-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RyrypiVbNAiuw7djOiWrpzO2pRcgRrAg5e/pPYXTnam4dzaC9wfAPy22ccapP90m z0lFIXztzbklFdJzjXZRWg== 0000103682-95-000020.txt : 19951109 0000103682-95-000020.hdr.sgml : 19951109 ACCESSION NUMBER: 0000103682-95-000020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951108 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: VIRGINIA ELECTRIC & POWER CO CENTRAL INDEX KEY: 0000103682 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 540418825 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-02255 FILM NUMBER: 95587996 BUSINESS ADDRESS: STREET 1: ONE JAMES RIVER PLAZA CITY: RICHMOND STATE: VA ZIP: 23261 BUSINESS PHONE: 8047713000 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark one) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission file number 1-2255 VIRGINIA ELECTRIC AND POWER COMPANY (Exact name of registrant as specified in its charter) VIRGINIA 54-0418825 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification No.) One James River Plaza, Richmond, Virginia 23219 - 3932 (Address of principal executive offices) (Zip Code) Registrant's telephone number (804) 771-3000 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, 1995, 171,484 shares of common stock, without par value, of the registrant were outstanding. VIRGINIA ELECTRIC AND POWER COMPANY INDEX Page Number PART I. Financial Information Item 1. Financial Statements Statements of Income - Three and Nine Months 3 Ended September 30, 1995 and 1994 Balance Sheets - September 30, 1995 4-5 and December 31, 1994 Statements of Cash Flows - Nine Months Ended 6 September 30, 1995 and 1994 Notes to Financial Statements 7-10 Item 2. Management's Discussion and Analysis of 11-17 Financial Condition and Results of Operations PART II. Other Information Item 1. Legal Proceedings 18 Item 5. Other Information 18 The Company 18 Rates 18-19 Competition 19 Sources of Power 19 Item 6. Exhibits and Reports on Form 8-K 20-22 VIRGINIA ELECTRIC AND POWER COMPANY PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS STATEMENTS OF INCOME (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 (Millions) Operating revenues $1,276.6 $1,151.2 $3,324.0 $3,243.5 Operating expenses: Operation: Fuel, net 289.3 254.1 769.8 743.5 Purchased power capacity, net 187.5 176.5 518.2 507.0 Other 127.9 143.3 398.9 403.4 Maintenance 62.1 62.2 202.6 203.3 Restructuring 30.6 36.6 Depreciation and amortization 117.1 112.4 349.1 334.9 Amortization of terminated construction project costs 8.6 8.6 25.8 25.8 Taxes - Income 108.0 86.1 203.1 204.3 - Other 66.4 67.0 192.3 198.1 Total 997.5 910.2 2,696.4 2,620.3 Operating income 279.1 241.0 627.6 623.2 Other income 3.1 1.3 7.6 6.4 Income before interest charges 282.2 242.3 635.2 629.6 Interest charges: Interest on long-term debt 76.5 72.9 227.8 217.0 Other 4.5 4.4 15.8 13.8 Allowance for borrowed funds used during construction (1.2) (0.9) (3.8) (2.6) Total 79.8 76.4 239.8 228.2 Distributions - preferred securities of subsidiary trust, net 0.6 0.6 Net income 201.8 165.9 394.8 401.4 Preferred dividends 11.5 10.7 34.9 31.0 Balance available for Common Stock $ 190.3 $ 155.2 $ 359.9 $ 370.4
_____________ The accompanying notes are an integral part of the financial statements. VIRGINIA ELECTRIC AND POWER COMPANY BALANCE SHEETS ASSETS (Unaudited) September 30, December 31, 1995 1994 (Millions) (*) Utility plant (includes $787.6 plant under construction in 1995 and $828.2 in 1994) $14,207.8 $13,896.6 Less accumulated depreciation 4,723.3 4,426.9 9,484.5 9,469.7 Nuclear fuel, net 141.2 153.7 Net utility plant 9,625.7 9,623.4 Investments: Nuclear decommissioning trust funds 325.2 260.9 Pollution control project funds 15.2 20.3 Other 21.0 21.1 Total investments 361.4 302.3 Current assets: Cash and cash equivalents 203.9 28.8 Customer accounts receivable, net 378.2 202.7 Accrued unbilled revenues 118.9 97.4 Materials and supplies: Plant and general 190.6 186.7 Fossil fuel 75.1 122.9 Other 104.0 104.9 Total current assets 1,070.7 743.4 Deferred debits and other assets: Regulatory assets 830.5 871.0 Unamortized debt issuance costs 26.2 22.8 Other 85.9 85.0 Total deferred debits and other assets 942.6 978.8 Total assets $12,000.4 $11,647.9 ________________ The accompanying notes are an integral part of the financial statements. (*) The balance sheet at December 31, 1994 has been taken from the audited financial statements at that date. VIRGINIA ELECTRIC AND POWER COMPANY BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited) September 30, December 31, 1995 1994 (Millions) (*) Long-term debt $ 3,936.4 $ 3,910.4 Company obligated mandatorily redeemable preferred securities of subsidiary trust (**) 135.0 Preferred stock subject to mandatory redemption 180.0 221.7 Preferred stock not subject to mandatory redemption 509.0 594.0 Common stockholder's equity: Common Stock 2,737.4 2,737.4 Other paid-in capital 20.4 20.4 Earnings reinvested in business 1,342.3 1,277.8 Total common stockholder's equity 4,100.1 4,035.6 Current liabilities: Securities due within one year 404.6 312.2 Accounts payable, trade 300.0 318.3 Taxes accrued 145.2 1.9 Interest accrued 96.4 96.2 Other 234.2 220.5 Total current liabilities 1,180.4 949.1 Deferred credits and other liabilities: Accumulated deferred income taxes 1,491.7 1,466.7 Deferred investment tax credits 276.5 289.2 Deferred fuel expenses 54.9 51.5 Other 136.4 129.7 Total deferred credits and other liabilities 1,959.5 1,937.1 Total liabilities and shareholders' equity $12,000.4 $11,647.9 ________________ The accompanying notes are an integral part of the financial statements. (*) The balance sheet at December 31, 1994 has been taken from the audited financial statements at that date. (**) As described in Note (c) to FINANCIAL STATEMENTS, the 8.05% Junior Subordinated Notes totaling $139.2 million principal amount constitute 100% of the Trust s assets. VIRGINIA ELECTRIC AND POWER COMPANY STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, 1995 1994 (Millions) Cash flow from operating activities: Net income $ 394.8 $ 401.4 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 435.6 411.5 Allowance for other funds used during construction (5.4) (3.9) Deferred income taxes 21.9 58.0 Deferred investment tax credits, net (12.7) (12.7) Noncash return on terminated construction project costs - pretax (6.5) (7.9) Deferred fuel expenses 3.4 (29.0) Deferred capacity expenses 10.1 42.4 Restructuring 27.0 Changes in: Accounts receivable (103.8) 7.4 Accrued unbilled revenues 16.9 25.1 Materials and supplies 43.8 2.4 Accounts payable, trade (19.1) 2.2 Accrued expenses 141.5 60.5 Provision for rate refunds (12.2) (97.7) Other 28.1 0.8 Net cash flow from operating activities 963.4 860.5 Cash flow from (to) financing activities: Issuance of long-term debt 240.0 264.0 Issuance of preferred securities of subsidiary trust 135.0 Issuance of short-term debt 12.1 Repayment of long-term debt and preferred stock (246.6) (202.0) Common Stock dividend payments (295.4) (295.0) Preferred stock dividend payments (34.9) (31.1) Other (9.0) (4.3) Net cash flow from (to) financing activities (210.9) (256.3) Cash flow from (used in) investing activities: Utility plant expenditures (excluding AFC-other funds) (394.0) (387.3) Nuclear fuel (excluding AFC-other funds) (46.0) (52.1) Nuclear decommissioning contributions (19.5) (18.3) Pollution control project funds 5.1 5.2 Sale of accounts receivable (110.0) (130.0) Other (13.0) (12.2) Net cash flow (used in) investing activities (577.4) (594.7) Increase (decrease) in cash and cash equivalents 175.1 9.5 Cash and cash equivalents at beginning of period 28.8 21.6 Cash and cash equivalents at end of period $ 203.9 $ 31.1 Cash paid during the period for: Interest (reduced for the net cost of borrowed funds capitalized as AFC) $ 241.1 $ 236.0 Income taxes 90.4 115.7 ________________ The accompanying notes are an integral part of the financial statements. /TABLE VIRGINIA ELECTRIC AND POWER COMPANY NOTES TO FINANCIAL STATEMENTS (a) In the opinion of the management of Virginia Electric and Power Company the accompanying unaudited financial statements contain all adjustments, consisting of only normal recurring accruals, necessary to present fairly the financial position as of September 30, 1995, the results of operations for the three and nine month periods ended September 30, 1995 and 1994, and the cash flows for the nine-month periods ended September 30, 1995 and 1994. Certain amounts in the 1994 financial statements have been reclassified to conform to the 1995 presentation. The results of operations for the interim period are not necessarily indicative of the results to be expected for the full year. The financial statements include the accounts of the Company and its subsidiaries, with all significant intercompany transactions and accounts being eliminated on consolidation. These financial statements should be read in conjunction with the financial statements, and notes thereto, included in the Company's Annual Report on Form 10-K for the year ended December 31, 1994. (b) Contingencies 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. The Company is a member of certain insurance programs that provide coverage for property damage to members' nuclear generating plants, replacement power and liability in the event of a nuclear incident. The Company may be subject to retrospective premiums in the event of major incidents at nuclear units owned by covered utilities (including the Company). For additional information, see Note C to FINANCIAL STATEMENTS included in the Company's Annual Report on Form 10-K for the year ended December 31, 1994. (c) Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust In the third quarter 1995, the Company established Virginia Power Capital Trust I (VP Capital Trust). VP Capital Trust sold 5,400,000 shares of Preferred Securities for $135.0 million, representing preferred beneficial interests and 97% beneficial ownership in the assets held by VP Capital Trust. VIRGINIA ELECTRIC AND POWER COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) 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. The Notes are due September 30, 2025, but may be extended up to an additional ten years, subject to satisfying certain conditions. However, the Company may redeem the Notes on or after September 30, 2000, under certain circumstances. The Preferred Securities are subject to mandatory redemption upon repayment of the Notes at maturity or earlier redemption. At redemption, each Preferred Security shall be entitled to receive a liquidation amount of $25 plus accrued and unpaid distributions, including any interest thereon. (d) Preferred Stock As of September 30, 1995, there were 2,217,319 and 5,940,140 issued and outstanding shares of preferred stock subject to mandatory redemption and preferred stock not subject to mandatory redemption, respectively. There are a total of 10,000,000 authorized shares of the Company's preferred stock. (e) Restructuring Charges In March 1995, the Company announced the implementation phase of its Vision 2000 program. During this phase, the Company began reviewing operations with the objective of outsourcing services where economical and appropriate and re-engineering the remaining functions to streamline operations. The re-engineering process is resulting in decentralization, reorganization and downsizing for portions of the Company's operations. As part of this process, the Company is reevaluating its utilization of capital resources in the operations of the Company to identify further opportunities for operational efficiencies through outsourcing or re-engineering of its processes. VIRGINIA ELECTRIC AND POWER COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) In May 1995, the Company established a comprehensive involuntary severance package for salaried employees who lose their positions as a result of these initiatives. The Company is recognizing the cost associated with employee terminations in accordance with Emerging Issues Task Force Consensus No. 94-3 as management identifies the positions to be eliminated. Severance payments will be made over a period not to exceed twenty months. As of September 30, 1995, management had decided to eliminate 486 positions, for which a liability of $29.6 million has been recorded. The recognition of severance costs resulted in a charge to operations in the second and third quarter of $.7 million and $28.9 million, respectively. At September 30, 1995, 256 employees have been terminated and severance payments totaling $2.6 million have been paid. The Company estimates that these staffing reductions will result in annual savings, net of outsourcing costs, in the range of $20 million to $25 million. These savings will be reflected in lower construction expenditures as well as lower operation and maintenance expenses. As part of the restructuring, the Company is evaluating its long-term purchased power contracts and negotiating modifications to their terms, including cancellations, where it is determined to be economically advantageous to do so. The Company also negotiated settlements with several other parties to terminate their rights to sell power to the Company. During the first and second quarter of 1995, the cost of contract cancellations and negotiated settlements was $3 million. Based on contract terms and estimated quantities of power that would have otherwise been delivered, the cancellation of these contracts and rights to sell power to the Company has the effect of reducing the Company's future purchased power costs, including energy payments, by up to $19 million annually. Restructuring charges of $30.6 million and $36.6 million for the three months and nine months, respectively, ended September 30, 1995, included severance costs, purchase power contract cancellation and negotiated settlement costs, consultant fees and other costs incurred directly as a result of the Vision 2000 initiatives. The Vision 2000 review of operations is ongoing. At this time, Company management cannot estimate the restructuring costs yet to be incurred. VIRGINIA ELECTRIC AND POWER COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) (f) Rates Virginia On September 19, 1995, Virginia Power filed an application to revise its annual fuel factor. The Company proposed that the present fuel factor be decreased by $97.1 million. The Staff of the Virginia Commission proposed certain adjustments, which Virginia Power did not oppose, resulting in a recommended reduction of $107.3 million. A hearing was completed on October 30, 1995, and on October 31, 1995 the Virginia Commission approved the reduction of $107.3 million, effective November 1, 1995. North Carolina The Company filed an application with the North Carolina Commission on September 15, 1995, for a $1.3 million annual increase in fuel rates. A hearing is scheduled for November 21, 1995. VIRGINIA ELECTRIC AND POWER COMPANY ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources As detailed in the Statements of Cash Flows, cash flow from operating activities for the nine month period ended September 30, 1995 increased $102.9 million, as compared to the nine month period ended September 30, 1994, primarily as a result of normal operations. Cash from (to) financing activities was as follows: Nine Months Ended September 30, 1995 1994 (Millions) Mortgage bonds $ 200.0 $ 164.0 Preferred securities of subsidiary trust 135.0 Medium-term notes 40.0 100.0 Repayment of long-term debt and preferred stock (246.6) (202.0) Dividend payments (330.3) (326.1) Other (9.0) 7.8 Total $(210.9) $(256.3) Financing activities for the first nine months of 1995 resulted in a net cash outflow of $210.9 million. In the first quarter of 1995, the Company sold $200 million of First and Refunding Mortgage Bonds (Bonds) with an annual stated interest rate of 8.25%, the proceeds of which were used primarily to replace first quarter mandatory debt maturities totaling $185 million ($180 million of Bonds and $5 million of Medium-Term Notes). In the second quarter of 1995, the Company sold $40 million of Medium-Term Notes with an annual stated interest rate of 6.35%, the proceeds of which were used to meet a portion of the Company's capital requirements. Also during the quarter, the Company retired, through mandatory debt maturities, $56.6 million of Bonds and $5 million of Medium-Term Notes. The proceeds from the Sale of Preferred Securities (see Note (c) to FINANCIAL STATEMENTS) were invested on a short-term basis and then on October 2, 1995 were used to redeem 450,000 shares of the Company's $7.20 Dividend Preferred Stock, 417,319 shares of the $7.30 Dividend Preferred Stock, and 400,000 shares of the $7.45 Dividend Preferred Stock and for other capital requirements. VIRGINIA ELECTRIC AND POWER COMPANY ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) During the second quarter of 1995, the Company filed two shelf registration statements with the Securities and Exchange Commission, one for $500 million of First and Refunding Mortgage Bonds and the other for $200 million of Medium-Term Notes, Series F, which combine to provide the Company with $700 million in unused capital resources. The Company intends to issue securities from time to time to meet capital requirements. Additionally, a total of $300 million under the Company's commercial paper program may be outstanding at any point in time. The commercial paper program is supported by a $300 million revolving credit facility which replaced the Inter-Company Credit Agreement with Dominion Resources, Inc. Proceeds from the sale of commercial paper are primarily used to finance working capital for operations. As of September 30, 1995, no amount was outstanding under the program. Cash from (used in) investing activities was as follows: Nine Months Ended September 30, 1995 1994 (Millions) Utility plant expenditures $(394.0) $(387.3) Nuclear fuel (46.0) (52.1) Nuclear decommissioning contributions (19.5) (18.3) Pollution control project funds 5.1 5.2 Sale of accounts receivable (110.0) (130.0) Other (13.0) (12.2) Total $(577.4) $(594.7) Investing activities for the first nine months of 1995 resulted in a net cash outflow of $577.4 million primarily due to $394.0 million of construction expenditures and $46.0 million of nuclear fuel expenditures. Of the construction expenditures, approximately $224.5 million was spent on transmission and distribution projects, $113.7 million on power production projects, and $29.3 million on new generating facilities. VIRGINIA ELECTRIC AND POWER COMPANY ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Clover Unit 1, a pulverized coal-fired unit that is part of a two-unit facility jointly owned with Old Dominion Electric Cooperative, began commercial operation on October 7, 1995. The unit is rated at 416 MW (both summer and winter) and the Company s fifty percent ownership share was completed at an approximate cost of $288.0 million. The Company s annual depreciation and operations and maintenance expenses are estimated to be in the range of $12.0 million to $14.0 million. Results of Operations Balance available for Common Stock increased for the three month period ended September 30, 1995, as compared to the same period in 1994, primarily as a result of the warmer weather experienced during the summer of 1995, partially offset by restructuring costs recognized during the period. Balance available for Common Stock decreased for the nine month period ended September 30, 1995, as compared to the same period in 1994, primarily as a result of restructuring costs recognized during the period. Operating Revenues Operating revenues changed primarily due to the following: Three Months Ended Nine Months Ended September 30, September 30, 1995 vs. 1994 1995 vs. 1994 (Millions) Customer growth $ 19.8 $ 67.1 Weather 57.8 (39.1) Change in base revenues 10.2 29.5 Fuel cost recovery 2.9 8.8 Other, net 6.0 (2.1) Total retail 96.7 64.2 Sales for resale 6.4 4.7 Other operating revenues 22.3 11.6 Total revenues $125.4 $ 80.5 VIRGINIA ELECTRIC AND POWER COMPANY 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, 1995 vs. 1994 1995 vs. 1994 Residential 11.1% (0.4)% Commercial 6.0 1.3 Industrial 2.1 4.5 Public authorities 4.7 1.7 Total retail sales 7.0 1.2 Resale 24.7 5.4 Total sales 8.8 1.7 The increase in kilowatt-hour retail sales for the three month period ended September 30, 1995, as compared to the same period in 1994, reflects the warmer weather experienced during the summer of 1995. For the quarter ended September 30, 1995, as compared to the same period in 1994, cooling degree days were 12.9 percent higher. The increase in kilowatt-hour retail sales for the nine month period ended September 30, 1995, as compared to the same period in 1994, is primarily due to increased customer growth and the warmer weather experienced during the summer of 1995, partially offset by the milder weather experienced in the first six months of 1995. The increase in sales for resale for the three and nine month periods ended September 30, 1995, as compared to the same periods in 1994, was primarily due to warmer weather experienced by other utilities in surrounding regions during the summer of 1995 and increased marketing efforts by the Company. Fuel, net Fuel, net increased for the three month period ended September 30, 1995, as compared to the same period in 1994, primarily due to increased generation necessitated by higher sales. VIRGINIA ELECTRIC AND POWER COMPANY ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Operation - Other and Maintenance Operation - other and maintenance expenses decreased for the three month period ended September 30, 1995, as compared to the same period in 1994, primarily as a result of 1994 payroll and voluntary separation costs for those employees who elected to terminate service with the Company under the 1994 Early Retirement and Voluntary Separation Programs and a decrease in the level of nuclear operation and maintenance expenses in 1995, partially offset by the operation and maintenance expenses associated with the North Branch Power Station acquired by the Company in December of 1994. Operation - other and maintenance expenses decreased for the nine month period ended September 30, 1995, as compared to the same period in 1994. Expenses during the 1994 period included 1994 payroll and voluntary separation costs for those employees who elected to terminate service with the Company under the 1994 Early Retirement and Voluntary Separation Programs, offset in part by recognition of insurance policyholder distributions. Expenses during the 1995 period reflected a decrease in payroll costs in commercial operations due to reduced staffing levels and weather-related overtime, partially offset by the operation and maintenance expenses associated with the North Branch Power Station and increased nuclear outage costs. Restructuring As of September 30, 1995, no material savings have been realized due to recently implemented, 1995 involuntary staffing reductions. See Note (e) to FINANCIAL STATEMENTS for a discussion of the Company's restructuring activities under its Vision 2000 program. The Company will incur additional restructuring charges in the fourth quarter of 1995 and 1996. However, the amount of restructuring charges yet to be incurred is not known at this time. Furthermore, because the Company's review of its operations has not been completed, the amount of savings ultimately to be realized cannot be estimated at this time. The savings will ultimately be reflected in lower construction expenditures as well as lower operation and maintenance expenses. VIRGINIA ELECTRIC AND POWER COMPANY ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) As a regulated utility, Virginia Power provides service to its customers at rates based on its cost of operations and an opportunity to earn a return on its shareholder's investment. From time to time, the Company reviews its cost of providing regulated services and files such information with certain regulatory commissions having jurisdiction. The Company or the regulatory commissions may initiate proceedings to review rates charged to Company jurisdictional customers. The incurrence of restructuring charges and the savings resulting therefrom in subsequent periods are elements of the Company's cost of operations. Accordingly, Vision 2000 costs and related savings will be considered in any future review of the Company's overall regulatory cost of service. Income Taxes-Operating Income taxes-operating increased for the three month period ended September 30, 1995, as compared to the same period in 1994, primarily as a result of higher income subject to tax. Regulatory Assets Under Statement of Financial Accounting Standards (SFAS) No. 71, Accounting for the Effects of Certain Types of Regulation, certain expenses normally reflected in income are deferred on the balance sheet as regulatory assets and are recognized in income as the related amounts are included in rates and recovered from customers. The incurred costs underlying these regulatory assets may represent expenditures by the Company or may represent the recognition of liabilities that ultimately will be settled at some time in the future. For some of those regulatory assets representing past expenditures that are not included in the Company's rate base or used to adjust the Company's capital structure, the Company is not allowed to earn a return on the unrecovered balance. Of the $830.5 million of regulatory assets at September 30, 1995, approximately $132 million represent past expenditures that are effectively excluded from rate base by the Virginia State Corporation Commission that has primary jurisdiction over the Company's rates. However, of that amount approximately $109 million represent the present value of amounts to be recovered through future rates for North Anna Unit 3 project termination costs. Those costs are reported pursuant to SFAS No. 90, Regulated Enterprises - Accounting for Abandonments and Disallowances of Plant Costs, and thus reflect a reduction in the actual dollars to be recovered through future rates for the time value of money. The Company does not earn a return on the remaining $23 million of regulatory assets, effectively excluded from rate base, to be recovered over various recovery periods up to 23 years, depending on the nature of the deferred costs. VIRGINIA ELECTRIC AND POWER COMPANY ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Contingencies For information on contingencies, see Note (b) to FINANCIAL STATEMENTS. Future Issues Competition In reference to the plans of the City of Falls Church, Virginia, to pursue the establishment of a municipal electric system (for additional information see Part II - Other Information - Competition) the Company will not experience a material loss of load, revenues or net income should a municipal electric system be created. Accounting Standards In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which must be adopted by the Company by January 1, 1996. This statement requires the Company to review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and requires rate-regulated companies to write-off regulatory assets against earnings whenever those assets no longer meet the criteria for recognition of a regulatory asset as defined by SFAS No. 71, Accounting for the Effects of Certain Types of Regulation. Based on the Company s current operating environment, adoption of SFAS No. 121 is not expected to have a material impact on the Company s financial statements. VIRGINIA ELECTRIC AND POWER COMPANY PART II. - OTHER INFORMATION Item 1. Legal Proceedings In reference to the arbitration between Virginia Power and Smith Cogeneration of Virginia, Inc., the parties have agreed to a settlement and on October 24, 1995 the Virginia Commission dismissed the proceeding. In reference to the proceeding before the Virginia Commission into the holding company structure and the relationship between Dominion Resources and Virginia Power, on September 29, 1995 Dominion Resources and Virginia Power each filed its Response to the Final Report of the Commission s Staff dated April 12, 1995. The Staff is to file its reply by December 15, 1995. As regards the CSX Transportation, Inc. coal transportation contract, negotiations concluded on August 10, 1995 with the execution of a contract amendment. In reference to the lawsuit filed against Virginia Power by Doswell Limited Partnership (Doswell), on September 21, 1995 the Virginia Supreme Court granted Doswell s appeal and both parties are preparing briefs for an early 1996 oral argument. Item 5. Other Information The Company The Company s strategic planning initiative, called Vision 2000, has moved into the active implementation phase in many areas of the company (for additional information on Vision 2000, see note (e) to Financial Statements and Restructuring under MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS). Rates Virginia On September 18, 1995 the State Corporation Commission of Virginia (the Virginia Commission) established a proceeding to review and consider Commission policy regarding restructuring of and competition in the electric utility industry. The Commission stated that it intends to fully consider reliability, continuity and stability of rates, fairness to all customers, fairness to investors, and whether truly competitive markets that are in the public interest can be developed. It directed the Commission s Staff to investigate the emerging issues in the electric utility industry and prepare a report of its findings and recommendations on or before March 29, 1996. All interested parties may file written comments and requests for oral argument in response to the Staff Report on or before May 30, 1996. VIRGINIA ELECTRIC AND POWER COMPANY PART II. - OTHER INFORMATION (CONTINUED) In reference to Virginia Power's 1992 rate case before the Virginia Commission, on October 2, 1995 the United States Supreme Court denied the Writ of Certiorari sought by a group of industrial cogenerators. For additional information see Rates-Virginia, note (f) to Financial Statements. North Carolina See Rates-North Carolina, note (f) to Financial Statements. Competition In reference to Virginia Power s declaratory judgment proceeding before the Virginia Commission against the City of Falls Church, Virginia, in which Virginia Power seeks a declaration that the City s plans to pursue the establishment of a municipal electric system would be illegal unless approved by the Commission, pursuant to the Virginia Commission s order of August 4, 1995, the Commission s Staff filed a memorandum on August 31, 1995 supporting Virginia Power s Motion for Summary Judgement. The City did not respond to the Motion. If the City prevails and forms a municipal electric system, Mwh sales by customer class will decrease as follows: Residential 36,000 Commercial 67,000 Industrial 0 Other 5,000 Total 108,000 No other city has communicated to Virginia Power any interest in forming a municipal electric system. Sources of Power On October 7, 1995 Clover Power Station Unit 1 achieved commercial operation (for additional information, see Liquidity and Capital Resources under MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS). VIRGINIA ELECTRIC AND POWER COMPANY PART II. - OTHER INFORMATION (CONTINUED) Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 3(i) - Restated Articles of Incorporation, as amended, as in effect on September 12, 1994 (Exhibit 3(i), Form 8-K dated October 19, 1994, File No. 1-2255, incorporated by reference). 3(ii) - Bylaws, as amended, as in effect on December 31, 1994 (Exhibit 3(ii), Form 10-K for the fiscal year ended December 31, 1994, File No. 1-2255, incorporated by reference). 4(i) - Indenture of Mortgage of the Company, dated November 1, 1935, as supplemented and modified by fifty-eight Supplemental Indentures, Exhibit 4(ii), Form 10-K for the fiscal year ended December 31, 1985, File No. 1-2255, incorporated by reference; Fifty-Ninth Supplemental Indenture, Exhibit 4(ii), Form 10-Q for the quarter ended March 31, 1986, File No. 1-2255, incorporated by reference; Sixtieth Supplemental Indenture, Exhibit 4(ii), Form 10-Q for the quarter ended September 30, 1986, File No. 1-2255, incorporated by reference; Sixty-First Supplemental Indenture, Exhibit 4(ii), Form 10-Q for the quarter ended June 30, 1987, File No.1-2255, incorporated by reference; Sixty-Second Supplemental Indenture, Exhibit 4(ii), Form 8-K, dated November 3, 1987, File No. 1-2255, incorporated by reference; Sixty-Third Supplemental Indenture, Exhibit 4(i), Form 8-K, dated June 8, 1988, File No. 1-2255, incorporated by reference; Sixty-Fourth Supplemental Indenture, Exhibit 4(i), Form 8-K, dated February 8, 1989, File No. 1-2255, incorporated by reference; Sixty-Fifth Supplemental Indenture, Exhibit 4(i), Form 8-K, dated June 22, 1989, File No. 1-2255, incorporated by reference; Sixty-Sixth Supplemental Indenture, Exhibit 4(i),Form 8-K, dated February 27, 1990, File No. 1-2255, incorporated by reference; Sixty- Seventh Supplemental Indenture, Exhibit 4(i), Form 8-K, dated April 2, 1991, File No. 1-2255, incorporated by reference; Sixty-Eighth Supplemental Indenture, Exhibit 4(i), Sixty- Ninth Supplemental Indenture, Exhibit 4(ii) and Seventieth Supplemental Indenture, Exhibit 4(iii), Form 8-K, dated February 25, 1992, File No. 1-2255, incorporated by reference; Seventy-First Supplemental Indenture, Exhibit 4(i) and Seventy-Second Supplemental Indenture, Exhibit 4 (ii), Form 8-K, dated July 7, 1992, File No. 1-2255, incorporated by reference; Seventy-Third Supplemental Indenture, Exhibit VIRGINIA ELECTRIC AND POWER COMPANY PART II. - OTHER INFORMATION (CONTINUED) 4(i), Form 8-K, dated August 6, 1992, File No. 1-2255, incorporated by reference; Seventy-Fourth Supplemental Indenture, Exhibit 4(i), Form 8-K, dated February 10, 1993, File No. 1-2255, incorporated by reference; Seventy-Fifth Supplemental Indenture, Exhibit 4(i), Form 8-K, dated April 6, 1993, File No. 1-2255, incorporated by reference; Seventy-Sixth Supplemental Indenture, Exhibit 4(i), Form 8-K, dated April 21, 1993, File No. 1-2255, incorporated by reference; Seventy-Seventh Supplemental Indenture, Exhibit 4(i), Form 8-K, dated June 8, 1993, File No. 1-2255, incorporated by reference; Seventy-Eight Supplemental Indenture, Exhibit 4(i), Form 8-K, dated August 10, 1993, File No. 1-2255, incorporated by reference; Seventy-Ninth Supplemental Indenture, Exhibit 4(i), Form 8-K, dated August 10, 1993, File No.1-2255, incorporated by reference, Eightieth Supplemental Indenture, Exhibit 4(i), Form 8-K, dated October 12, 1993, File No. 1-2255, incorporated by reference, Eighty-First Supplemental Indenture, Exhibit 4(iii), Form 10-K for the fiscal year ended December 31, 1993, File No. 1-2255, incorporated by reference; Eighty- Second Supplemental Indenture, Exhibit 4(i), Form 8-K, dated January 18, 1994, File No. 1-2255, incorporated by reference, Eighty-Third Supplement Indenture, Exhibit 4(i), Form 8-K, dated October 19, 1994, File No. 1-2255, incorporated by reference and Eighty-Fourth Supplemental Indenture, Exhibit 4(i), Form 8-K dated March 22, 1995, File No. 1-2255, incorporated by reference. 4(ii) - Indenture, dated April 1, 1985, from Virginia Electric and Power Company to Crestar Bank (formerly United Virginia Bank) pursuant to which Medium-Term Notes, Series A were issued (Exhibit 4(iv), Form 10-K for the fiscal year ended December 31, 1993, File No. 1-2255, incorporated by reference). 4(iii) - Indenture, dated as of June 1, 1986, from Virginia Electric and Power Company to Chemical Bank pursuant to which Medium-Term Notes, Series B were issued (Exhibit 4(v), Form 10-K for the fiscal year ended December 31, 1993, File No. 1- 2255, incorporated by reference). 4(iv) - Indenture, dated as of April 1, 1988, from Virginia Electric and Power Company to Chemical Bank, Trustee, pursuant to which Medium-Term Notes, Series C (Multi- Currency) were issued as supplemented and modified by a First Supplemental Indenture, dated as of August 1, 1989, pursuant to which Medium-Term Notes, Series D (Multi-Currency), Series E and Series F were issued (Exhibit 4(vi), Form 10-K for the fiscal year ended December 31, 1993, File No. 1-2255, incorporated by reference). VIRGINIA ELECTRIC AND POWER COMPANY PART II. - OTHER INFORMATION (CONTINUED) 4(v) - Indenture, dated as of August 1, 1995, from Virginia Electric and Power Company to Chemical Bank, Trustee, as supplemented and modified by a First Supplemental Indenture, dated as of August 1, 1995, pursuant to which the Series A 8.05% Junior Subordinated Notes were issued to fund the purchase of Virginia Power Capital Trust 1 Common Stock and Preferred Securities proceeds (Exhibits 4(a) and 4(b), respectively, Form S-3 Registration Statement No.33-61265 as filed on July 24, 1995 and amended on August 21, 1995 and August 22, 1995, incorporated by reference). 10* - Employment Agreement Amendment September 15, 1995 between Virginia Power and James T. Rhodes (Filed herewith) 27 - Financial Data Schedule (filed herewith) *Indicates management contract or compensatory plan or arrangement (b) Reports 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. VIRGINIA ELECTRIC AND POWER COMPANY Registrant November 7, 1995 /S/ R. E. RIGSBY R. E. Rigsby Senior Vice President-Finance and Controller (Principal Accounting Officer) EX-10 2 EMPLOYMENT AGREEMENT Exhibit 10 AMENDMENT TO EMPLOYMENT AGREEMENT This AMENDMENT (the "September 1995 Amendment") to the Employment Agreement dated as of April 21, 1995 (the "April 1995 Employment Agreement") between VIRGINIA ELECTRIC AND POWER COMPANY (the "Company") and JAMES T. RHODES (the "Executive") is made as of September 15, 1995. RECITALS: The Board of Directors of the Company (the "Board of Directors") recognizes that outstanding management of the Company is essential to advancing the best interests of the Company, its shareholders and its subsidiaries. The Board of Directors has and continues to believe that it is particularly important to have stable, excellent management. The Board of Directors believes that the continued services of the Executive are essential to preserve consistent management of the Company at the present time. Therefore, the Executive and the Board of Directors have agreed that the term of employment of the Executive should be extended under the April 1995 Employment Agreement until July 31, 1999. To accomplish this, the Organization and Compensation Committee of the Board of Directors has recommended, and the Board of Directors has approved, certain amendments to the April 1995 Employment Agreement. All terms in this Amendment that are defined in the April 1995 Employment Agreement have the meaning provided therein, unless otherwise specified in this Amendment. NOW, THEREFORE, in consideration of the foregoing, the parties agree as follows: 1. Section 1 of the April 1995 Employment Agreement is amended by replacing the phrase "July 31, 1996" with the phrase "July 31, 1999". 3. Section 5(a) is amended by changing the title of the section to "Completion Benefits" and by replacing the phrase "the Term of this Agreement, and terminates his employment at the end of the Term of this Agreement" with the phrase "July 31, 1996." 2. Section 5(a)(i) is amended by replacing the phrase "the Executive's annual salary during his final year of employment" in the first sentence with the phrase "the Executive's highest rate of annual salary in effect at any time during his final year of employment." 3. Section 5(a)(ii) of the April 1995 Employment Agreement is amended by replacing the phrase "55%" with the phrase "65%". 4. Section 5(a)(iv) of the April 1995 Employment Agreement is amended by replacing the phrase "July 31, 1996" each place it appears with the phrase "the date of termination of his employment". 5. Section 5(a)(v) of the April 1995 Employment Agreement is amended by replacing the phrase "August 1, 1996" with the phrase "the day following the date of termination of his employment". 6. Sections 5(b) and 5(b)(i) of the April 1995 Employment Agreement are replaced with the following: "(b)In addition to the foregoing, if the Executive continues in the employment of the Company through July 31, 1996, the Executive will receive upon his termination of employment with the Company a single lump sum cash payment equal to the present value of the annual base salary and annual cash incentive awards (computed as described below) that the Executive is projected to receive for employment in the period from August 1, 1996 until April 21, 1997 (i.e., the end of the term of the 1994 Employment Agreement). The lump sum will be computed as follows: (i) For purposes of this calculation, the annual base salary that the Executive is projected to receive for employment from August 1, 1996 until April 21, 1997 will be calculated at the highest annual base salary rate in effect for the Executive during the three-year period ending on July 31, 1996. For purposes of this calculation, the annual cash incentive awards that the Executive is projected to receive for employment from August 1, 1996 until April 21, 1997 will be calculated at a rate equal to the highest annual cash incentive award paid to the Executive during the three-year period ending on July 31, 1996. Salary and bonus that the Executive elected to defer will be taken into account for purposes of this Agreement without regard to the deferral." 7. Sections 6(a) and 6(b) of the April 1995 Employment Agreement are amended to read as follows: "6.Termination of Employment. (a) During the Term of this Agreement, the Company may terminate the Executive's employment only for Cause. During the Term of this Agreement, the Executive may voluntarily terminate employment under the circumstances described in clauses (i)-(v) of this subsection (a). After July 31, 1996, the Executive may voluntarily terminate employment under the circumstance described in clause (vi) of this subsection (a). If the Executive's employment is terminated for Cause on or before July 31, 1996, he will be entitled only to the benefits described in Section 12. If the Executive's employment is terminated for Cause after July 31, 1996, or if the Executive voluntarily terminates employment pursuant to this Section 6(a), the Executive will be entitled to receive the benefits described in subsection (b) below. Subject to the provisions of this subsection (a), the Executive may voluntarily terminate employment after (i) the Executive's base salary is reduced, (ii) the Executive is not in good faith considered for incentive awards as described in Section 4(a)(ii), (iii) the Company fails to provide benefits as required by Section 4(b), (iv) the Executive's place of employment is relocated to a location further than 30 miles from Richmond, Virginia, (v) the Executive's working conditions or management responsibilities are substantially diminished (other than on account of the Executive's disability, as defined in Section 7 below), or (vi) the Executive voluntarily terminates employment on or after August 1, 1996 upon 90 days prior written notice to the Company. In order for clause (i), (ii), (iii), (iv) or (v) of this subsection (a) to be effective: (1) the Executive must give written notice to the Company indicating that the Executive intends to terminate employment under this subsection (a), (2) the Executive's voluntary termination under this subsection must occur within 60 days after an event described in clause (i), (ii), (iii), (iv) or (v) of the preceding sentence, or within 60 days after the last in a series of such events, and (3) the Company must have failed to remedy the event described in clause (i), (ii), (iii), (iv) or (v), as the case may be, within 30 days after receiving the Executive's written notice. If the Company remedies the event described in clause (i), (ii), (iii), (iv) or (v), as the case may be, within 30 days after receiving the Executive's written notice, the Executive may not terminate employment under this subsection (a) on account of the event specified in the Executive's notice. (b) In accordance with the provisions of Section 6(a) above, the Executive will be entitled to receive the following benefits determined as of the date of his termination of employment: (i) The Executive will receive the benefits described in Section 5(a)(i), (ii), (iii), (iv), (v) and (vi) above as of the date of his termination of employment. In addition, the Executive will receive the single lump sum cash payment described in Section 5(b) of this Agreement if such payment is not otherwise payable under the terms of Section 5(b). (ii) The Executive will be credited with a total of 30 years of service and will be considered to have attained age 60 (if he has not already done so) for purposes of the Company's retirement plans. (iii) The Executive will be credited with age and service credit through the end of the Term of this Agreement for purposes of computing benefits under the Company's medical and other welfare benefit plans, and the Company will continue the Executive's coverage under the Company's welfare benefit plans as if the Executive remained employed through the end of the Term of this Agreement. Notwithstanding the foregoing, if the Company determines that giving such age and service credit or continued coverage could adversely affect the tax qualification or tax treatment of a benefit plan, or otherwise have adverse legal ramifications, the Company may pay the Executive a lump sum cash amount that reasonably approximates the after-tax value to the Executive of such age and service credit and continued coverage through the end of the Term of this Agreement, in lieu of giving such credit and continued coverage." 8. The last sentence of Section 6(c) of the April 1995 Employment Agreement is amended to read as follows: "If the Executive voluntarily terminates employment prior to the end of the Term of this Agreement for a reason not described in subsection (a) above or Section 7 or Section 12 below, this Agreement will immediately terminate, and the Executive shall be entitled to the payment of the benefits under Sections 5(a) and 5(b) if the termination occurs after July 31, 1996." 9. The first two sentences of Section 7 of the April 1995 Employment Agreement are deleted and the following new sentences are added in their place: "If the Executive becomes disabled (as defined below) during the Term of this Agreement while he is employed by the Company, the Executive shall be entitled to receive the benefits described in Sections 5(a)(i), 5(a)(ii), 5(a)(iii), 5(a)(iv), 5(a)(v), 5(a)(vi), and 6(b)(ii) of this Agreement as of the date on which he is determined by the Company to be disabled. If the Executive dies during the Term of this Agreement while he is employed by the Company, the benefits described in Sections 5(a)(i), 5(a)(ii), 5(a)(iii), 5(a)(iv), 5(a)(v), 5(a)(vi), and 6(b)(ii) will be provided to the Executive's beneficiary designated under the terms of the applicable benefit plan. In addition, if the Executive becomes disabled or dies on or after August 1, 1996, he or his beneficiary shall be entitled to the benefit described in Section 5(b)." 10. Section 8 of the April 1995 Employment Agreement is amended in its entirety to read as follows: 8. Cause. For purposes of this Agreement, the term "Cause" means (i) material misappropriation with respect to the business or assets of the Company, (ii) persistent refusal or willful failure of the Executive materially to perform his duties and responsibilities to the Company, which continues after the Executive receives notice of such refusal or failure, (iii) conviction of a felony involving moral turpitude, or (iv) the use of drugs or alcohol that interferes materially with the Executive's performance of his duties. The foregoing acts or events will constitute "Cause" for purposes of this Agreement only to the extent that they were committed on or after the date of the September 1995 Amendment." WITNESS the following signatures. VIRGINIA ELECTRIC AND POWER COMPANY /S/WILLIAM G. THOMAS By:________________________ William G. Thomas Chairman, Organization and Compensation Committee Dated:9/15/95 /S/ J. T. RHODES James T. Rhodes Dated:9/15/95 Exhibit 27 VIRGINIA ELECTRIC AND POWER COMPANY FINANCIAL DATA SCHEDULE (Unaudited) September 30, 1995 (Millions) Item Number Item Description 1 Total net utility plant $ 9,625.7 2 Other property and investments 361.4 3 Total current assets 1,070.7 4 Total deferred charges 942.6 5 Balancing amount for total assets 0.0 6 Total assets 12,000.4 7 Common stock 2,737.4 8 Capital surplus, paid in 20.4 9 Retained earnings 1,342.3 10 Total common stockholder's equity 4,100.1 11 Preferred stock subject to mandatory redemption 180.0 12 Preferred stock not subject to mandatory redemption 509.0 13 Long-term debt, net 3,936.4 14 Short-term notes 0.0 15 Notes payable 0.0 16 Commercial paper 0.5 17 Long-term debt--current portion 277.9 18 Preferred stock--current portion 126.7 19 Obligations under capital leases 0.0 20 Obligations under capital leases -- Current portion 0.0 21 Balancing amount for capitalization and liabilities 2,870.3 22 Total capitalization and liabilities 12,000.4 23 Gross operating revenue 3,324.0 24 Federal and state income taxes expense 203.1 25 Other operating expenses 2,493.3 26 Total operating expenses 2,696.4 27 Operating income (loss) 627.6 28 Other income (loss), net 7.6 29 Income before interest charges 635.2 30 Total interest charges 240.4 31 Net income 394.8 32 Preferred stock dividends 34.9 33 Earnings available for common stock 359.9 34 Common stock dividends 295.4 35 Total annual interest charges on all bonds N/A 36 Cash flow from operations 963.4 37 Earnings per share--primary N/A 38 Earnings per share--full diluted N/A EX-27 3 EX-27
UT 1,000,000 9-MOS DEC-31-1995 SEP-30-1995 PER-BOOK 9,626 361 1,071 943 0 12,000 2,737 20 1,342 4,100 180 509 3936 0 0 1 278 127 0 0 2,870 12,000 3,324 203 2,493 2,696 628 8 635 240 395 35 360 295 0 963 0 0
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