to prior year 25.7% (5.0)%
25
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Customer kilowatt-hour sales changed as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
1998 vs. 1997 1998 vs. 1997
-------------- -------------
Percents
--------
Residential 12.5 5.8
Commercial 6.4 7.4
Industrial 2.1 1.4
Public street & highway
lighting 1.6 2.2
Public authorities .9 5.1
Total retail sales 7.1 5.4
Wholesale - system 2.6 .8
Wholesale - power marketing 249.5 274.1
Total electric sales 84.4 61.2
The overall increase in kilowatt-hour sales reflects the success of Virginia
Power's wholesale power marketing efforts and increased sales resulting from
customer growth.
Other Revenues
Other revenue includes sales of electricity beyond Virginia Power's service
territory, natural gas, nuclear consulting services, energy management services
and other revenue. The increase in revenue for the three-month and nine-month
periods ended September 30, 1998, as compared to the same periods in 1997, is
primarily due to Virginia Power's marketing of electricity and natural gas
beyond it's service territory. The wholesale power marketing revenue reflects an
increased volume of transactions as well as higher electricity prices during the
third quarter of 1998. Wholesale electricity prices were higher during the
summer months of 1998 as a result of seasonal demand and temporary shortage of
supply in selected markets in which Virginia Power participates.
Fuel, net
Fuel, net increased, as compared to the three-month and nine-month periods ended
September 30, 1997, primarily due to the cost of the power marketing and natural
gas sales which reflects increased purchases of energy from other wholesale
power suppliers and purchases of natural gas.
Purchased Power Capacity, net
Purchased power capacity, net increased for the three-month and nine-month
periods ended September 30, 1998, as compared to the same periods in 1997, due
to (1) the discontinuance of deferral accounting for such expenses and (2)
increased expenses associated with the restructuring of certain contracts. The
26
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
nine months ended September 30, 1998 was also impacted by the write-off of the
deferred capacity expense balance based on the settlement of Virginia Power's
rate proceedings before the Virginia Commission. See Virginia Rates under Note
(I) to CONSOLIDATED FINANCIAL STATEMENTS.
Impairment of Regulatory Assets
Impairment of regulatory assets represents the recognition of Virginia Power's
settlement of rate proceedings before the Virginia Commission. See Virginia
Rates under Note (I) to CONSOLIDATED FINANCIAL STATEMENTS. The amount reported
for 1997 represents accelerated cost recovery reserve accruals for expected
adjustments to regulatory assets. See Note (P) to CONSOLIDATED FINANCIAL
STATEMENTS included in Dominion Resources' Annual Report on Form 10-K for the
year ended December 31, 1997.
Operation and Maintenance
Operations and maintenance increased for the three-month period ended September
30, 1998, as compared to the same period in 1997, primarily due to (1) scheduled
maintenance in 1998 at Virginia Power's North Anna Unit 1 nuclear power station,
(2) costs to repair storm damage caused by hurricane Bonnie in 1998, and (3)
recognition of employee severance costs from continuing organizational changes.
Depreciation and Amortization
Depreciation and amortization for the nine months ended September 30, 1998
decreased primarily due to adjustments to the provision for depreciation and
decommissioning expenses for the period March 1, 1997 through June 30, 1998, to
reflect terms of Virginia Power's settlement of Virginia rate proceedings. See
Virginia Rates under Note (I) to CONSOLIDATED FINANCIAL STATEMENTS.
Taxes other than Income
Taxes other than income increased for the three-month and nine-month periods
ended September 30, 1998 primarily due to increased taxes associated with
Virginia Power's wholesale power and natural gas marketing business.
Other Income
Other income decreased for the three-month and nine-month periods ended
September 30, 1998, as compared to the same periods in 1997, primarily due to
unrealized net losses associated with changes in the estimated fair value of
natural gas and electricity commodity contracts held for trading purposes.
Whether such losses will ultimately be realized is dependent on future movement
in commodity prices and the extent to which Virginia Power satisfies
27
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
sales commitments using available Virginia Power generation and purchased power
resources rather than market purchases.
Income Taxes
Income taxes decreased for the nine-month period ended September 30, 1998, as
compared to the same period in 1997, primarily as a result of the income tax
provisions associated with the rate refund and impairment of regulatory assets
resulting from Virginia Power's settlement of Virginia rate proceedings. See
Virginia Rates under Note (I) to CONSOLIDATED FINANCIAL STATEMENTS.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows From Operations
Operating activities resulted in $124.5 million increased cash flow for the
nine-month period ended September 30, 1998 as compared to the same period in
1997. This increase was primarily attributable to Virginia Power's wholesale
power marketing operation. Internal generation of cash exceeded Virginia Power's
capital requirements during the first nine months of 1998 and 1997.
Cash Flows Used in Financing Activities
Cash used in financing activities was as follows:
Nine Months Ended
September 30,
1998 1997
---- ----
Issuance of long-term debt $ 150.0 $ 270.0
Repayment of short-term debt (148.7) (185.7)
Repayment of long-term debt (292.5) (309.3)
Common stock dividend payments (285.7) (283.9)
Preferred stock dividend payments (26.7) (26.8)
Distribution-preferred securities of
subsidiary trust (8.2) (8.2)
Other (4.7) (3.1)
------- -------
Total $(616.5) $(547.0)
======= =======
Virginia Power currently has three shelf registration statements effective with
the Securities and Exchange Commission from which they can obtain additional
debt capital. The remaining principal amount of debt that can be issued under
these registrations totals $765 million. An additional capital
28
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
resource of $100 million in preferred stock also is registered with the
Securities and Exchange Commission.
On June 17, 1998, Virginia Power issued $150 million of its 1998 Series A, 7.15%
Senior Notes, due June 30, 2038. The proceeds from the sale of these notes and
cash provided by operating activities were used to fund second quarter 1998
mandatory maturities totaling $217.5 million. Third quarter mandatory maturities
totaled $75 million which were funded using cash provided by operating
activities.
Virginia Power has a commercial paper program that is supported by two credit
facilities totaling $500 million. Proceeds from the sale of commercial paper are
primarily used to provide working capital. Net borrowings under the program were
$77.5 million at September 30, 1998.
Cash Flows Used in Investing Activities
Cash used in investing activities was as follows:
Nine Months Ended
September 30,
1998 1997
---- ----
Utility plant expenditures (excluding AFC-other
funds) $(300.6) $(269.9)
Nuclear fuel (excluding AFC-other funds) (70.2) (71.2)
Nuclear decommissioning contributions (37.5) (27.2)
Purchase of assets (20.0)
Other (3.7) 1.6
------- -------
Total $(412.0) $(386.7)
======= =======
Investing activities for the first nine months of 1998 resulted in a net cash
outflow of $412 million primarily due to the payment of construction
expenditures, nuclear fuel expenditures and contributions to nuclear
decommissioning trusts. Of the construction expenditures, Virginia Power spent
approximately $223.3 million on transmission and distribution projects, $28.8
million on production projects and $48.5 million on support facilities.
Capital Requirements
Virginia Power has filed for approval with the Virginia Commission to construct
six combustion turbines to meet a portion of anticipated load growth beginning
in the year 2000. Each of the combustion turbines would have a generating
capacity of 150 MW for a total combined capacity of 900 MW(summer rating). Total
construction cost for the six units is projected to be in the range of $280 to
$300 million. Four of the units would be built in Fauquier
29
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
County, Virginia for use beginning in July 2000. The remaining two units would
be built in Caroline County, Virginia for use beginning in July 2001. See Future
Sources of Power under PART II.-OTHER INFORMATION for information on the
regulatory approval process.
Future Issues
Competition
With reference to the proceeding at the Virginia Commission regarding the
establishment of independent system operators (ISOs), regional power exchanges
(RPXs) and retail access pilot programs, Virginia Power filed a report on
November 2, 1998, describing the details, objectives and characteristics of its
proposed retail access pilot program.
Utility Rate Regulation
For information about Virginia Power's Virginia jurisdictional rate proceeding
and settlement thereof, see Virginia Rates under Note (I) TO CONSOLIDATED
FINANCIAL STATEMENTS.
Clean Air Act Compliance
As a result of periodic evaluation and planning for compliance with the Clean
Air Act's SO2 emissions reduction program, Virginia Power has determined that it
may be appropriate to make additional capital expenditures for SO2 emission
control equipment during the period 1999 through 2002. Whether this strategy is
ultimately adopted could be influenced by near term changes in the regulatory
environment, availability of allowances and emission control technology.
In September 1998, the EPA adopted a rule which requires 22 states, including
Virginia, North Carolina, and West Virginia to reduce and cap emissions of
nitrogen ioxides (NOx) beginning in 2003. NOx is a gaseous by-product of fossil
fuel combustion. Significant sources of NOx are automobiles and industrial
processes, including fossil- fired electric generation stations.
30
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Although the rule allows each state to determine how to achieve the required
reduction in emissions, the caps were calculated based on emission limits for
utility boilers. By September 1999, each affected state must develop and submit
a plan to the EPA that details how the state will achieve its emission cap. If
states adopt the approach suggested by the EPA, it is probable Virginia Power
would incur major capital expenditures, in the range of $500 million to $700
million, to install additional emission control equipment. Virginia Power will
closely monitor the development of NOx emission cap plans by the various states.
NRC Nuclear Decommissioning Rule
Virginia Power currently meets the Nuclear Regulatory Commission's (NRC)
financial assurance for nuclear decommissioning by using external trusts to
collect funds for the ultimate decommissioning of Virginia Power's four nuclear
power reactors (i.e., sinking fund method). On September 22, 1998, the NRC
issued its final Rule on Financial Assurance Requirements for Decommissioning
Nuclear Power Reactors (the Final Rule) to be effective November 23, 1998. The
Final Rule amends current NRC requirements by limiting the use of the sinking
fund method to only that portion of a licensee's collections for decommissioning
that are recovered through either traditional cost of service regulation or
through non-by passable charges.
The NRC has identified the following alternative methods of providing financial
assurance where the sinking fund method is not permitted by the Final Rule:
o prepayment of a prescribed amount,
o parent company guarantee,
o purchase of insurance or a surety instrument (e.g., line of credit or
letter credit),
o contractual transfer of the obligation to customers, and
o other mechanisms, as determined by the NRC upon review of the specific
circumstances, that provide equivalent financial assurance.
Virginia Power is assessing the extent to which it will be required to use
alternative methods of financial assurance under the Final Rule and believes
that the sinking fund method will continue to be available for most of its
decommissioning obligation.
31
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
DOMINION ENERGY
RESULTS OF OPERATIONS
Net income increased during the third quarter of 1998 as compared to the same
period in 1997 primarily due to increased earnings from its power generation
businesses.
Net income increased during the nine-month period ended 1998 as compared to the
same period in 1997 primarily due to:
o increased earnings in its domestic power business primarily due to the
addition of the Kincaid Power Station;
o increased production in its oil and gas businesses; offset by
o lower gas prices.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows From Operating Activities
Cash flows from operations for the nine months ended September 30, 1998
decreased by $126.9 million as compared to the same period in 1997 primarily due
to a reduction in ownership of a subsidiary that occurred during the third
quarter of 1997.
Cash Flows From (Used In) Financing Activities
Cash from (used in) financing activities was as follows:
Nine Months Ended
September 30,
1998 1997
---- ----
(Millions)
Issuance (repayment) of long-term debt $ 409.2 $(121.8)
Dividend payment (35.9) (36.9)
Other 12.1 16.5
------ ------
Net cash flows from (used in)
financing activities $ 385.4 $(142.2)
====== ======
During the nine-month period ended September 30, 1998, cash flows from financing
activities were $385.4 million primarily due to the issuance of long-term debt
to fund the acquisition of the Kincaid Power Station and Archer Resources, Ltd.
32
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Cash Flows Used In Investing Activities
Cash used in investing activities was as follows:
Nine Months Ended
September 30,
1998 1997
---- ----
(Millions)
Investment in natural gas assets $ (25.2) $(40.8)
Investment in power generation assets (113.2) (14.3)
Acquisition of business (339.0)
Sale of business 52.7
Notes receivable 50.6 2.7
Other (81.6) (22.7)
------ -----
Net cash flows used in investing activities $(455.7) $(75.1)
====== =====
During the nine-month period ending September 30, 1998, cash flows used in
investing activities were $455.7 million primarily due to:
o the acquisition of Archer Resources, Ltd.;
o investments in natural gas and power generation assets; offset by,
o proceeds from the sale of Dominion Energy's interest in Texas Cogeneration
Company.
Capital Requirements
Dominion Energy and Peoples Energy Corporation plan to develop and operate a
jointly-owned electric generating peaking facility near Elwood, Illinois. The
facility will have the capacity to generate 600 megawatts of natural gas-fired
electric power. The plant is expected to begin operation in early June 1999. The
cost of the Elwood facility is estimated at $200 million. Dominion Energy and
Peoples Energy Corporation will share equally in the facility's construction
costs.
DOMINION CAPITAL
RESULTS OF OPERATIONS
Net income decreased during the third quarter of 1998 as compared to the same
period in 1997 primarily due to:
o loss on sale of non-strategic real estate assets,
o lower contributions from consumer lending operations due to widening
spreads in the securitization market, offset by
o improved strength in commercial lending.
33
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Net income increased during the nine-month period ended September 30, 1998 as
compared to the same period in 1997 primarily due to the strong performance from
its financial services businesses.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows Used In Operating Activities
Cash flows used in operations for the nine months ended September 30, 1998
increased by $210.1 million as compared to the same period in 1997 primarily due
to an increase in cash flows used in net mortgage originations and sales.
Cash Flows From Financing Activities
Cash from financing activities was as follows:
Nine Months Ended
September 30,
1998 1997
---- ----
(Millions)
Issuance of long-term debt $ 2,293.1 $ 3,268.9
Repayment of long-term debt (1,924.9) (3,154.5)
Issuance of short-term debt 368.1
Investment from parent 99.1 137.0
Dividend payment (38.9) (31.4)
Issuance of intercompany debt 50.8 4.1
Other 0.1 (3.3)
------- -------
Net cash flows from financing activities $ 847.4 $ 220.8
======= =======
During the nine-month period ending September 30, 1998, cash flows from
financing activities were $847.4 million primarily due to funding needs for loan
originations during the period.
34
<PAGE>
DOMINION RESOURCES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Cash Flows Used In Investing Activities
Cash used in investing activities was as follows:
Nine Months Ended
September 30,
1998 1997
---- ----
(Millions)
Investment in affiliates $ 10.0
Loan originations (1,951.4) $(706.5)
Repayments of loan originations 1,377.9 696.9
Purchase of securities (27.1) (127.4)
Proceeds from sale of securities 34.3 83.4
Acquisition of business, net of cash (96.1)
Other (3.1) (23.1)
------ ------
Net cash flows used in investing activities $ (559.4) $(172.8)
======== ======
During the nine-month period ended September 30, 1998, cash flows used in
investing activities were $559.4 million primarily due to an increase in loan
originations.
FUTURE ISSUES
On November 3, 1998, Dominion Capital entered into a senior unsecured 364-day
$400 million revolving credit agreement with The Chase Manhattan Bank as
Administrative Agent, and various other lenders. The credit agreement will be
used by Dominion Capital for general corporate purposes including providing
liquidity to support commercial paper.
35
<PAGE>
DOMINION RESOURCES, INC.
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
MARKET RATE SENSITIVE INSTRUMENTS AND RISK MANAGEMENT
Dominion Resources is subject to market risk as a result of its use of various
financial instruments, derivative financial instruments and derivative commodity
instruments. Interest rate risk generally is associated with Dominion Resources'
and its subsidiaries' outstanding debt as well as its commercial, consumer, and
mortgage lending activities. Currency risk exists principally through Dominion
Resources' investments in the United Kingdom, Canada and some debt denominated
in European currencies associated with Dominion Resources subsidiary's
investment in South America. Dominion Resources is exposed to equity price risk
through various portfolios of equity securities.
Dominion Resources uses derivative commodity instruments to hedge exposures of
underlying electric, gas production, and gas procurement operations and is also
involved in trading activities, which also use these instruments.
Dominion Resources is also exposed to price risk associated with the
nonfinancial assets and liabilities of power production operations, including
underlying fuel requirements and natural gas operations.
Dominion Resources currency risk in the United Kingdom has been substantially
reduced due to the sale of East Midlands on July 27, 1998. For more information
on the sale of East Midlands, see Note B to the NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS.
Interest Rate Risk Non-Trading Activities
In managing interest-rate risk, Dominion Resources enters into interest rate
sensitive derivatives. Examples of these derivatives are swaps, forwards and
futures contracts.
Dominion Resources, as part of its routine risk management policy reviews the
level of market risk it faces.
Electric and Gas Commodity Price Risk Trading Activities
The use of electric and gas futures and derivative commodity contracts through
Virginia Power's wholesale power trading operation has significantly increased
during the first nine months of 1998.
36
<PAGE>
DOMINION RESOURCES, INC.
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
These contracts are sensitive to changes in the prices of natural gas and
electricity. Virginia Power employs established policies and procedures to
manage its risks associated with these price fluctuations and uses various
commodity instruments, such as futures, swaps and options, to reduce risk by
creating offsetting market positions.
One of the techniques commonly used to measure risk in a commodity trading
portfolio is sensitivity analysis, which determines a hypothetical change in the
fair value of the portfolio which would result from an assumed change in the
market prices of the related commodities. The fair value of the portfolio is a
function of the underlying commodity, contract prices and market prices
represented by each derivative commodity contract. For exchange-for-physical
contracts, basis swaps, fixed price forward contracts and options which require
physical delivery of the underlying commodity, market value reflects
management's best estimates considering over-the-counter quotations, time value
and volatility factors of the underlying commitments. Futures contracts and
options on futures contracts are marked to market based on closing exchange
prices.
Virginia Power has determined a hypothetical loss by calculating a hypothetical
fair value for each of Virginia Power's contracts assuming a 10% unfavorable
change in the market prices of the related commodity and comparing it to the
fair value of the contracts based on market prices at September 30, 1998. This
hypothetical 10% change in commodity prices would have resulted in a
hypothetical loss of approximately $7.3 million in the fair value of Virginia
Power's natural gas and electricity commodity contracts as of September 30,
1998.
The sensitivity analysis does not include the price risks associated with
utility operations, including those underlying utility fuel requirements. In the
normal course of business, Virginia Power also faces risks that are either
nonfinancial or nonquantifiable. Such risks principally include credit risk,
which is not reflected in the sensitivity analysis above.
Other than the above change, the risk associated with Dominion Resources' other
uses of these instruments has not materially changed from that discussed in
Market Rate Sensitive Instruments and Risk Management under MANAGEMENT'S
DISCUSSION AND ANALYSIS OF CASH FLOWS AND FINANCIAL CONDITION included in
Dominion Resources' Annual Report on Form 10-K for the year ended December 31,
1997.
37
<PAGE>
DOMINION RESOURCES, INC.
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
VIRGINIA POWER
As previously reported, Doswell Limited Partnership filed suits against Virginia
Power in the Circuit Court of the City of Richmond and the United States
District Court for the Eastern District of Virginia alleging Virginia Power
breached two power purchase agreements. These matters have been settled and
suits dismissed.
ITEM 5. OTHER INFORMATION
VIRGINIA POWER
Regulation
Virginia
See Future Issues-Competition under MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS for information on Virginia
Power's filing concerning its retail access pilot program.
On October 30, 1998, Virginia Power and Virginia Power Services, Inc. (VPS)
filed an Application for Approval of Affiliate Transactions with the Virginia
Commission which, among other matters, notified the Commission of the addition
of two of VPS's wholly-owned subsidiaries, Virginia Power Services Energy Corp.,
Inc.(VPSE) and Virginia Power Energy Marketing, Inc. (VPEM) to the Affiliate
Services Agreement approved by the Commission in its Order Granting Approval,
Case No. 970007, dated September 3, 1997. VPS is a wholly-owned subsidiary of
Virginia Power which was formed as a holding company to engage in certain
unregulated businesses. Contemporaneously with the above filing, VPEM and VPSE
each filed an Application for Approval of Affiliate Transactions seeking
Commission approval of certain transfer and operating agreements to be entered
into with Virginia Power.
If approved by the Commission, certain gas and oil inventories currently held by
Virginia Power will be transferred to VPSE together with certain contracts
relating to the transportation and storage of such assets. In addition, VPSE
will provide to Virginia Power certain fuel support services, including
procurement, storage, transportation and risk management services, in connection
with the natural gas and oil inventory used by Virginia Power to fuel its
generation projects (the Fuel Services). VPEM will act as agent for VPSE in
providing the Fuel Services to Virginia Power and will provide similar services
to third parties. Also, upon approval by the Commission, certain gas and oil
inventories currently held by Virginia Power will be transferred to VPEM
together with certain contracts, including contracts governing the purchase,
sale, transportation and storage of fuel and derivative and swap transactions.
38
<PAGE>
DOMINION RESOURCES, INC.
PART II. - OTHER INFORMATION
(CONTINUED)
FERC
Regarding the LG&E Westmoreland Southampton (Southampton) proceedings, in May
1998, FERC denied a rehearing, granted the clarification and accepted
Southampton's 1992 rates subject to a refund to Virginia Power. In June 1998,
Southampton and Virginia Power each filed separate requests for rehearing. On
July 13, 1998, FERC granted both rehearing requests. On August 7, 1998, the
parties reached a settlement in principle. On October 13, 1998, the final
settlement was filed with FERC for its acceptance.
Rates
Virginia
On August 7, 1998, the Virginia Commission approved the settlement of the
consolidated proceeding before the Virginia Commission concerning Virginia
Power's 1995 Annual Informational Filing. See Note (I) to CONSOLIDATED FINANCIAL
STATEMENTS.
On October 19, 1998, Virginia Power filed an application with the Virginia
Commission for an increase of $55 million in fuel rates to become effective
December 1, 1998. A hearing is scheduled for November 30, 1998.
On September 11, 1998, Virginia Power filed its application with the Virginia
Commission to modify its cogeneration and small power production rates under
Schedule 19. A hearing is scheduled for December 16, 1998.
FERC
In reference to the Standards of Conduct filed in compliance with FERC's Order
No. 889-A, on September 29, 1998, FERC accepted Virginia Power's revised
Standards of Conduct subject to minor modifications, which were agreed to by
Virginia Power.
Future Sources Of Power
On August 11, 1998, Virginia Power filed an application with the Virginia
Commission for a Certificate of Public Convenience and Necessity to install five
gas-fired turbine generator units. On October 21, 1998, Virginia Power filed for
approval of another gas-fired turbine generator unit in addition to the five
proposed in August. Four units would be built in Fauquier County for commercial
operation to commence on or about July 1, 2000 and the remaining two units would
be built in Caroline County for commercial operation on or about July 1, 2001.
39
<PAGE>
DOMINION RESOURCES, INC.
PART II. - OTHER INFORMATION
(CONTINUED)
The Commission Staff filed a Motion seeking a ruling as to whether the Rules
Governing the Use of Bidding Programs to Purchase Electricity from Other Power
Suppliers were applicable to Virginia Power's filings. On October 20, 1998, the
Commission issued an Order setting a hearing for January 5, 1999 to decide if
the Bidding Rules are applicable and, if so, whether Virginia Power should be
granted an exemption from them.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
11- Statement re: computation of per share earnings
(included in this Form 10-Q on page 3).
27- Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K
Dominion Resources filed a report on Form 8-K, dated
August 10, 1998, relating to its wholly owned
subsidiary, Virginia Power's Final Order approving the
pending rate settlement with the Virginia State
Corporation Commission.
40
<PAGE>
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) EDGAR M. ROACH, JR.
----------------------------
Edgar M. Roach, Jr.
Executive Vice President
(Chief Financial Officer)
November 10, 1998
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