-----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, FC/PQnWuZuXcI3JNXKS+ba8MYdFEg5VKLaVbvzVJfgX+2lD1ZgMmCqkc1nDaug/M //aCwTGTulG3N5EjFdOu+g== 0000916641-98-000263.txt : 19980323 0000916641-98-000263.hdr.sgml : 19980323 ACCESSION NUMBER: 0000916641-98-000263 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980320 SROS: NONE 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-K SEC ACT: SEC FILE NUMBER: 001-02255 FILM NUMBER: 98570436 BUSINESS ADDRESS: STREET 1: ONE JAMES RIVER PLAZA CITY: RICHMOND STATE: VA ZIP: 23219-3932 BUSINESS PHONE: 8047713000 10-K 1 VIRGINIA ELECTRIC AND POWER COMPNAY 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- Form 10-K --------------- (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-2255 VIRGINIA ELECTRIC AND POWER COMPANY (Exact name of registrant as specified in its charter) VIRGINIA 54-0418825 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification no.) 701 East Cary Street 23219-3932 Richmond, Virginia (Zip Code) (Address of principal executive offices) (804) 771-3000 (Registrant's telephone number, including area code)
--------------- Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange Title of each class on which registered - ------------------------------------------ ------------------------ Preferred Stock (cumulative) New York Stock Exchange $100 liquidation value: $5.00 dividend Trust Preferred Securities New York Stock Exchange $25 liquidation value: 8.05% dividend
--------------- Securities registered pursuant to Section 12(g) of the Act: None (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant as of February 28, 1998, was zero. As of February 28, 1998, there were issued and outstanding 171,484 shares of the registrant's common stock, without par value, all of which were held, beneficially and of record, by Dominion Resources, Inc. DOCUMENTS INCORPORATED BY REFERENCE. None - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- VIRGINIA ELECTRIC AND POWER COMPANY
Page Item Number Number - ------------------------------------------------------------------------------------------ ------- PART I 1. Business .............................................................................. 1 The Company ........................................................................... 1 Company Management .................................................................... 1 Competition and Strategic Initiatives ................................................. 1 Regulation ............................................................................ 2 General .............................................................................. 2 Virginia ............................................................................. 2 FERC ................................................................................. 3 Environmental ........................................................................ 3 Nuclear .............................................................................. 3 Rates ................................................................................. 4 FERC ................................................................................. 4 Virginia ............................................................................. 5 North Carolina ....................................................................... 6 Capital Requirements and Financing Program ............................................ 6 Construction and Nuclear Fuel Expenditures ........................................... 6 Financing Program .................................................................... 6 Sources of Power ...................................................................... 7 Company Generating Units ............................................................. 7 Net Purchases ........................................................................ 7 Non-Utility Generation ............................................................... 7 Sources of Energy Used and Fuel Costs ................................................. 8 Nuclear Operations and Fuel Supply ................................................... 8 Fossil Operations and Fuel Supply .................................................... 8 Purchases and Sales of Energy ........................................................ 8 Future Sources of Power ............................................................... 9 Conservation and Load Management ...................................................... 9 Interconnections ...................................................................... 9 2. Properties ............................................................................ 10 3. Legal Proceedings ..................................................................... 11 4. Submission of Matters to a Vote of Security Holders ................................... 11 PART II 5. Market for the Registrant's Common Equity and Related Stockholder Matters ............. 12 6. Selected Financial Data ............................................................... 12 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . 12 Liquidity and Capital Resources ....................................................... 13 Capital Requirements .................................................................. 14 Results of Operations ................................................................. 15 Future Issues ......................................................................... 17 Market Risk Sensitive Instruments and Risk Management ................................. 22 8. Financial Statements and Supplementary Data ........................................... 24 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure .. 47 PART III 10. Directors and Executive Officers of the Registrant ................................... 48 11. Executive Compensation ............................................................... 51 12. Security Ownership of Certain Beneficial Owners and Management ....................... 55 13. Certain Relationships and Related Transactions ....................................... 55 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ..................... 56
PART I ITEM 1. BUSINESS THE COMPANY Virginia Electric and Power Company is a Virginia Corporation. Our principal office is at 701 East Cary Street, Richmond, Virginia 23219-3932, telephone (804) 771-3000. We are a wholly owned subsidiary of Dominion Resources, Inc. (Dominion Resources), a Virginia corporation. Dominion Resources owns all of our common stock. Virginia Electric and Power Company is a regulated public utility engaged in the generation, transmission, distribution and sale of electric energy within a 30,000 square-mile area in Virginia and northeastern North Carolina. It transacts business under the name Virginia Power in Virginia and under the name North Carolina Power in North Carolina. We have retail customers (including governmental agencies) and wholesale customers such as rural electric cooperatives, power marketers and municipalities. We serve more than 80 percent of Virginia's population. The Company has certificates of convenience and necessity from the State Corporation Commission of Virginia (the Virginia Commission) for service in all territories served at retail in Virginia. The North Carolina Utilities Commission (the North Carolina Commission) has assigned territory to the Company for substantially all of its retail service outside certain municipalities in North Carolina. The electric utility industry in the United States is undergoing an evolutionary change toward less regulation and more competition. To meet the challenges of this new competitive environment, Virginia Power has developed a broad array of "non-traditional" product and service offerings from its operating business units and subsidiaries: o Energy Services -- offering electric energy and capacity in the emerging wholesale market as well as natural gas and other energy-related products and services; o Fossil & Hydro -- targeting process type industries, such as chemical, paper, plastics and petroleum to become a service provider of instrumentation equipment; o Nuclear Services -- offering management and operations services to other electric utilities; o Commercial Operations -- providing power distribution related services, including transmission and distribution, engineering and metering services to other gas, water and electric utilities; and o Telecommunications -- offering telecommunications services through the Company's existing fiber-optic network. The Company and its subsidiaries had 9,043 full-time employees on December 31, 1997. A total of 3,452 of our employees are represented by the International Brotherhood of Electrical Workers under a contract extending to March 31, 1998. The Company and the union have tentatively agreed, subject to ratification by the union membership, to a two year extension of the contract. For a more thorough review of the changing utility industry and the Company's strategy see COMPETITION AND STRATEGIC INITIATIVES below and Future Issues -- Competition under MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A). COMPANY MANAGEMENT In April, Dr. James T. Rhodes, President and Chief Executive Officer since 1989, announced his retirement effective August 1, 1997. The Board of Directors subsequently elected Mr. Norman Askew as the new President and Chief Executive Officer, effective August 1, 1997. Mr. Askew was previously the Chief Executive of East Midlands Electricity plc, a United Kingdom regional electricity company acquired by Dominion Resources during the first quarter of 1997. Mr. Askew also replaced Dr. Rhodes on the Board of Directors effective August 1, 1997. COMPETITION AND STRATEGIC INITIATIVES A number of developments in the United States are causing a trend toward less regulation and more competition in the electric utility industry. This is evidenced by legislative and regulatory action at both the federal and state levels. To the extent that competition is either authorized or mandated and regulation is eliminated or relaxed, electric utilities may no longer be guaranteed an opportunity to recover all of their prudently incurred costs, and utilities with costs that exceed the market prices established by the competitive market will run the risk of suffering losses, which may be substantial. 1 Virginia Power has responded to these trends by undertaking cost-cutting measures, engaging in re-engineering efforts, restructuring its core business processes, and pursuing a strategic planning initiative to encourage innovative approaches to serving traditional markets. The Company has established separate business units, as discussed above, to fully execute these strategies. The Company also is vigorously participating in the state and federal legislative actions currently underway to bring about competition in the electric utility industry, in an effort to ensure an orderly transition from a regulated environment. The Company's non-traditional businesses face competition from a variety of utility and non-utility entities. For a full discussion of the regulatory and legislative issues related to competition, carefully read the Future Issues section of MD&A. REGULATION General In a wide variety of matters in addition to rates, Virginia Power is presently subject to regulation by the Virginia Commission and the North Carolina Commission, the Environmental Protection Agency (EPA), Department of Energy (DOE), Nuclear Regulatory Commission (NRC), the Federal Energy Regulatory Commission (FERC), the Army Corps of Engineers, and other federal, state and local authorities. Compliance with numerous laws and regulations increases the Company's operating and capital costs by requiring, among other things, changes in the design and operation of existing facilities and changes or delays in the location, design, construction and operation of new facilities. The commissions regulating the Company's rates have historically permitted recovery of such costs. Virginia Power may not construct, or incur financial commitments for construction of, any substantial generating facilities or large capacity transmission lines without the prior approval of various state and federal governmental agencies. Such approvals relate to, among other things, the environmental impact of such activities, the relationship of such activities to the need for providing adequate utility service and the design and operation of proposed facilities. Both federal and state legislative bodies have been studying competition and restructuring in the electric utility industry. Please carefully read the full discussion of this matter found in the Future Issues -- Competition -- Legislative Initiatives section of MD&A. Virginia In 1995, the Virginia Commission instituted an ongoing generic investigation on electric industry restructuring, resulting in a number of reports by its Staff covering such issues as retail wheeling experiments and the status of wholesale power markets. The Staff also submitted a report to the General Assembly calling for a cautious, two-phase, five-year period to address restructuring issues. The report acknowledged the need for direction from the Virginia legislature concerning policy issues surrounding competition in the electric industry. In November 1996, the Virginia Commission instituted a proceeding concerning Virginia Power's cost of service and possible restructuring of the electric utility industry as it might relate to Virginia Power. On March 24, 1997, Virginia Power filed in that proceeding a calculation of its cost of service for 1996 and a proposed Alternative Regulatory Plan (ARP). Subsequently, the Commission consolidated this proceeding with the proceeding concerning the Company's 1995 Annual Informational Filing, in which the Company's base rates were made interim and subject to refund as of March 1, 1997. Please carefully read the Future Issues -- Competition -- Legislative and Regulatory Initiatives sections of MD&A and RATES-Virginia, below for details concerning the ARP, its current status and related legislative developments. In December 1995, Virginia Power applied to the Virginia Commission for approval of arrangements with Chesapeake Paper Products Company (CPPC), under which Virginia Power would facilitate the design, construction and financing of a cogeneration plant to meet CPPC's energy requirements for its industrial processes at its plant in West Point, Virginia. On August 13, 1997, the Virginia Commission approved, in substantial part, the proposed transactions between Virginia Power and CPPC's successor in ownership, St. Laurent Paper Products Co. St. Laurent later determined that the current design of the facility was no longer compatible with its long-term business strategies and terminated its contractual arrangement with Virginia Power. The Virginia Commission dismissed the proceeding on January 15, 1998. In June 1997, the Virginia Commission granted the Company's request to implement a monitoring program that requires certain non-utility generators to provide certain information sufficient to determine continued compliance with the "Qualifying Facility" (QF) requirements of the Public Utility Regulatory Policies Act of 1978 (PURPA). 2 On August 8, 1997, the Virginia Commission granted the Company's request to provide interchange telecommunications services and approved the proposed affiliate agreements between Virginia Power and our wholly-owned subsidiary, VPS Communications, Inc. (VPSC). Under the authority granted, VPSC will provide a range of telecommunications services, including private line and special access services and high-capacity fiberoptic services. On September 3, 1997, the Virginia Commission granted the Company's request to provide services to our wholly-owned subsidiary, Virginia Power Services, Inc. (VPS), which would enable Virginia Power Nuclear Services Company (VPN), a VPS subsidiary, to furnish nuclear management and operation services to electric utilities seeking assistance in the management and operation of their nuclear generating facilities. VPN currently provides such services to Northeast Utilities at its Millstone Unit 2 nuclear plant. FERC In April 1996, FERC issued final rules in Order Nos. 888 and 889 addressing open access transmission service, stranded costs, standards of conduct and open access same-time information systems (OASIS). In July 1996, Virginia Power filed an open access transmission service tariff in compliance with FERC's Order No. 888. In compliance with FERC's directive, Virginia Power's OASIS became operational on January 3, 1997. Also, on that date the standards of conduct requiring separation of transmission operations/reliability functions from wholesale merchant/marketing functions became effective. The Company also made filings to comply with FERC's directive that, effective January 1, 1997, utilities could no longer make bundled sales of transmission and generation services in economy energy transactions. In certain of those filings, Virginia Power canceled or committed not to use the economy energy rate schedules contained in interconnection agreements with neighboring utilities. On March 4, 1997, FERC issued Order Nos. 888-A and 889-A, which addressed requests for rehearing of Order Nos. 888 and 889. Orders No. 888-A and 889-A essentially reaffirm the basic principles of 888 and 889 and clarify and make limited modifications to those orders. On December 17, 1997, FERC issued Order Nos. 888-B and 889-B. FERC rejected all requests for rehearing filed with respect to Order Nos. 888-A and 889-A and clarified and made limited modifications to those orders. Several parties have appealed the 888 orders to the United States Court of Appeals for the District of Columbia Circuit. For a discussion of the status of the Company's Open Access Transmission Tariff filing, see RATES -- FERC below. For additional discussion of open access issues see Future Issues -- Competition under MD&A. LG&E Westmoreland Southampton owns a cogeneration facility in Franklin, Virginia, and sells its output to Virginia Power. Southampton has sought a waiver of FERC operating requirements for Qualifying Facilities (QF's) under PURPA, however FERC refused to grant such a waiver. On March 31, 1997, the United States Court of Appeals for the District of Columbia Circuit granted FERC's motion to dismiss Southampton's Petition for Review. Environmental From time to time, Virginia Power may be designated by the EPA as a potentially responsible party (PRP) with respect to a Superfund site. As a result of that designation or other regulations regarding the remediation of waste, we may become obligated to fund remedial investigations or actions. We do not believe that any currently identified sites will result in significant liabilities. For a discussion of the Company's site remediation efforts, see Note Q to the CONSOLIDATED FINANCIAL STATEMENTS. Permits under the Clean Water Act and state laws have been issued for all of the Company's steam generating stations now in operation. These permits are subject to reissuance and continuing review. The Clean Air Act, as amended in 1990, requires the Company to reduce its emissions of sulfur dioxide (SO2) and nitrogen oxides (NOx). Beginning in 1995, the SO2 reduction program is based on the issuance of a limited number of SO2 emission allowances, each of which may be used as a permit to emit one ton of SO2 into the atmosphere or may be sold to someone else. The program is administered by the EPA. For additional information on Environmental Matters, Clean Air Act compliance and related issues see the Future Issues section of MD&A. Nuclear All aspects of the operation and maintenance of the Company's nuclear power stations are regulated by the NRC. Operating licenses issued by the NRC are subject to revocation, suspension or modification, and operation of a nuclear unit may be suspended if the NRC determines that the public interest, health or safety so requires. 3 From time to time, the NRC adopts new requirements for the operation and maintenance of nuclear facilities. In many cases, these new regulations require changes in the design, operation and maintenance of existing nuclear facilities. If the NRC adopts such requirements in the future, it could result in substantial increases in the cost of operating and maintaining the Company's nuclear generating units. In July 1995, the Virginia Commission instituted an investigation regarding spent nuclear fuel disposal. As directed, Virginia Power and others filed comments on legal and public policy issues related to spent nuclear fuel storage and disposal. In February 1996, the Commission Staff filed its Report recommending that adoption of a definitive policy on spent nuclear fuel disposal issues be delayed pending the outcome of litigation against the Department of Energy concerning spent nuclear fuel acceptance, the outcome of proposed federal legislation concerning development of an interim storage facility, and development of a vision of the likely outcome of the electric utility industry's restructuring efforts. The Virginia Commission consolidated the proceeding with Virginia Power's pending fuel cost recovery proceeding in October 1996. On March 20, 1997, the Virginia Commission returned the spent nuclear fuel disposal issue to a separate proceeding. On January 31, 1997, Virginia Power joined thirty-five other electric utilities in filing a petition in the United States Court of Appeals for the District of Columbia Circuit, seeking to compel DOE to comply with its obligation to begin accepting the utilities' spent nuclear fuel for disposal by January 31, 1998, the date imposed by the Nuclear Waste Policy Act. Additional utilities have joined since the original filing. On November 14, 1997, the Court issued an Order finding that DOE's obligation to begin accepting spent nuclear fuel by the deadline is unconditional, and that DOE may not excuse its delay on the grounds that it has not prepared a permanent repository or interim storage facility. The Court found that DOE's spent fuel disposal contracts with the utilities offer a potentially adequate remedy for DOE's failure to meet its obligation. DOE filed a petition for rehearing on December 29, 1997. RATES The Company's electric services sales were subject to rate regulation in 1997 as follows:
1997 ----------------------- Percent Percent of of Revenues Kwh Sales ---------- ---------- Virginia retail: Non-Governmental customers ........... Virginia Commission 81% 76% Governmental customers ............... Negotiated Agreements 10 12 North Carolina retail ................. North Carolina Commission 5 5 Wholesale --Sales for Resale* ......... FERC 4 7 -- -- 100% 100% === ===
- --------- * Excludes wholesale power marketing sales subject to FERC regulation. Substantially all of the Company's electric service sales are subject to recovery of changes in fuel costs either through fuel adjustment factors or periodic adjustments to base rates, each of which requires prior regulatory approval. Each of these jurisdictions has the authority to disallow recovery of costs it determines to be excessive or imprudently incurred. Various cost items may be reviewed on occasion, including costs of constructing or modifying facilities, on-going purchases of capacity or providing replacement power during generating unit outages. FERC In compliance with FERC's Order No. 888, Virginia Power filed an open access transmission service tariff, which became effective on July 9, 1996. In October 1996, FERC issued a procedural order, scheduling a hearing for April 28, 1997. The Company and all parties reached a settlement of issues raised in the proceeding, and on March 20, 1997, those parties jointly filed with FERC the Settlement Agreement and Motion to Certify the Settlement Agreement. On April 23, 1997 the presiding Administrative Law Judge certified the Settlement Agreement to the FERC and on June 11, 1997, the FERC approved the settlement. In compliance with FERC's Order No. 889, on January 3, 1997, the Company filed its Procedures For Standards of Conduct for Unbundled Transmissions and Wholesale Merchant Function (Standards of Conduct) effective on that date. On July 1, 1997, the Company filed an amendment to the Standards of Conduct in Compliance with FERC's Order No. 889-A. 4 On July 16, 1997, the Company filed another amendment in response to a FERC Staff request. The Company is awaiting FERC action on the filing. On September 11, 1997, FERC authorized the Company to sell power at market-based rates but set for hearing the issue of the impact of any transmission constraints on Virginia Power's ability to exercise generation market power in localized areas within its service territory. If FERC finds that transmission constraints give Virginia Power generation dominance, it could either revoke or limit the scope of the market-based rate authority. The hearing is scheduled to commence June 2, 1998. On October 31, 1997, Virginia Power filed at FERC three agreements with Old Dominion Electric Cooperative (ODEC) to amend the parties' Interconnection and Operating Agreement (I&O Agreement) and to unbundle transmission services provided to ODEC under the I&O Agreement. On December 22, 1997, FERC issued a deficiency letter with respect to the filing directing the Company to provide additional information. On January 21, 1998, the Company provided the requested information. FERC accepted the agreements on March 12, 1998. Virginia In March 1997, the Virginia Commission issued an order that Virginia Power's base rates be made interim and subject to refund as of March 1, 1997. This order was the result of the Commission Staff's report on its review of Virginia Power's 1995 Annual Informational Filing, which concluded that Virginia Power's present rates would cause Virginia Power to earn in excess of its authorized return on equity. The Staff found that, for purposes of establishing rates prospectively, a rate reduction of $95.6 million (including a one-time adjustment of $29.7 million to Virginia Power's deferred capacity balance at December 31, 1996) may be necessary in order to realign rates to the authorized level. Virginia Power filed its Alternative Regulatory Plan in March 1997, based on 1996 financial information. Subsequently, the Commission consolidated the proceeding concerned with the 1995 Annual Informational Filing with the proceeding that includes the ARP proposed by the Company. In December 1997, Virginia Power sought to withdraw its ARP, having concluded that resolution of the cost recovery issues raised by the ARP was unlikely without General Assembly action. The Commission has agreed that the Company may withdraw its support of the ARP but has reserved the right to continue consideration of the ARP as well as other regulatory alternatives. In addition, the Commission will continue to consider the issues arising out of the 1995 Annual Informational Filing. The Commission's Staff is scheduled to file its testimony on March 24, 1998; Virginia Power's rebuttal is to be filed by April 27, 1998; and the reply testimony is to be filed by May 11, 1998. A public hearing is scheduled to commence on May 19, 1998. Virginia Power's previous filings in this proceeding support maintaining the Company's rates at current levels; however, opposing parties have made filings recommending rate reductions in excess of $200 million. At this time, management cannot predict the ultimate outcome of the proceeding and its impact on the Company's results of operations, cash flows or financial position. In July 1996, Virginia Power proposed to substantially reduce the rates paid under Schedule 19 to cogenerators and small power producers of 100 kW or less. The rates became effective on an interim basis on January 1, 1997. On January 21, 1998, the Virginia Commission approved revised Schedule 19 rates. The approved rates do not differ in any significant way from the rates originally proposed by the Company. In October 1996, Virginia Power filed an application with the Virginia Commission to increase its fuel factor from 1.299 cents per kWh to 1.322 cents per kWh, reflecting a fuel factor annual revenue increase of approximately $48.2 million. The increase became effective on an interim basis on December 1, 1996. On June 11, 1997, the Commission entered an Order Establishing Fuel Factor approving the requested increase. On October 31, 1997, Virginia Power filed with the Virginia Commission its application for a reduction of $45.6 million in its fuel cost recovery factor for the period December 1, 1997 through November 30, 1998. The reduction became effective on an interim basis on December 1, 1997. Subsequently, as a result of amendments to two non-utility power purchase contracts, the Company proposed two additional reductions of approximately $30.2 million and $18 million for the same period, bringing the total proposed fuel factor reduction to $93.8 million. Both additional reductions were approved on an interim basis, effective March 1, 1998. A hearing is scheduled for April 9, 1998. 5 North Carolina On November 4, 1996, the Company filed for approval of a new Schedule 19 which governs purchases from cogenerators and small power producers. The Company proposed rates substantially lower than those previously specified. It also proposed to reduce the applicability threshold to 100 kW and shorten the maximum term of contracts under Schedule 19 to five years. On June 19, 1997, the North Carolina Commission issued an Order requiring the Company to offer long-term (5-,10- and 15-year) levelized capacity payments to hydroelectric and certain landfill and waste facilities contracting for up to 5 MW; a 5-year levelized rate option to other QFs contracting for up to 100 kW; and optional long-term levelized energy payments for QFs rated at 100 kW or less capacity. On October 10, 1997 the Company filed an application with the North Carolina Commission for a $728,000 increase in fuel revenues. On December 29, 1997, the North Carolina Commission entered an Order Approving Fuel Charge Adjustment. The Order approved an approximate $600,000 increase in the annual rates and charges paid by the retail customers of North Carolina Power effective on January 1, 1998. CAPITAL REQUIREMENTS AND FINANCING PROGRAM Construction and Nuclear Fuel Expenditures Virginia Power's estimated construction and nuclear fuel expenditures for the three-year period 1998-2000, total $1.5 billion. It has adopted a 1998 budget for construction and nuclear fuel expenditures as set forth below:
Estimated 1998 Expenditures (millions) --------------- Production .................................................... $ 60 Technology .................................................... 150 General Support Facilities .................................... 19 Transmission .................................................. 37 Distribution .................................................. 213 Nuclear Fuel .................................................. 86 ---- Total Construction Requirements and Nuclear Fuel Expenditures $565 ====
In addition, the Company expects to incur approximately $23 million of expenditures in 1998 in connection with the development of energy management projects for customers. Contracts with such customers provide for the recovery of these costs in future years. Financing Program The Company currently has three shelf registrations on file with the Securities Exchange Commission (SEC) providing the Company with $915 million of debt capital resources. The Company also has a Preferred Stock shelf registered with the SEC for $100 million in aggregate principal amount, which has not been utilized. The Company intends to issue securities from time to time to meet its capital requirements, which include $333.5 million of long-term debt maturities in 1998. Please see the Liquidity and Capital Resources section of MD&A for details about our Financing Program. 6 SOURCES OF POWER Company Generating Units
Type Summer Years of Capability Name of Station, Units and Location Installed Fuel MW - ---------------------------------------------------------- ----------- ---------------- ------------ Nuclear: Surry Units 1 & 2, Surry, Va ........................... 1972-73 Nuclear 1,602 North Anna Units 1 & 2, Mineral, Va .................... 1978-80 Nuclear 1,790 (a) Total nuclear stations ................................ 3,392 -------- Fossil Fuel: Steam: Bremo Units 3 & 4, Bremo Bluff, Va. ................... 1950-58 Coal 227 Chesterfield Units 3-6, Chester, Va. .................. 1952-69 Coal 1,250 Clover Units 1 & 2, Clover, Va. ....................... 1995-96 Coal 882 (b) Mt. Storm Units 1-3, Mt. Storm, W. Va. ................ 1965-73 Coal 1,587 Chesapeake Units 1-4, Chesapeake, Va. ................. 1953-62 Coal 595 Possum Point Units 3 & 4, Dumfries, Va. ............... 1955-62 Coal 322 Yorktown Units 1 & 2, Yorktown, Va. ................... 1957-59 Coal 326 Possum Point Units 1, 2, & 5, Dumfries, Va. ........... 1948-75 Oil 929 Yorktown Unit 3, Yorktown, Va. ........................ 1974 Oil & Gas 818 North Branch Unit 1, Bayard, W. Va. ................... 1994 Waste Coal 74 (c) Combustion Turbines: 35 units (8 locations) ................................. 1967-90 Oil & Gas 1,019 Combined Cycle: Bellmeade, Richmond, Va. ............................... 1991 Oil & Gas 230 Chesterfield Units 7 & 8, Chester, Va. ................. 1990-92 Oil & Gas 397 Total fossil stations ................................. 8,656 -------- Hydroelectric: Gaston Units 1-4, Roanoke Rapids, N.C. ................. 1963 Conventional 225 Roanoke Rapids Units 1-4, Roanoke Rapids, N.C. ......... 1955 Conventional 99 Other .................................................. 1930-87 Conventional 3 Bath County Units 1-6, Warm Springs, Va. ............... 1985 Pumped Storage 1,260 (d) -------- Total hydro stations .................................. 1,587 -------- Total Company generating unit capability .............. 13,635 Net Purchases ........................................... 1,480 Non-Utility Generation .................................. 3,277 -------- Total Capability ...................................... 18,392 ========
- --------- (a) Includes an undivided interest of 11.6 percent (208 MW) owned by ODEC. (b) Includes an undivided interest of 50 percent (441 MW) owned by ODEC. (c) Effective January 25, 1996, this unit was placed in a cold reserve status. (d) Reflects the Company's 60 percent undivided ownership interest in the 2,100 MW station. A 40 percent undivided interest in the facility is owned by Allegheny Generating Company, a subsidiary of Allegheny Energy, Inc (AE). The Company's highest one-hour integrated service area summer peak demand was 14,537 MW on July 28, 1997, and an all-time high one-hour integrated winter peak demand of 14,910 MW was reached on February 5, 1996. 7 SOURCES OF ENERGY USED AND FUEL COSTS For information as to energy supply mix and the average fuel cost of energy supply, see Results of Operations under MD&A. Nuclear Operations and Fuel Supply In 1997, the Company's four nuclear units achieved a combined capacity factor of 91.1 percent. The Company utilizes both long-term contracts and spot purchases to support its needs for nuclear fuel. The Company continually evaluates worldwide market conditions in order to ensure a range of supply options at reasonable prices. Current agreements, inventories and spot market availability will support the Company's current and planned fuel supply needs for fuel cycles throughout the remainder of the 1990's and into the early 2000's. Beyond that period, additional fuel will be purchased as required to ensure optimum cost and inventory levels. The DOE is not expected to begin the acceptance of spent fuel in 1998 as specified in the Company's contract with the DOE. However, on-site spent nuclear fuel storage at the Surry Power Station (spent fuel pool and dry cask storage) is expected to be adequate for the Company's needs until the DOE begins accepting spent fuel. The North Anna Power Station will require additional spent fuel storage capacity in 1998. The Company submitted a license application to the NRC in May 1995 for a dry cask facility at North Anna. The Company anticipates that this application will be approved in mid-1998. For details on the issues of decommissioning and nuclear insurance, see Note C to the CONSOLIDATED FINANCIAL STATEMENTS. Fossil Operations and Fuel Supply The Company's fossil fuel mix consists of coal, oil and natural gas. In 1997, Virginia Power consumed approximately 13 million tons of coal. As with nuclear fuel, the Company utilizes both long-term contracts and spot purchases to support its needs. The Company presently anticipates that sufficient coal supplies at reasonable prices will be available for the remainder of the 1990's. Current projections for an adequate supply of oil remain favorable, barring unusual international events or extreme weather conditions which could affect both price and supply. The Company uses natural gas as needed throughout the year for two combined cycle units and at several combustion turbine units. For winter usage at the combined cycle sites, gas is purchased and stored during the summer and fall and consumed during the colder months when gas supplies are not available at favorable prices. The Company has firm transportation contracts for the delivery of gas to the combined cycle units. Current projections indicate gas supplies will be available for the next several years. Purchases and Sales of Energy Virginia Power relies on purchases of power to meet a portion of its capacity requirements. The Company also makes economy purchases of power from other utility systems when it is available at a cost lower than the Company's own generation costs. Under contracts effective January 1, 1985, Virginia Power agreed to purchase 400 MW of electricity annually through 1999 from Hoosier Energy Rural Electric Cooperative, Inc. (Hoosier), and agreed to purchase 500 MW of electricity annually during 1987-99 from certain operating units of American Electric Power Company, Inc. (AEP). The Company has a diversity exchange agreement with AE under which AE delivers 200 MW to Virginia Power in the summer and Virginia Power delivers 200 MW to AE in the winter. Virginia Power also has 57 non-utility power purchase contracts with a combined dependable summer capacity of 3,277 MW (for information on the financial obligations under these agreements see Note Q to the CONSOLIDATED FINANCIAL STATEMENTS). In a continuing effort to mitigate its exposure to above-market long-term purchased power contracts, 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's wholesale power group actively participates in the purchase and sale of wholesale electric power and natural gas in the open market. The wholesale power group has expanded the Company's trading range beyond the geographic limits of the Virginia Power service territory, and has developed trading relationships with energy buyers and sellers on a nationwide basis. 8 In July 1997, the Company executed three agreements with Old Dominion Electric Cooperative (ODEC) which provide for the amendment of the parties' Interconnection and Operating Agreement (I&O Agreement). The first agreement provides for the transition from cost-based rates for capacity and energy purchases by ODEC to market-based rates by 2002. The second two agreements are the Service and Operating Agreements for Network Integration Transmission Service, which unbundled the transmission services provided to ODEC under the I&O Agreement. FUTURE SOURCES OF POWER As reported earlier, both the Hoosier 400 MW long-term purchase and the AEP 500 MW long-term purchase will expire on December 31, 1999. The Company presently anticipates adding peaking capacity beginning in the year 2000 to meet its anticipated load growth. The Company has and will pursue capacity acquisition plans to provide that capacity and maintain a high degree of service reliability. This capacity may be owned and operated by others and sold to the Company or may be built by the Company if it determines it can build capacity at a lower overall cost. The Company also pursues conservation and demand-side management (see CONSERVATION AND LOAD MANAGEMENT below). No Company-owned generation is currently in the planning or construction stages. For additional information, see Note Q to the CONSOLIDATED FINANCIAL STATEMENTS. CONSERVATION AND LOAD MANAGEMENT The Company is committed to evaluating and selecting demand-side and supply-side options on a consistent basis in order to provide reliable, low-cost service to its customers. Conservation and load management programs are evaluated annually at Virginia Power through a resource planning process that directly compares the stream of costs and benefits from supply-side and demand-side options. This process supports a conservation and load management portfolio which contributes both to the selection of low-cost resources to meet the future electricity needs of the Company's customers, as well as the efficient use of current resources. Events in the evolving electric power marketplace and its regulatory and legislative environment continue to impact utility-sponsored conservation and load management programs. In the future, the Company anticipates a greater reliance on the use of price signals to convey information to our customers regarding energy-related costs, resulting in more efficient purchase decisions. INTERCONNECTIONS The Company maintains major interconnections with Carolina Power and Light Company, AEP, AE and the utilities in the Pennsylvania-New Jersey-Maryland Power Pool. Through this major transmission network, the Company has arrangements with these utilities for coordinated planning, operation, emergency assistance and exchanges of capacity and energy. In December 1996, the Company joined with Allegheny Power Service Corporation, Cleveland Electric Illuminating Company, Toledo Edison Company, Ohio Edison Company, Pennsylvania Power Company and Southern Company Services, Inc. (the Transmission Alliance) to file a contract with the FERC entitled the GAPP Experiment Participation Agreement (GAPP Agreement). The Transmission Alliance and the GAPP Agreement were established to promote fair and equitable use of the transmission systems based on the General Agreement on Parallel Paths (GAPP) model for coordinating the flow of bulk supplies of electricity among utilities. GAPP principles allow electric companies to determine where electricity actually flows in bulk power transactions, as opposed to the "contract" paths that are based on power purchase and transmission agreements among buying, selling and transmitting utilities. Compensation for transmission services has historically been based on contract paths. The GAPP Agreement was designed to determine the physical path electricity actually takes through the system and allocate open access transmission revenues among the parties. The GAPP Agreement was designed as an experiment to test the GAPP methods and procedures for a period of two years. The FERC accepted the contract on March 25, 1997. The Company and the Transmission Alliance implemented the GAPP Agreement on April 2, 1997. On November 14, 1997, in accordance with the FERC order accepting the GAPP Agreement, the Transmission Alliance issued a report detailing the results of the first six months of the experiment. The preliminary results of the experiment indicate that it is technically possible to monitor and predict the physical flow of electricity over multiple systems and that transmission revenues reallocated according to actual use of the system differ significantly from collections under a contract 9 path approach. In October 1997, Virginia Power gave notice to the Transmission Alliance that, effective January 1, 1998, it was exercising its option under the GAPP Agreement to terminate its involvement in the experiment. On December 9, 1997, the Company, the Transmission Alliance and other utilities agreed to study the creation of an independent regional transmission entity. The memorandum of understanding to initiate this study was signed by eleven investor-owned electric companies, including Virginia Power, Consumers Energy, Detroit Edison, Duquesne Light Company, The Illuminating Company, Ohio Edison Company, Pennsylvania Power Company, Toledo Edison Company, and the Allegheny Energy Companies (Monongahela Power Company, The Potomac Edison Company, and West Penn Power Company). This group is an outgrowth of the GAPP Agreement and its key goals are to maintain the long-term reliability and security of the utilities' interconnected transmission systems; ensure the most efficient use of resources; eliminate pancaking of rates within and between transmission entities; avoid duplication of costs and achieve transmission cost savings; and, strike an appropriate balance among the diverse interests of energy suppliers, customers, and shareholders. The group will also explore cooperative agreements designed to achieve these goals while ensuring nondiscriminatory and comparable access to all users of the group's transmission system. The companies intend to be responsive to industry changes, especially with the introduction of retail competition in some of the areas served by the signatories and as some other industry participants consider creation of independent transmission operating companies or separate transmission companies. Further, the companies will have the flexibility to continue to investigate and pursue other opportunities and arrangements that could develop regarding independent system operators or independent transmission companies. Virginia Power and Appalachian Power Company (AEP-Virginia), an operating unit of AEP, each sought approval from the SCC in 1991 to construct certain interconnecting transmission facilities. These applications resulted from a joint planning effort of Virginia Power and AEP to meet the requirements of their customers. At the time of Virginia Power's application, particularly during the summer of 1992, constraints were being experienced on transfers of power into the Virginia Power service territory from the west. On November 7, 1997, the SCC issued an Order directing the Company to report to the Commission on the continued need for certain new interconnected transmission facilities, on the relationship between the Company's application to build the new facilities and certain other pending proceedings, and on the Company's construction plans, if the SCC grants the Company's application. On December 15, 1997, the Company filed a report in compliance with the SCC Order stating that since the filing of the Company's application, the constraints have been less frequent, due in part to less severe summer weather, and actual power requirements have been less than originally forecasted. In addition, generating resources within the Virginia Power service area have been increased by the higher performance level of the nuclear units, as well as the completion of the Clover Station. Completion of the AEP project is a prerequisite for the Virginia Power project to go forward. The proposed Virginia Power project would not fulfill its intended purpose without the AEP line being built. AEP has withdrawn its original application and has instituted a new proceeding before the Commission in which different routing is proposed. Virginia Power continues to monitor closely the progress of AEP in this proceeding with respect to its new proposal, but until more is known about these proceedings, Virginia Power cannot predict what its construction plans will be. ITEM 2. PROPERTIES The Company owns its principal properties in fee (except as indicated below), subject to defects and encumbrances that do not interfere materially with their use. Substantially all of its property is subject to the lien of a mortgage securing its First and Refunding Mortgage Bonds. Right-of-way grants from the apparent owners of real estate have been obtained for most electric lines, but underlying titles have not been examined except for transmission lines of 69 Kv or more. Where rights of way have not been obtained, they could be acquired from private owners by condemnation if necessary. Many electric lines are on publicly owned property, as to which permission for use is generally revocable. Portions of the Company's transmission lines cross national parks and forests under permits entitling the federal government to use, at specified charges, surplus capacity in the line if any exists. The Company leases certain buildings and equipment. See Note G to the CONSOLIDATED FINANCIAL STATEMENTS. See Company Generating Units under SOURCES OF POWER under Item 1. BUSINESS. 10 ITEM 3. LEGAL PROCEEDINGS From time to time, the Company is alleged to be in violation or in default under orders, statutes, rules or regulations relating to the environment, compliance plans imposed upon or agreed to by the Company, or permits issued by various local, state and federal agencies for the construction or operation of facilities. From time to time, there may be administrative proceedings on these matters pending. In addition, in the normal course of business, the Company is involved in various legal proceedings. Management believes that the ultimate resolution of these proceedings will not have a material adverse effect on the Company's financial position, liquidity or results of operations. In December 1995, two civil actions were filed in the Virginia Circuit Court of the City of Norfolk against the City of Norfolk and Virginia Power, one for $15 million and one for $3 million, by property owners who each alleged contamination of their respective properties by hazardous substances originating on nearby property now owned by the city and formerly owned by the Company. In reference to the $15 million action, the parties reached a settlement prior to the scheduled August 18, 1997, trial date. The related action by the other property owner seeking $3 million is still pending, but has not yet been scheduled for trial. On April 2, 1997, Doswell Limited Partnership (Doswell) filed a motion for judgment against Virginia Power in the Circuit Court of the City of Richmond. Doswell is an independent power producer that has entered into two power purchase agreements with Virginia Power and claims the Company breached one of those agreements. On the same date, Doswell also filed a complaint against Virginia Power in the United States District Court for the Eastern District of Virginia alleging certain claims relating to the two power purchase agreements. In March 1998, the parties agreed that both proceedings should be stayed in order to give the parties an opportunity to negotiate amendments to the power purchase agreements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On October 17, 1997, by Consent of the Sole Shareholder, Dominion Resources, Inc., the number of Virginia Power Directors was expanded to a maximum of eighteen (18) and the following Directors were elected to serve for terms expiring at the annual shareholder meetings for the years indicated below: John B. Bernhardt 2000 John W. Harris 1998 Kenneth A. Randall 1999 Frank S. Royal 1998 Judith B. Sack 1999 S. Dallas Simmons 2000 David A. Wollard 1999
11 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS All of the Company's Common Stock is owned by Dominion Resources. The Company paid quarterly cash dividends on its Common Stock as follows:
1st 2nd 3rd 4th ---------- ---------- ---------- ---------- (Millions) 1997 ............. $ 95.9 $ 93.4 $ 94.7 $ 95.9 1996 ............. $ 95.3 $ 96.5 $ 96.1 $ 97.9
ITEM 6. SELECTED FINANCIAL DATA
1997 1996 ------------- ------------- (Millions, except percentages) Revenues .................................................... $ 5,079.0 $ 4,420.9 Income from operations ...................................... 1,019.3 1,010.0 Net income .................................................. 469.1 457.3 Balance available for Common Stock .......................... 433.4 421.8 Total assets ................................................ 11,953.4 11,828.0 Total net utility plant ..................................... 9,219.2 9,433.8 Long-term debt, noncurrent capital lease obligations, preferred stock subject to mandatory redemption and preferred securities of subsidiary trust ................... 3,854.4 3,916.2 Utility plant expenditures (including nuclear fuel) ......... 481.8 484.0 Capitalization ratios (percent): Debt ....................................................... 45.4 46.4 Preferred stock ............................................ 7.6 7.5 Preferred securities ....................................... 1.5 1.5 Common equity .............................................. 45.5 44.6 Embedded cost (percent): Long-term debt ............................................. 7.60 7.68 Preferred stock ............................................ 5.25 5.14 Preferred securities ....................................... 8.72 8.72 Weighted average ........................................... 7.29 7.34 1995 1994 1993 ------------- ------------- ------------- (Millions, except percentages) Revenues .................................................... $ 4,351.9 $ 4,170.8 $ 4,187.3 Income from operations ...................................... 971.9 957.1 1,070.6 Net income .................................................. 432.8 447.1 509.0 Balance available for Common Stock .......................... 388.7 404.9 466.9 Total assets ................................................ 11,827.7 11,647.9 11,520.5 Total net utility plant ..................................... 9,573.1 9,623.4 9,459.7 Long-term debt, noncurrent capital lease obligations, preferred stock subject to mandatory redemption and preferred securities of subsidiary trust ................... 4,228.0 4,157.5 4,151.1 Utility plant expenditures (including nuclear fuel) ......... 577.5 660.9 712.8 Capitalization ratios (percent): Debt ....................................................... 47.2 46.7 46.4 Preferred stock ............................................ 7.5 9.0 9.2 Preferred securities ....................................... 1.5 Common equity .............................................. 43.8 44.3 44.4 Embedded cost (percent): Long-term debt ............................................. 7.73 7.65 7.67 Preferred stock ............................................ 5.29 5.47 4.88 Preferred securities ....................................... 8.72 Weighted average ........................................... 7.41 7.29 7.18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management's Discussion and Analysis of Financial Condition and Results of Operations contains "forward-looking statements" as defined by the Private Securities Litigation Reform Act of 1995, including (without limitation) discussions as to expectations, beliefs, plans, objectives and future financial performance, or assumptions underlying or concerning matters discussed in this document. These discussions, and any other discussions, including certain contingency matters (and their respective cautionary statements) discussed elsewhere in this report, that are not historical facts, are forward-looking and, accordingly, involve estimates, projections, goals, forecasts, assumptions and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. Some important factors that could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements include current governmental policies and regulatory actions (including those of FERC, the EPA, the DOE, the NRC, the Virginia Commission and the North Carolina Commission), industry and rate structure, operation of nuclear power facilities, acquisition and disposal of assets and facilities, operation and storage facilities, recovery of the cost 12 of purchased power, nuclear decommissioning costs, and present or prospective wholesale and retail competition. The business and profitability of Virginia Power also are influenced by economic and geographic factors including political and economic risks, changes in and compliance with environmental laws and policies, weather conditions and catastrophic weather-related damage, competition for retail and wholesale customers, pricing and transportation of commodities, market demand for energy, inflation, capital market conditions, unanticipated changes in operating expenses and capital expenditures, competition for new energy development opportunities 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 Virginia Power. New factors emerge from time to time and it is not possible for management to predict all such factors, nor can it assess the impact of each such factor on the business of the Company. Any forward-looking statement speaks only as of the date on which such statement is made, and Virginia Power undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made. Liquidity and Capital Resources Operating activities continue to be a strong source of cash flow, providing $1,091 million in 1997 compared to $1,115 million in 1996. The decrease of $24 million (or 2 percent) from the previous year is attributable to normal business fluctuations. Over the past three years, cash flow from operating activities has, on average, covered 134 percent of our total construction requirements and provided 81 percent of our total cash requirements. Our remaining cash needs are met generally with proceeds from the sale of securities and short-term borrowings. Financing activities have represented a net outflow of cash in recent years as strong cash flow from operations and the absence of major construction programs have reduced the Company's reliance on debt financing. Cash from (used in) financing activities was as follows:
1997 1996 1995 ----------- ------------ ----------- (Millions) Issuance of long-term debt ................................... $ 270.0 $ 24.5 $ 240.0 Issuance of preferred securities of subsidiary trust ......... 135.0 Issuance (Repayment) of short-term debt ...................... ( 86.2) 143.4 169.0 Repayment of long-term debt and preferred stock .............. (311.3) (284.1) (439.0) Dividend payments ............................................ (415.6) (421.4) (438.6) Other ........................................................ ( 13.5) ( 13.2) ( 13.7) -------- -------- -------- Total ....................................................... $ (556.6) $ (550.8) $ (347.3) ======== ======== ========
We have taken advantage of declining interest rates by issuing new debt at lower rates as higher-rate debt has matured. For example, in 1997, $311.3 million of the Company's long-term debt securities matured with an average effective rate of 8.08 percent. As a partial replacement for this maturing debt, we issued $270 million of long-term debt securities during the year with an average effective rate of 6.84 percent. We currently have three shelf registration statements effective with the Securities and Exchange Commission from which we can obtain additional debt capital: $400 million of Junior Subordinated Debentures; $375 million of Debt Securities, including First and Refunding Mortgage Bonds, Senior Notes and Senior Subordinated Notes filed in February 1998; and $200 million of Medium-Term Notes, Series F. The remaining principal amount of debt that can be issued under these registrations totals $915 million. An additional capital resource of $100 million in preferred stock also is registered with the Securities and Exchange Commission. The Company 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 $226.2 million at December 31, 1997. Investing activities in 1997 resulted in a net cash outflow of $546.1 million, primarily due to $397.0 million of construction expenditures and $84.8 million of nuclear fuel expenditures. The construction expenditures included approximately $252.4 million for transmission and distribution projects, $52.1 million for production projects, $49.7 million for information technology projects and $42.8 million for other projects. 13 Cash used in investing activities was as follows:
1997 1996 1995 ------------ ------------ ------------ (Millions) Utility plant expenditures (excluding AFC -- other funds) ......... $ (397.0) $ (393.8) $ (519.9) Nuclear fuel (excluding AFC -- other funds) ....................... ( 84.8) ( 90.2) ( 57.6) Nuclear decommissioning contributions ............................. ( 36.2) ( 36.2) ( 28.5) Sale of accounts receivable, net .................................. (160.0) Purchase of assets ................................................ ( 19.8) ( 13.7) Other ............................................................. ( 8.3) ( 12.5) ( 11.1) -------- -------- -------- Total ............................................................ $ (546.1) $ (546.4) $ (777.1) ======== ======== ========
Capital Requirements Capacity -- The Company anticipates that kilowatt-hour sales will grow approximately 2.36 percent a year through 2000. We will continue to pursue capacity acquisition plans to meet the anticipated load growth and maintain a high degree of service reliability. The additional capacity may be purchased from others or built by the Company if we can build capacity at a lower overall cost. We have long-term purchase agreements with Hoosier (400 MW) and AEP (500 MW) which will expire on December 31, 1999. We presently anticipate adding peaking capacity beginning in the year 2000 to meet future load growth. Fixed Assets -- The Company's construction and nuclear fuel expenditures (excluding AFC), during 1998, 1999 and 2000 are expected to total $588.1 million, $476.2 million and $395.1 million, respectively. The Company presently estimates that all of its 1998 construction and nuclear fuel expenditures will be met through cash flow from operations. Long-term Debt -- The Company will require $333.5 million to meet maturities of long-term debt in 1998, which we expect to meet with cash flow from operations and issuance of replacement debt securities. Other capital requirements will be met through a combination of sales of securities and short-term borrowings. Customer Service -- The Company has adopted a plan to improve customer service, requiring an investment in excess of $100 million. Our plan includes: o installing automated electric meters in metropolitan and inaccessible rural and urban locations, o installing a new work management system, o making technological changes to enhance the Company's ability to handle customer calls during power outages, o installing mobile data dispatch technology in the Company's service fleet, accompanied by digitized mapping of our service territory, and o initiating both local and regional distribution line improvement projects. Expenditures in 1997 for these projects were approximately $23 million; future expenditures are expected to be approximately $68 million in 1998 and $15 million in 1999. We anticipate funding these projects with cash flow from operations. 14 Results of Operations The following is a discussion of results of operations for the years ended 1997 as compared to 1996, and 1996 as compared to 1995. 1997 Compared to 1996 Revenue changed from the prior year primarily due to the following:
1997 1996 ---------- ---------- (Millions) Revenue -- Electric Service Customer growth ...................... $ 55.8 $ 45.1 Weather .............................. (111.1) 4.4 Base rate variance ................... ( 18.7) (35.5) Fuel rate variance ................... 44.1 (89.6) Other retail, net .................... 47.7 41.5 -------- ------- Total retail ....................... 17.8 (34.1) Other electric service ............... 11.0 (49.8) -------- ------- Total electric service ............. 28.8 (83.9) -------- ------- Revenue -- Other Wholesale -- power marketing ......... 363.4 96.6 Natural gas .......................... 232.6 33.2 Other, net ........................... 33.3 23.1 -------- ------- Total revenue -- other ............. 629.3 152.9 -------- ------- Total revenue ..................... $ 658.1 $ 69.0 ======== =======
Electric service revenue consists of sales to retail customers in our 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 factors affecting this revenue in 1997 were customer growth, weather, and fuel rates. Customer growth -- There were 50,899 new customer connections to our system in 1997, the largest number of new connections in any year since 1990. This had the effect of increasing our sales by $55.8 million in 1997 over 1996. Weather -- The mild weather in 1997 caused customers to use less electricity for heating and cooling, which reduced revenue by approximately $111.1 million from the previous year. Heating and cooling degree days were as follows:
1997 1996 Normal ------------ ------------- ------- Cooling degree days ............................... 1,349 1,365 1,530 Percentage change compared to prior year .......... (1.2)% (18.1)% Heating degree days ............................... 3,787 4,131 3,726 Percentage change compared to prior year .......... (8.3)% 9.0%
Fuel rates -- The increase in fuel rate revenues is primarily attributable to higher fuel rates which went into effect December 1, 1996, increasing recovery of fuel costs by approximately $48.2 million. The regulatory commissions having jurisdiction over the Company allow us to charge customers for the cost of fuel used in generating electricity. Other revenue includes sales of electricity beyond our service territory, natural gas, nuclear consulting services, energy management services and other revenue. The growth in power marketing and natural gas sales revenue is primarily due to our success at marketing electricity and natural gas beyond our service territory. The Company began pursuing these new lines of business in 1996. We expect that revenue from such non-traditional business activities will continue to grow in the near future. 15 Kilowatt-hour sales changed as follows:
Increase (Decrease) From Prior Year ------------------------ 1997 1996 ------------ --------- Residential ............................ ( 1.8)% 2.3% Commercial ............................. 0.6 2.3 Industrial ............................. 2.1 2.3 Public authorities ..................... ( 4.7) 2.6 Total retail sales ..................... ( 0.5) 2.4 Wholesale -- system .................... 2.5 (24.3) Wholesale -- power marketing ........... 196.0 200.3 Total sales ............................ 17.2 6.3
The decrease in retail kilowatt-hour sales in 1997 as compared to 1996 reflects the impact of weather on our traditional electricity service business, despite continued customer growth. The increase in wholesale kilowatt-hour sales was primarily due to the Company's power marketing efforts. Fuel, net increased as compared to 1996, 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. System energy output by energy source and the average fuel cost for each are shown below. Fuel cost is presented in mills (one tenth of one cent) per kilowatt hour.
1997 1996 1995 -------------------- -------------------- -------------------- Source Cost Source Cost Source Cost -------- --------- -------- --------- -------- --------- Nuclear (*) .................. 34% 4.52 32% 4.48 32% 4.92 Coal (**) .................... 40 13.54 38 14.32 39 14.44 Oil .......................... 1 26.32 1 27.75 1 25.11 Purchased power, net ......... 23 21.54 27 21.99 25 22.50 Other ........................ 2 30.65 2 26.98 3 23.82 -- -- -- Total ...................... 100% 100% 100% === === === Average fuel cost .......... 12.67 13.47 13.73
- --------- (*) Excludes ODEC's 11.6 percent ownership interest in the North Anna Power Station. (**) Excludes ODEC's 50 percent ownership interest in the Clover Power Station. Other operations and maintenance increased as compared to 1996 as a result of costs associated with the growth in sales by the Company's energy services business unit. These higher costs were offset partially by a reduction in expenses attributable to the Company's strategic initiatives. Expenses in 1996 include high storm damage costs resulting from destructive summer storms, including Hurricane Fran. Depreciation and amortization increased as compared to 1996 due to the recognition of additional depreciation and nuclear decommissioning expense to reflect adjustments in the Company's filing currently pending before the Virginia Commission and higher depreciation expense related to Clover Unit 2, which began operations in March 1996. See Future Issues -- Utility Rate Regulation for additional information on current rate proceedings. Restructuring expenses decreased as compared to 1996 as the Company nears completion of its Vision 2000 strategic initiative. Charges for restructuring primarily include employee severance costs, costs to restructure agreements to purchase power from third parties and, when necessary, to negotiate settlement and termination of these contracts, and other costs. The Company estimates that staffing reductions will result in annual savings, in the range of $80 million to $90 million. However, these savings are being offset by salary increases, outsourcing costs and increased payroll costs associated with staffing for growth opportunities. See also Note O to the CONSOLIDATED FINANCIAL STATEMENTS. Accelerated cost recovery represents a reserve for potential adjustments to regulatory assets. In this increasingly competitive environment, the Company has concluded that it is appropriate to utilize available cost reductions, such as those generated by the Vision 2000 program, to accelerate the write-off of unamortized regulatory assets and potentially stranded costs (see Future Issues - -- Competition). 16 1996 Compared to 1995 Electric service revenues decreased as compared to 1995 due to the effect of mild weather on the Company's summer retail rates, which are designed to reflect normal weather conditions. These revenues also were affected by reduced sales to Old Dominion Electric Cooperative (ODEC) due to the completion of Clover Units 1 and 2, of which ODEC owns a fifty percent interest. Other revenues increased as compared to 1995 due to growth in our power marketing and energy services business, which was organized as a distinct business unit in 1996. Fuel, net increased as compared to 1995, primarily as a result of increased energy purchases associated with our power marketing sales, offset in part by a higher recovery of fuel expenses subject to deferral accounting in 1995. Operations and maintenance decreased slightly as compared to 1995, primarily as a result of a reduction in expenses attributable to the Company's strategic initiatives, offset partly by the high storm damage costs incurred in 1996 from destructive summer storms, including Hurricane Fran. Depreciation and amortization increased as compared to 1995, primarily as a result of greater nuclear decommissioning expense and depreciation related to Clover Units 1 and 2, which were placed in service in October 1995 and March 1996, respectively. Restructuring decreased as compared to 1995 as the implementation phase of the Vision 2000 initiative continued. Restructuring charges in 1996 included severance costs, costs to restructure or settle certain contracts to purchase power and other costs. In addition, 1995 restructuring costs included one-time charges to cancel specific capital projects and adjustments to inventory and certain real estate to reflect adoption of changes in business strategies and processes. Accelerated cost recovery represents a provision for management's estimate of a reserve that may ultimately be used to accelerate the write-off of unamortized regulatory assets and potentially stranded costs (see Future Issues - -- Competition). Future Issues Competition in the Electric Industry -- General For most of this century, the structure of the electric industry in Virginia and throughout the United States has been relatively stable. We have recently seen, however, federal and state developments toward increased competition. Electric utilities have been required to open up their transmission systems for use by potential wholesale competitors. In addition, non-utility power producers now compete with electric utilities in the wholesale generation market. At the federal level, retail competition is under consideration. Some states have enacted legislation requiring retail competition. Today, Virginia Power faces competition in the wholesale market. Currently, there is no general retail competition in Virginia Power's principal service area. To the extent that competition is permitted, Virginia Power's ability to sell power at prices that allow it to recover its prudently incurred costs may be an issue. See Future Issues -- Competition -- Exposure to Potentially Stranded Costs. In response to competition, Virginia Power has successfully renegotiated long term contracts with wholesale and large federal government customers. In addition, the Company has obtained regulatory approval of innovative pricing proposals for large industrial customers. Rate concessions resulting from these contract negotiations and innovative pricing proposals are expected to reduce the Company's 1998 revenue by approximately $40 million. To date, the Company has not experienced any material loss of load. Virginia Power is actively participating in the legislative and regulatory processes relating to industry restructuring. The Company has also responded to these trends toward competition by cutting its costs, re-engineering its core business processes, and pursuing innovative approaches to serving traditional markets and future markets. In addition, a significant part of the Company's strategy relies on developing "non-traditional" businesses within the Company's business units and subsidiaries designed to provide growth in future earnings, including: o Energy Services -- offering electric energy and capacity in the emerging wholesale market as well as natural gas, and other energy related products and services; o Fossil & Hydro -- targeting process type industries, such as chemical, paper, plastics and petroleum to become a service provider of instrumentation equipment; o Nuclear Services -- offering management and operations services to other electric utilities; 17 o Commercial Operations -- providing power distribution related services, including transmission and distribution, engineering and metering services to other gas, water and electric utilities; and o Telecommunications -- offering telecommunications services through the Company's existing fiber-optic network. The Company's non-traditional businesses face competition from a variety of utility and non-utility entities. In addition, Virginia Power may from time to time identify and investigate opportunities to expand its markets through strategic alliances with partners whose strengths, market position and strategies complement those of the Company. Competition -- Wholesale During 1997, sales to wholesale customers represented approximately 17 percent of the Company's total revenues from electric sales. Approximately 73 percent of wholesale revenues resulted from the Company's power marketing efforts. In July 1997, Virginia Power filed amendments to its existing rate tariffs with FERC so it could make wholesale sales at market-based rates. Under a FERC order conditionally accepting the Company rates for filing, Virginia Power began making market-based sales in 1997. FERC set for hearing in June 1998 the issue of whether transmission constraints limiting the transfer of power into the Company's service territory provide Virginia Power with generation dominance in localized markets. If FERC finds transmission constraints give Virginia Power generation dominance, it could revoke or limit the scope of the Company's market-based rate authority. Virginia Power has successfully negotiated a new power supply arrangement with its largest wholesale customer. The new arrangement provides for a transition from cost-based rates to market-based rates, subject to FERC approval. Virginia Power estimates the reduced rates, offset in part by other revenues which may be earned under the agreement, will decrease income before taxes by approximately $38 million through 2005. Virginia Power anticipates that additional contract negotiations with other wholesale customers will take place in the future. Competition -- Retail Currently, Virginia Power has the exclusive right to provide electricity at retail within its assigned service territories in Virginia and North Carolina. As a result, Virginia Power now only faces competition for retail sales if certain of its business customers move into another utility service territory, use other energy sources instead of electric power, or generate their own electricity. However, both Virginia and North Carolina are considering implementing retail competition. Competition -- Legislative Initiatives Virginia: In the 1998 Session, the Virginia General Assembly passed House Bill No. 1172 (HB1172) to establish a schedule for Virginia's transition to retail competition in the electric utility industry. The Company actively supported HB1172, which passed both houses of the General Assembly in amended form and now awaits action by the Governor. HB1172 requires the following: o establishment of one or more independent system operators (ISO) and one or more regional power exchanges (RPX) for Virginia by January 1, 2001; o deregulation of generating facilities beginning January 1, 2002; o transition to retail competition to begin on January 1, 2002, with retail competition to begin on January 1, 2004; o recovery of just and reasonable net stranded costs; and o appropriate consumer safeguards related to stranded costs and consideration of stranded benefits. If HB1172 becomes law, it will become effective July 1, 1998. While the bill establishes a timeline for the transition to competition in Virginia, a detailed plan to implement that transition must be developed through future legislative and regulatory action. The Company is unable at this time to predict its timing or details. Federal: The U.S. Congress is expected to consider federal legislation in the near future authorizing or requiring retail competition. Virginia Power cannot predict what, if any, definitive actions the Congress may take. North Carolina: The 1997 Session of the North Carolina General Assembly created a Study Commission on the Future of Electric Service in North Carolina. An interim report is expected in 1998 with final recommendations made to the 1999 session of the North Carolina General Assembly. 18 Competition -- Regulatory Initiatives The Virginia Commission also has been actively interested in industry restructuring and competition, as shown in the following generic and utility-specific proceedings. In 1995, the Commission instituted an ongoing generic investigation on restructuring, resulting in a number of reports by its Staff covering such issues as retail wheeling experiments and the status of wholesale power markets. In November 1996, the Commission ordered Virginia Power to file studies and reports on possible restructuring of the electric industry in Virginia. The Commission also invited Virginia Power to submit a proposed alternative regulation plan with its filing. A two-phase alternative regulatory plan (ARP) was filed March 1997. During Phase I (1997 to December 2002), Virginia Power proposed implementing a freeze of its current base rates and devoting a portion of earnings above a 11.5% return-on-equity to accelerate the write-off of generation-related regulatory assets and to mitigate the costs associated with payments under power purchase contracts with non-utility generators that may be above market if competition is authorized in Virginia. During Phase II (beyond December 31, 2002), Virginia Power would seek Commission approval of stranded cost recovery if retail competition is implemented in Virginia and a transition cost charge mechanism by which stranded costs would be recovered. Virginia Power presented illustrative estimates of stranded costs based on hypothetical market prices as part of its Phase II filing. When the Company filed its ARP, the Commission consolidated its consideration of the ARP with its consideration of the Company's 1995 Annual Information Filing. For a discussion of the 1995 Annual Information Filing, See Future Issues -- Utility Rate Regulation. In November 1997, the Commission Staff issued its report to the General Assembly calling for a cautious, two-phase, five-year period to address restructuring issues. The report acknowledged the need for direction from the Virginia legislature concerning policy issues surrounding competition in the electric industry. Virginia Power sought to withdraw its ARP in December 1997, having concluded that resolution of the cost recovery issues raised by the ARP was unlikely without General Assembly action. The Commission has agreed that the Company may withdraw its support of the ARP, but has reserved the right to continue consideration of the ARP as well as other regulatory alternatives. In addition, the Commission will continue to consider the issues arising out of the 1995 Annual Informational Filing (See Future Issues -- Utility Rate Regulation). Competition -- SFAS 71 Virginia Power's regulated rates are designed to recover its prudently incurred costs of providing service, including the opportunity to earn a reasonable return on its shareholder's investment. The Company's financial statements reflect assets and costs under this cost-based rate regulation in accordance with Statement of Financial Accounting Standards No. 71 (SFAS 71), "Accounting for the Effects of Certain Types of Regulation." SFAS 71 provides that certain expenses normally reflected in income are deferred on the balance sheet as regulatory assets and are recognized as the related amounts are included in rates and recovered from customers. Continued accounting under SFAS 71 requires that rates designed to recover the utility's specific costs of providing service, are, and will continue to be, established by regulators. The presence of increasing competition that limits the utility's ability to charge rates that recover its costs, or a change in the method of regulation with the same effect, could result in the discontinued applicability of SFAS 71. Rate-regulated companies are required to write off regulatory assets against earnings whenever those assets no longer meet the criteria for recognition as defined by SFAS 71. In addition, SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," requires a review of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Thus, events or changes in circumstances that cause the discontinuance of SFAS 71, and write off of regulatory assets, may also require a review of utility plant assets for possible impairment. If such review indicates utility plant assets are impaired, the carrying amount of the affected assets would be written down. This would result in a loss being charged to earnings, unless recovery of the loss is provided through operations that remain regulated. Virginia Power's regulated operations currently satisfy the SFAS 71 criteria. However, if events or circumstances should change so that those criteria are no longer satisfied, management believes that a material adverse effect on the Company's results of operations and financial position may result. The form of cost-based rate regulation under which Virginia Power operates is likely to evolve as a result of various legislative or regulatory initiatives. At this time, management can predict neither the ultimate outcome of regulatory reform in the electric utility industry nor the impact such changes would have on Virginia Power. 19 Competition -- Exposure to Potentially Stranded Costs Under traditional cost-based regulation, utilities have generally had an obligation to serve supported by an implicit promise of the opportunity to recover prudently incurred costs. The most significant potential adverse effect of competition is "stranded costs." Stranded costs are those costs incurred or commitments made by utilities under cost-based regulation that may not be reasonably expected to be recovered in a competitive market. The Company's potential exposure to stranded costs is comprised of the following: o long-term purchased power contracts that may be above market (see Note Q to the CONSOLIDATED FINANCIAL STATEMENTS); o costs pertaining to certain generating plants that may become uneconomic in a deregulated environment; o regulatory assets for items such as income tax benefits previously flowed-through to customers, deferred losses on reacquired debt and other costs; (see Note F to the CONSOLIDATED FINANCIAL STATEMENTS); and o unfunded obligations for nuclear plant decommissioning and postretirement benefits not yet recognized in the financial statements (see Notes C and N to the CONSOLIDATED FINANCIAL STATEMENTS). Any forecast of potentially stranded costs is extremely sensitive to the various assumptions made. Such assumptions include: o the timing and extent of customer choice in the market for electric service; o estimates of future competitive market prices; o sales and load growth forecasts; o power stations' future operating performance; o rate revenues permitted during the transition; o estimated costs of utility operations over time; o mitigation opportunities; o stranded cost recovery mechanisms and other factors. Certain combinations of these assumptions as applied to Virginia Power would produce little to no stranded costs; under other scenarios Virginia Power's exposure to potentially stranded costs could be substantial. Virginia Power has assessed the reasonableness of various possible assumptions, but has not been able to settle on any particular combination thereof. Thus, the Company's maximum exposure to potentially stranded costs is uncertain. Management believes that recovery of any potentially stranded costs is appropriate and will vigorously pursue such recovery with the regulatory commissions having jurisdiction over its operations. However, Virginia Power cannot predict the extent to which such costs, if any, will be recoverable from customers. Also, in an effort to mitigate the amount at risk, the Company will continue to implement cost reduction measures. Utility Rate Regulation In March 1997, the Virginia Commission issued an order that Virginia Power's base rates be made interim and subject to refund as of March 1, 1997. This order was the result of the Commission Staff's report on its review of Virginia Power's 1995 Annual Informational Filing, which concluded that Virginia Power's present rates would cause Virginia Power to earn in excess of its authorized return on equity. The Staff found that, for purposes of establishing rates prospectively, a rate reduction of $95.6 million (including a one-time adjustment of $29.7 million to Virginia Power's deferred capacity balance at December 31, 1996) may be necessary in order to realign rates to the authorized level. Virginia Power filed its ARP in March 1997, based on 1996 financial information. Subsequently, the Commission consolidated the proceeding concerned with the 1995 Annual Informational Filing with the proceeding that includes the ARP proposed by the Company. In December 1997, Virginia Power sought to withdraw its ARP, having concluded that resolution of the cost recovery issues raised by the ARP was unlikely without General Assembly action. The Commission has agreed that the Company may withdraw its support of the ARP but has reserved the right to continue consideration of the ARP as well as other regulatory alternatives. In addition, the Commission will continue to consider the issues arising out of the 1995 Annual Informational Filing. The Commission's Staff is scheduled to file its testimony on March 24, 1998; Virginia Power's rebuttal is to be filed by April 27, 1998; and the reply testimony is to be filed by May 11, 1998. A public hearing is scheduled to commence on May 19, 1998. Virginia Power's previous filings in this proceeding support maintaining the Company's rates at current levels; however, opposing parties have made filings recommending rate reductions in excess of $200 million. At this time, management cannot predict the ultimate outcome of the proceeding and its impact on the Company's results of operations, cash flows or financial position. 20 Utility Operations The Company strives to operate its generating facilities in accordance with prudent utility industry practices and in conformity with applicable statutes, rules and regulations. Like other electric utilities, the Company's generating facilities are subject to unanticipated or extended outages for repairs, replacements or modification of equipment or otherwise to comply with regulatory requirements. Such outages may involve significant expenditures not previously budgeted, including replacement energy costs. On September 10, 1997, the NRC published a proposed rule for financial assurance requirements related to nuclear decommissioning. If the NRC's proposed rule were implemented without further clarification or modification, the Company may have to either pre-fund or provide acceptable security for a portion of its nuclear decommissioning obligation. See Note C to the CONSOLIDATED FINANCIAL STATEMENTS. Environmental Matters The Company is subject to rising costs resulting from a steadily increasing number of federal, state and local laws and regulations designed to protect human health and the environment. These laws and regulations affect future planning and existing operations. They can result in increased capital, operating and other costs as a result of compliance, remediation, containment and monitoring obligations of the Company. These costs have been historically recovered from customers through utility rates. However, to the extent that the regulatory environment departs from cost-based rates, the Company's results of operations and financial condition could be adversely impacted. Environmental Protection and Monitoring Expenditures The Company incurred $70.4 million, $71.1 million and $68.3 million (including depreciation) during 1997, 1996 and 1995, respectively, in connection with the use of environmental protection facilities and expects these expenses to be approximately $69.1 million in 1998. In addition, capital expenditures to limit or monitor hazardous substances were $24.6 million, $22.4 million and $23.4 million for 1997, 1996 and 1995, respectively. The amount estimated for 1998 for these expenditures is $10.0 million. Clean Air Act Compliance The Clean Air Act, as amended in 1990, requires the Company to reduce its emissions of sulfur dioxide (SO2) and nitrogen oxides (NOx). The Clean Air Act also requires the Company to obtain operating permits for all major emissions- emitting facilities. Permit applications have been submitted for the Company's power stations located in North Carolina and West Virginia. Applications for the Company's power stations located in Virginia will be filed in 1998. The Clean Air Act's SO2 reduction program is based on the issuance of a limited number of SO2 emission allowances, each of which may be used as a permit to emit one ton of SO2 into the atmosphere or may be sold to someone else. The program is administered by the EPA. The Company's compliance plans may include switching to lower sulfur coal, purchase of emission allowances and installation of SO2 control equipment. Maximum flexibility and least-cost compliance will be maintained through annual studies. The Company began complying with Clean Air Act Phase I NOx limits at eight of its units in Virginia in 1997, three years earlier than otherwise required. As a result, the units will not be subject to more stringent Phase II limits until 2008. Furthermore, in order to avoid the necessity of more stringent regulations, the Company made voluntary commitments in 1996 to cap NOx emissions at its Chesterfield and Yorktown Power Stations and the Chesapeake Energy Center during the ozone season beginning in 2000. From 1994 through 1997, the Company invested more than $160 million to install and upgrade SO2 and NOx emission control equipment at its Mt. Storm and Possum Point power stations. Capital expenditures related to Clean Air Act compliance over the next five years are projected to be approximately $40 million. Changes in the regulatory environment, availability of allowances, and emissions control technology could substantially impact the timing and magnitude of compliance expenditures. In November 1997, the EPA proposed new requirements for 22 states, including North Carolina, Virginia and West Virginia, to reduce and cap emissions of NOx. The EPA will issue a final rule by September 1998. Although the proposal allows each state to determine how to achieve the required reduction in emissions, the caps were calculated based on emission limits for utility boilers. If the states in which Virginia Power operates choose to impose this limit, major additional emission control equipment, with attendant significant capital and operating costs, could be required. 21 Global Climate Change In 1993, the United Nation's Global Warming Treaty became effective. The objective of the treaty is the stabilization of greenhouse gas concentrations at a level that would prevent man-made emissions from interfering with the climate system. As a continuation of the effort to limit man-made greenhouse emissions, an international Protocol was formulated on December 10, 1997, in Kyoto, Japan. This Protocol calls for the United States to reduce greenhouse emissions by 7 percent from 1990 baseline levels by the period 2008-2012. The Protocol will not constitute a binding commitment unless submitted to and approved by the United States Senate. Emission reductions of the magnitude included in the Protocol, if adopted, would likely result in a substantial financial impact on companies that consume or produce fossil fuel-derived electric power, including Virginia Power. Recently Issued Accounting Standards During 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." Each of these statements is effective for fiscal years beginning after December 15, 1997. At this time, the Company does not expect the implementation of these standards to have a material impact on its results of operations or financial position. Year 2000 Compliance Virginia Power is taking an aggressive approach regarding computer issues associated with the onset of the new millenium -- specifically, the impact of the possible failure of computer systems and computer-driven equipment due to the rollover to the year 2000. The year 2000 problem is pervasive and complex as virtually every computer operation could be affected in some way by the rollover of the two-digit year value from 99 to 00. The issue is whether computer systems will properly recognize date-sensitive information when the year changes to 2000. Systems that do not properly recognize such information could generate erroneous data or fail. If not properly addressed, the year 2000 computer problem could result in failures in computer systems in the Company and the computer systems of third parties with which the Company transacts business. Such failures of the Company's or third parties' computer systems could have a material impact on the Company's ability to conduct business. Since January 1997, the Company has organized a formal year 2000 project team to identify, correct or reprogram and test its systems for year 2000 compliance. At this time, the project team has completed its preliminary assessment. Based on the team's evaluation, the costs of testing and conversion of system applications are projected to be within the range of $30 million to $50 million. The range is a function of our ongoing evaluation as to whether certain systems and equipment will be corrected or replaced, which is dependent on information yet to be obtained from suppliers and other external sources. Maintenance or 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. At this time, Virginia Power is actively pursuing solutions to its year 2000-related computer problems in order to ensure that foreseeable situations related to Company computer systems are effectively addressed. The Company cannot estimate or predict the potential adverse consequences, if any, that could result from a third party's failure to effectively address this issue. Market Rate Sensitive Instruments and Risk Management Virginia Power is subject to market risk as a result of its use of various financial instruments and derivative commodity instruments. Interest rate risk generally is associated with the Company's outstanding debt, preferred stock and trust-issued securities. The Company also is exposed to interest rate risk as well as equity price risk as a result of its nuclear decommissioning trust investments in debt and equity securities. The Company's wholesale power group is involved in trading activities which use derivative commodity instruments. However, the fair value of such instruments at December 31, 1997, is not material to the Company's financial position. Also, the potential near term losses in future earnings, fair values, or cash flows, resulting from reasonably possible near term changes in market prices for such instruments are not anticipated to be material to the Company's results of operations, financial position or cash flows. 22 The following analysis does not include the price risks associated with the nonfinancial assets and liabilities of utility operations, including underlying fuel requirements. Interest-rate risk Virginia Power uses both fixed rate and variable rate debt and preferred securities as sources of capital. The following table presents the financial instruments that are held or issued by the Company at December 31, 1997, and are sensitive to interest rate changes in some way. Weighted average variable rates are based on implied forward rates derived from appropriate annual spot rate observations as of December 31, 1997.
Expected Maturity Date --------------------------------------------------------------- Fair 1998 1999 2000 2001 2002 Thereafter Total Value ---------- --------- --------- --------- --------- ------------ ----------- ----------- (Millions of Dollars, Except Percentages) ASSETS Nuclear decommissioning trust investments ............. $ 17.7 $ 5.3 $ 2.1 $ 7.1 $ 3.1 $ 165.0 $ 200.3 $ 190.7 Average interest rate (1) ..... 5.5% 5.5% 5.5% 5.5% 5.5% 5.5% LIABILITIES -- Fixed rate Mortgage bonds .................. 225.0 100.0 135.0 100.0 255.0 2,009.5 2,824.5 2,937.7 Average interest rate ......... 6.7% 8.9% 5.9% 6.0% 4.5% 7.6% Medium term notes ............... 108.5 221.0 60.5 60.6 60.0 40.5 551.1 573.7 Average interest rate ......... 7.6% 8.5% 9.7% 8.4% 7.6% 9.0% Tax-exempt financing ............ 10.0 10.0 10.4 Average interest rate ......... 5.2% Short-term debt ................. 226.2 226.2 226.2 Average interest rate ......... 5.9% Preferred stock, subject to mandatory redemption ............ 180.0 180.0 186.6 Average dividend rate ......... 6.2% Mandatorily redeemable trust-issued preferred securities ...................... 135.0 135.0 137.7 Average dividend rate ......... 8.1% LIABILITIES -- Variable rate Tax-exempt financing (2) ........ 488.6 488.6 488.6 Average interest rate ......... 4.1%
- --------- (1) Rates are based on average yield for entire portfolio at December 31, 1997. (2) Interest rates on the tax-exempt bonds are based on short-term, tax-exempt market rates and are reset for periods of one to 270 days in length. The Company has the option to convert these bonds to fixed rate securities upon 40 days written notice. See Note H to the CONSOLIDATED FINANCIAL STATEMENTS. Equity price risk The following table presents a description of marketable equity securities held by the Company at December 31, 1997. As prescribed by Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," these securities are reported on the balance sheet at fair value.
Fair Cost Value ------------ ------------ (Millions of Dollars) Nuclear decommissioning trust investments ......... $ 219.4 $ 360.4
23 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX
Page No. ----- Report of Management ......................................................... 25 Report of Independent Auditors ............................................... 26 Consolidated Statements of Income for the years ended December 31, 1997, 1996 and 1995 ............................................ 27 Consolidated Balance Sheets at December 31, 1997 and 1996 .................... 28 Consolidated Statements of Earnings Reinvested in Business for the years ended December 31, 1997, 1996 and 1995 ............................................ 30 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 ............................................ 31 Notes to Consolidated Financial Statements ................................... 32
24 REPORT OF MANAGEMENT The Company's management is responsible for all information and representations contained in the Consolidated Financial Statements and other sections of the Company's annual report on Form 10-K. The Consolidated Financial Statements, which include amounts based on estimates and judgments of management, have been prepared in conformity with generally accepted accounting principles. Other financial information in the Form 10-K is consistent with that in the Consolidated Financial Statements. Management maintains a system of internal accounting controls designed to provide reasonable assurance, at a reasonable cost, that the Company's assets are safeguarded against loss from unauthorized use or disposition and that transactions are executed and recorded in accordance with established procedures. Management recognizes the inherent limitations of any system of internal accounting control and, therefore, cannot provide absolute assurance that the objectives of the established internal accounting controls will be met. This system includes written policies, an organizational structure designed to ensure appropriate segregation of responsibilities, careful selection and training of qualified personnel and internal audits. Management believes that during 1997 the system of internal control was adequate to accomplish the intended objective. The Consolidated Financial Statements have been audited by Deloitte & Touche LLP, independent auditors, who have been engaged by the Board of Directors. Their audits were conducted in accordance with generally accepted auditing standards and included a review of the Company's accounting systems, procedures and internal controls, and the performance of tests and other auditing procedures sufficient to provide reasonable assurance that the Consolidated Financial Statements are not materially misleading and do not contain material errors. The Audit Committee of the Board of Directors, composed entirely of directors who are not officers or employees of the Company, meets periodically with the independent auditors, the internal auditors and management to discuss auditing, internal accounting control and financial reporting matters and to ensure that each is properly discharging its responsibilities. Both the independent auditors and the internal auditors periodically meet alone with the Audit Committee and have free access to the Committee at any time. Management recognizes its responsibility for fostering a strong ethical climate so that the Company's affairs are conducted according to the highest standards of personal and corporate conduct. This responsibility is characterized and reflected in the Company's Code of Ethics, which is distributed throughout the Company. The Code of Ethics addresses, among other things, the importance of ensuring open communication within the Company; potential conflicts of interest; compliance with all domestic and foreign laws, including those relating to financial disclosure; the confidentiality of proprietary information; and full disclosure of public information. VIRGINIA ELECTRIC AND POWER COMPANY Norman Askew M. S. Bolton, Jr. President and Controller and Chief Executive Principal Accounting Officer Officer
25 REPORT OF INDEPENDENT AUDITORS To the Board of Directors of Virginia Electric and Power Company: We have audited the accompanying consolidated balance sheets of Virginia Electric and Power Company (a wholly owned subsidiary of Dominion Resources, Inc.) and subsidiaries (the Company) as of December 31, 1997 and 1996, and the related consolidated statements of income, earnings reinvested in business, and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Richmond, Virginia February 9, 1998 26 VIRGINIA ELECTRIC AND POWER COMPANY CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, ----------------------------------------- 1997 1996 1995 ------------- ------------- ------------- (Millions) Revenues: Electric service ......................................... $ 4,239.0 $ 4,210.2 $ 4,294.1 Other .................................................... 840.0 210.7 57.8 ---------- ---------- ---------- Total ................................................... 5,079.0 4,420.9 4,351.9 ---------- ---------- ---------- Expenses: .................................................. Fuel, net ................................................ 1,620.7 1,016.6 1,009.7 Purchased power capacity, net ............................ 717.5 700.6 688.4 Operations and maintenance ............................... 812.7 803.1 805.6 Depreciation and amortization ............................ 549.9 502.0 469.1 Restructuring ............................................ 18.4 64.9 117.9 Accelerated cost recovery ................................ 38.4 26.7 Amortization of terminated construction project costs .... 34.4 34.4 34.4 Taxes other than income .................................. 267.7 262.6 254.9 ---------- ---------- ---------- Total ................................................... 4,059.7 3,410.9 3,380.0 ---------- ---------- ---------- Income from operations ..................................... 1,019.3 1,010.0 971.9 Other income ............................................... 14.2 6.8 10.0 ---------- ---------- ---------- Income before interest and income taxes .................... 1,033.5 1,016.8 981.9 ---------- ---------- ---------- Interest and related charges: Interest expense, net .................................... 304.2 308.4 317.9 Distributions -- preferred securities of subsidiary trust 10.9 10.9 3.7 ---------- ---------- ---------- Total ................................................... 315.1 319.3 321.6 ---------- ---------- ---------- Income before income taxes ................................. 718.4 697.5 660.3 Income taxes ............................................... 249.3 240.2 227.5 ---------- ---------- ---------- Net income ................................................. 469.1 457.3 432.8 Preferred dividends ........................................ 35.7 35.5 44.1 ---------- ---------- ---------- Balance available for Common Stock ......................... $ 433.4 $ 421.8 $ 388.7 ========== ========== ==========
The accompanying notes are an integral part of the financial statements. 27 VIRGINIA ELECTRIC AND POWER COMPANY CONSOLIDATED BALANCE SHEETS Assets
At December 31, ------------------------- 1997 1996 ------------ ------------ (Millions of Dollars) CURRENT ASSETS: Cash and cash equivalents ........................................................ $ 36.0 $ 47.9 Accounts receivable: Customers (less allowance for doubtful accounts of $2.4 in 1997 and 1996) ...... 462.4 354.8 Other .......................................................................... 108.0 80.4 Accrued unbilled revenues ........................................................ 245.2 180.3 Materials and supplies at average cost or less: Plant and general .............................................................. 145.2 148.7 Fossil fuel .................................................................... 67.4 76.8 Other ............................................................................ 134.7 107.0 ---------- ---------- Total current assets .......................................................... 1,198.9 995.9 ---------- ---------- INVESTMENTS: Nuclear decommissioning trust funds .............................................. 569.1 443.3 Other ............................................................................ 38.3 34.5 ---------- ---------- Total net investments .......................................................... 607.4 477.8 ---------- ---------- DEFERRED DEBITS AND OTHER ASSETS: Regulatory assets: Deferred capacity expenses ..................................................... 47.3 6.1 Other .......................................................................... 729.3 767.8 Unamortized debt issuance costs .................................................. 24.2 24.7 Other ............................................................................ 127.1 121.9 ---------- ---------- Total deferred debits and other assets ......................................... 927.9 920.5 ---------- ---------- UTILITY PLANT: Plant (includes plant under construction of $240.9 in 1997 and $180.1 in 1996) ... 14,794.2 14,506.8 Less accumulated depreciation .................................................... 5,724.3 5,218.3 ---------- ---------- 9,069.9 9,288.5 Nuclear fuel (less accumulated amortization of $705.0 in 1997 and $698.5 in 1996) 149.3 145.3 ---------- ---------- Total net utility plant ........................................................ 9,219.2 9,433.8 ---------- ---------- Total assets ................................................................... $ 11,953.4 $ 11,828.0 ========== ==========
The accompanying notes are an integral part of the financial statements. 28 VIRGINIA ELECTRIC AND POWER COMPANY CONSOLIDATED BALANCE SHEETS Liabilities and Shareholders' Equity
At December 31, --------------------------- 1997 1996 ------------- ------------- (Millions of Dollars) CURRENT LIABILITIES: Securities due within one year .................................... $ 333.5 $ 311.3 Short-term debt ................................................... 226.2 312.4 Accounts payable, trade ........................................... 452.0 368.5 Customer deposits ................................................. 44.6 50.0 Payrolls accrued .................................................. 77.5 73.2 Severance costs accrued ........................................... 29.7 50.2 Interest accrued .................................................. 95.1 95.3 Other ............................................................. 161.6 126.1 ---------- ---------- Total current liabilities ........................................ 1,420.2 1,387.0 ---------- ---------- LONG-TERM DEBT ...................................................... 3,514.6 3,579.4 ---------- ---------- DEFERRED CREDITS AND OTHER LIABILITIES: Accumulated deferred income taxes ................................. 1,607.0 1,565.2 Deferred investment tax credits ................................... 238.4 255.3 Deferred fuel expenses ............................................ 12.8 3.3 Other ............................................................. 220.3 151.1 ---------- ---------- Total deferred credits and other liabilities .................... 2,078.5 1,974.9 ---------- ---------- COMMITMENTS AND CONTINGENCIES (See Note Q) COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUST* ................................... 135.0 135.0 ---------- ---------- PREFERRED STOCK: Preferred stock subject to mandatory redemption ................... 180.0 180.0 ---------- ---------- Preferred stock not subject to mandatory redemption ............... 509.0 509.0 ---------- ---------- COMMON STOCKHOLDER'S EQUITY: Common Stock, no par, 300,000 shares authorized, 171,484 shares outstanding at December 31, 1997 and 1996 ........................ 2,737.4 2,737.4 Other paid-in capital ............................................. 16.9 16.9 Earnings reinvested in business ................................... 1,361.8 1,308.4 ---------- ---------- Total common stockholder's equity ................................ 4,116.1 4,062.7 ---------- ---------- Total liabilities and shareholders' equity ....................... $ 11,953.4 $ 11,828.0 ========== ==========
(*) As described in Note I to CONSOLIDATED FINANCIAL STATEMENTS, the 8.05% Junior Subordinated Notes totalling $139.2 million principal amount constitute 100% of the Trust's assets. The accompanying notes are an integral part of the financial statements. 29 VIRGINIA ELECTRIC AND POWER COMPANY CONSOLIDATED STATEMENTS OF EARNINGS REINVESTED IN BUSINESS
For the Years Ended December 31, ----------------------------------------- 1997 1996 1995 ------------- ------------- ------------- (Millions) Balance at beginning of year ........................ $ 1,308.4 $ 1,272.5 $ 1,277.8 Net income .......................................... 469.1 457.3 432.8 ---------- ---------- ---------- Total .............................................. 1,777.5 1,729.8 1,710.6 ---------- ---------- ---------- Cash dividends: Preferred stock subject to mandatory redemption .... 11.1 11.1 13.5 Preferred stock not subject to mandatory redemption 24.7 24.5 30.8 Common Stock ....................................... 379.9 385.8 394.3 ---------- ---------- ---------- Total dividends ................................... 415.7 421.4 438.6 ---------- ---------- ---------- Other additions (deductions), net ................... 0.5 ---------- Balance at end of year .............................. $ 1,361.8 $ 1,308.4 $ 1,272.5 ========== ========== ==========
The accompanying notes are an integral part of the financial statements. 30 VIRGINIA ELECTRIC AND POWER COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, ------------------------------------- 1997 1996 1995 ------------ ------------ ----------- (Millions) Cash Flow From Operating Activities: Net income ........................................................................... $ 469.1 $ 457.3 $ 432.8 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ....................................................... 664.7 616.0 585.1 Deferred income taxes ............................................................... 36.1 69.1 11.8 Deferred investment tax credits ..................................................... ( 16.9) ( 16.9) ( 16.9) Noncash return on terminated construction project costs -- pretax ................... ( 4.2) ( 6.4) ( 8.4) Deferred fuel expenses, net ......................................................... 9.6 ( 54.4) 6.2 Deferred capacity expenses .......................................................... ( 41.2) ( 9.2) 6.4 Restructuring ....................................................................... 12.5 29.6 96.2 Accelerated cost recovery ........................................................... 38.4 26.7 Changes in: Accounts receivable ................................................................ ( 135.2) ( 11.3) ( 54.3) Accrued unbilled revenues .......................................................... ( 64.9) 17.6 ( 27.7) Materials and supplies ............................................................. 12.9 6.0 61.1 Accounts payable, trade ............................................................ 82.8 57.8 ( 8.9) Accrued expenses ................................................................... ( 13.9) ( 62.6) 44.7 Other ............................................................................... 41.0 ( 4.0) ( 2.7) --------- --------- --------- Net Cash Flow From Operating Activities ............................................... 1,090.8 1,115.3 1,125.4 Cash Flow From (To) Financing Activities: Issuance of long-term debt ........................................................... 270.0 24.5 240.0 Issuance of preferred securities of subsidiary trust ................................. 135.0 Issuance (Repayment) of short-term debt .............................................. ( 86.2) 143.4 169.0 Repayment of long-term debt and preferred stock ...................................... ( 311.3) ( 284.1) ( 439.0) Common Stock dividend payments ....................................................... ( 379.9) ( 385.8) ( 394.3) Preferred stock dividend payments .................................................... ( 35.7) ( 35.6) ( 44.3) Distribution-preferred securities of subsidiary trust ................................ ( 10.9) ( 10.9) ( 3.7) Other ................................................................................ ( 2.6) ( 2.3) ( 10.0) --------- --------- --------- Net Cash Flow To Financing Activities ................................................. ( 556.6) ( 550.8) ( 347.3) --------- --------- --------- Cash Flow Used In Investing Activities: Utility plant expenditures (excluding AFC -- other funds) ............................ ( 397.0) ( 393.8) ( 519.9) Nuclear fuel (excluding AFC -- other funds) .......................................... ( 84.8) ( 90.2) ( 57.6) Nuclear decommissioning contributions ................................................ ( 36.2) ( 36.2) ( 28.5) Sale of accounts receivable, net ..................................................... ( 160.0) Purchase of assets ................................................................... ( 19.8) ( 13.7) Other ................................................................................ ( 8.3) ( 12.5) ( 11.1) --------- --------- --------- Net Cash Flow Used In Investing Activities ............................................ ( 546.1) ( 546.4) ( 777.1) --------- --------- --------- Increase in cash and cash equivalents ................................................. ( 11.9) 18.1 1.0 Cash and cash equivalents at beginning of year ........................................ 47.9 29.8 28.8 --------- --------- --------- Cash and cash equivalents at end of year .............................................. $ 36.0 $ 47.9 $ 29.8 ========= ========= ========= Cash paid during the year for: Interest (reduced for the cost of borrowed funds capitalized as AFC) ................. $ 277.1 $ 295.4 $ 314.5 Income taxes ......................................................................... 230.0 216.1 215.8
The accompanying notes are an integral part of the financial statements. 31 VIRGINIA ELECTRIC AND POWER COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. Significant Accounting Policies: General Virginia Electric and Power Company is a regulated public utility engaged in the generation, transmission, distribution and sale of electric energy within a 30,000 square-mile area in Virginia and northeastern North Carolina. It sells electricity to retail customers (including governmental agencies) and to wholesale customers such as rural electric cooperatives, municipalities, power marketers and other utilities. The Virginia service area comprises about 65 percent of Virginia's total land area, but accounts for over 80 percent of its population. The Company has organized a wholesale power group to engage in off-system wholesale purchases and sales of electricity and purchases and sales of natural gas, and that group is developing trading relationships beyond the geographic limits of Virginia Power's retail service territory. Within this document, the terms "Virginia Power" and the "Company" shall refer to the entirety of Virginia Electric and Power Company, including, without limitation, its Virginia and North Carolina operations, and all of its subsidiaries. The Company's accounting practices are generally prescribed by the Uniform System of Accounts promulgated by the regulatory commissions having jurisdiction and are in accordance with generally accepted accounting principles applicable to regulated enterprises. The financial statements include the accounts of the Company and its subsidiaries, with all significant intercompany transactions and accounts being eliminated on consolidation. The Company is a wholly-owned subsidiary of Dominion Resources, Inc., a Virginia corporation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenues Revenues are recorded on the basis of services rendered, commodities delivered or contracts settled. Property, Plant and Equipment Utility plant is recorded at original cost, which includes labor, materials, services, AFC, where permitted by regulators, and other indirect costs. The cost of maintenance and repairs is charged to the appropriate operating expense and clearing accounts. The cost of additions and replacements is charged to the appropriate utility plant account, except that the cost of minor additions and replacements, as provided in the Uniform System of Accounts, is charged to maintenance expense. Depreciation and Amortization Depreciation of utility plant (other than nuclear fuel) is computed on the straight-line method based on projected useful service lives. The cost of depreciable utility plant retired and the cost of removal, less salvage, are charged to accumulated depreciation. The provision for depreciation provides for the recovery of the cost of assets including the estimated cost of removal, net of salvage, and is based on the weighted average depreciable plant using a rate of 3.2 percent for 1997, 1996 and 1995. Operating expenses include amortization of nuclear fuel, which is provided on a unit of production basis sufficient to fully amortize, over the estimated service life, the cost of the fuel plus permanent storage and disposal costs. Federal Income Taxes The Company files a consolidated federal income tax return with Dominion Resources. Deferred investment tax credits are being amortized over the service lives of the property giving rise to such credits. 32 Allowance for Funds Used During Construction The applicable regulatory Uniform System of Accounts defines AFC as the cost during the construction period of borrowed funds used for construction purposes and a reasonable rate on other funds when so used. The pretax AFC rates for 1997, 1996 and 1995 were 6.6 percent, 8.1 percent and 8.9 percent, respectively. No AFC is accrued for approximately 83 percent of the Company's construction work in progress, which is instead included in rate base. A cash return is currently collected on the portion of construction work in progress included in rate base. Deferred Capacity and Deferred Fuel Expense Approximately 80 percent of capacity expenses and 90 percent of fuel expenses incurred as part of providing regulated electric service are subject to deferral accounting. The difference between reasonably incurred actual expenses and the level of expenses included in current rates is deferred and matched against future revenues. Amortization of Debt Issuance Costs The Company defers and amortizes any expenses incurred in the issuance of long-term debt, including premiums and discounts associated with such debt, over the lives of the respective issues. Any gains or losses resulting from the refinancing of debt are also deferred and amortized over the lives of the new issues of long-term debt as permitted by the appropriate regulatory jurisdictions. Gains or losses resulting from the redemption of debt without refinancing are amortized over the remaining lives of the redeemed issues. Cash and Cash Equivalents Current banking arrangements generally do not require checks to be funded until actually presented for payment. At December 31, 1997 and 1996, the Company's accounts payable included the net effect of checks outstanding but not yet presented for payment of $55.8 million and $64.8 million, respectively. For purposes of the Consolidated Statements of Cash Flows, the Company considers cash and cash equivalents to include cash on hand and temporary investments purchased with an initial maturity of three months or less. Commodity Contracts The trading activities of Virginia Power's wholesale power group include fixed-price forward contracts and the purchase and sale of over-the-counter options that require physical delivery of the underlying commodity. Furthermore, in order to manage price risk associated with natural gas sales and fuel requirements for the utility operations, the Company uses exchange-for-physical contracts, basis swaps, NYMEX natural gas futures contracts, as well as options on natural gas futures contracts. Options, exchange-for-physical contracts, basis swaps and futures contracts are marked to market with resulting gains and losses reported in earnings, unless such instruments are designated as hedges for accounting purposes. Fixed price forward contracts, initiated for trading purposes, also are marked to market with resulting gains and losses reported in earnings. 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. No contracts were designated as hedges during 1997. Purchased options and options sold are reported in Deferred Debits and Other Assets -- Other and in Deferred Credits and Other Liabilities -- Other, respectively, until exercise or expiration. Gains and losses resulting from marking positions to market are reported in Other Income. Net gains and losses resulting from futures contracts and options on futures contracts and settlement of basis swaps are included in Fuel, Net. Amortization of option premiums associated with sales and purchases are included in Revenues -- Other and Fuel, Net, respectively. Cash flows from trading activities are reported in Net Cash Flow from Operating Activities. Reclassification Certain amounts in the 1996 and 1995 financial statements have been reclassified to conform to the 1997 presentation. 33 B. Income Taxes: Details of income tax expense are as follows:
Years --------------------------------------- 1997 1996 1995 ----------- ----------- ----------- (Millions) Current expense: Federal ................................................. $ 222.1 $ 185.6 $ 230.6 State ................................................... 8.6 2.4 2.1 -------- -------- -------- 230.7 188.0 232.7 -------- -------- -------- Deferred expense: Utility plant differences ............................... 41.3 65.4 48.9 Deferred fuel and capacity .............................. 11.0 22.3 ( 6.0) Debt issuance costs ..................................... ( 2.1) ( 2.8) 1.3 Terminated construction project costs ................... ( 5.8) ( 5.1) ( 4.4) Other ................................................... ( 8.9) ( 10.7) ( 28.1) -------- -------- -------- 35.5 69.1 11.7 -------- -------- -------- Net deferred investment tax credits-amortization ......... ( 16.9) ( 16.9) ( 16.9) -------- -------- -------- Total income tax expense ................................. $ 249.3 $ 240.2 $ 227.5 ======== ======== ========
Total federal income tax expense differs from the amount computed by applying the statutory federal income tax rate to pretax income for the following reasons:
Years --------------------------------------- 1997 1996 1995 ----------- ----------- ----------- (Millions) Federal income tax expense at statutory rate of 35 percent ......... $ 251.4 $ 244.1 $ 231.1 ------- ------- ------- Increases (decreases) resulting from: Utility plant differences ......................................... 7.7 5.7 3.2 Ratable amortization of investment tax credits .................... ( 16.9) ( 16.9) ( 16.9) Terminated construction project costs ............................. 5.0 5.0 5.0 State income tax, net of federal tax benefit ...................... 4.9 2.4 2.2 Other, net ........................................................ ( 2.8) ( 0.1) 2.9 -------- -------- -------- ( 2.1) ( 3.9) ( 3.6) -------- -------- -------- Total income tax expense ........................................... $ 249.3 $ 240.2 $ 227.5 ======== ======== ======== Effective tax rate ................................................. 34.7% 34.4% 34.5%
The Company's net accumulated deferred income taxes consist of the following:
Years --------------------------- 1997 1996 ------------ ------------ (Millions) Deferred income tax assets: Investment tax credits ................................ $ 84.4 $ 90.3 --------- --------- Deferred income tax liabilities: Utility plant differences ............................. 1,479.8 1,440.5 Terminated construction project costs ................. 8.6 14.4 Income taxes recoverable through future rates ......... 169.5 168.8 Other ................................................. 33.5 31.8 --------- --------- Total deferred income tax liabilities .................. 1,691.4 1,655.5 --------- --------- Total net accumulated deferred income taxes ............ $ 1,607.0 $ 1,565.2 ========= =========
34 C. Nuclear Operations: Decommissioning When the Company's nuclear units cease operations, we are obligated to decontaminate or remove radioactive contaminants so that the property will not require NRC oversight. This phase of a nuclear power plant's life cycle is termed decommissioning. While the units are operating, we are collecting from ratepayers amounts that, when combined with investment earnings, will be used to fund this future obligation. The amount being accrued for decommissioning is equal to the amount being collected from ratepayers and is included in Depreciation and Amortization Expense. The decommissioning collections were $45.8 million, $36.2 million and $28.5 million in 1997, 1996 and 1995, respectively. These dollars are deposited into external trusts through which the funds are invested. Net earnings of the trusts' investments are included in Other Income in the Company's Consolidated Statements of Income. In 1997, 1996 and 1995, respectively, net earnings were $20.5 million, $16.0 million and $15.9 million. The accretion of the decommissioning obligation is equal to the trusts' net earnings and also is recorded in Other Income. Thus, the net impact of the trusts on Other Income is zero. The accumulated provision for decommissioning, which is included in Utility Plant Accumulated Depreciation in the Company's Consolidated Balance Sheets, includes the accrued expense and accretion described above and any unrealized gains and losses on the trusts' investments. At December 31, 1997, the net unrealized gains were $149.5 million, which is an increase of $69.0 over the December 31, 1996, amount of $80.5 million. The total accumulated provision for decommissioning at December 31, 1997, was $578.7 million, including $9.6 million accrued in 1997 and deposited to the trusts in January 1998. The provision was $443.3 million at December 31, 1996. The total estimated cost to decommission the Company's four nuclear units is $1 billion based upon a site-specific study that was completed in 1994. We plan to update this estimate in 1998. The cost estimate assumes that the method of completing decommissioning activities is prompt dismantlement. This method assumes that dismantlement and other decommissioning activities will begin shortly after cessation of operations, which under current operating licenses will begin in 2012 as detailed in the table below.
Surry North Anna ------------------------- ------------------------- Total Unit 1 Unit 2 Unit 1 Unit 2 All Units ----------- ----------- ----------- ----------- ------------- NRC license expiration year .................. 2012 2013 2018 2020 (Millions) Current cost estimate (1994 dollars) ......... $ 272.4 $ 274.0 $ 247.0 $ 253.6 $ 1,047.0 Funds in external trusts at 12/31/97 ......... 156.5 151.8 134.2 126.6 569.1 1997 contribution to external trusts ......... 10.6 10.8 7.6 7.2 36.2
The Financial Accounting Standards Board (FASB) is reviewing the accounting for nuclear plant decommissioning. In 1996, the FASB tentatively determined that the estimated cost of decommissioning should be reported as a liability rather than as accumulated depreciation and that a substantial portion of the decommissioning obligation should be recognized earlier in the operating life of the nuclear unit. If the industry's accounting were changed to reflect FASB's tentative proposal, then the annual provisions for nuclear decommissioning would increase. During its deliberations, the FASB expanded the scope of the project to include similar unavoidable obligations to perform closure and post-closure activities for non-nuclear power plants. Therefore, any forthcoming standard also may change industry plant depreciation practices. Any impact related to other Company assets cannot be determined at this time. Insurance The Price-Anderson Act limits the public liability of an owner of a nuclear power plant to $8.9 billion for a single nuclear incident. The Price-Anderson Amendments Act of 1988 allows for an inflationary provision adjustment every five years. The Company has purchased $200 million of coverage from the commercial insurance pools with the remainder provided through a mandatory industry risk sharing program. In the event of a nuclear incident at any licensed nuclear reactor in the United States, the Company could be assessed up to $81.7 million (including a 3 percent insurance premium tax for Virginia) for each of its four licensed reactors not to exceed $10.3 million (including a 3 percent insurance premium tax for Virginia) per year per reactor. There is no limit to the number of incidents for which this retrospective premium can be assessed. 35 Nuclear liability coverage for claims made by nuclear workers first hired on or after January 1, 1988, except those arising out of an extraordinary nuclear occurrence, is provided under the Master Worker insurance program. (Those first hired into the nuclear industry prior to January 1, 1988, are covered by the policy discussed above.) The aggregate limit of coverage for the industry is $400 million ($200 million policy limit with automatic reinstatements of an additional $200 million). The Company's maximum retrospective assessment is approximately $12.3 million (including a 3 percent insurance premium tax for Virginia). The Company's current level of property insurance coverage ($2.55 billion for North Anna and $2.40 billion for Surry) exceeds the NRC's minimum requirement for nuclear power plant licensees of $1.06 billion per reactor site and includes coverage for premature decommissioning and functional total loss. The NRC requires that the proceeds from this insurance be used first to return the reactor to and maintain it in a safe and stable condition and second to decontaminate the reactor and station site in accordance with a plan approved by the NRC. The Company's nuclear property insurance is provided by Nuclear Mutual Limited (NML) and Nuclear Electric Insurance Limited (NEIL), two mutual insurance companies, and is subject to retrospective premium assessments, in any policy year in which losses exceed the funds available to these insurance companies. The maximum assessment for the current policy period is $37.0 million. Based on the severity of the incident, the Boards of Directors of the Company's nuclear insurers have the discretion to lower the maximum retrospective premium assessment or eliminate either or both completely. For any losses that exceed the limits or for which insurance proceeds are not available because they must first be used for stabilization and decontamination, the Company has the financial responsibility for these losses. The Company purchases insurance from NEIL to cover the cost of replacement power during the prolonged outage of a nuclear unit due to direct physical damage of the unit. Under this program, Virginia Power is subject to a retrospective premium assessment for any policy year in which losses exceed funds available to NEIL. The current policy period's maximum assessment is $8.7 million. As part owner of the North Anna Power Station, ODEC is responsible for its share of the nuclear decommissioning obligation and insurance premiums applicable to that station, including any retrospective premium assessments and any losses not covered by insurance. D. Utility Plant: Utility plant consisted of the following:
At December 31, ----------------------------- 1997 1996 ------------- ------------- (Millions) Production ............................ $ 7,684.2 $ 7,691.9 Transmission .......................... 1,415.7 1,386.5 Distribution .......................... 4,559.2 4,385.4 Other ................................. 894.2 862.9 ---------- ---------- 14,553.3 14,326.7 Construction work in progress ......... 240.9 180.1 ---------- ---------- Total ............................. $ 14,794.2 $ 14,506.8 ========== ==========
36 E. Jointly Owned Plants: The following information relates to the Company's proportionate share of jointly owned plants at December 31, 1997:
North Bath County Anna Clover Pumped Storage Power Power Station Station Station ---------------- ------------ ---------- Ownership interest ............................... 60.0% 88.4% 50.0% (Millions) Utility plant in service ......................... $ 1,072.9 $ 1,819.4 $ 533.3 Accumulated depreciation ......................... 229.1 819.2 26.3 Nuclear fuel ..................................... 403.6 Accumulated amortization of nuclear fuel ......... 383.4 Construction work in progress .................... .1 61.2 1.1
The co-owners are obligated to pay their share of all future construction expenditures and operating costs of the jointly owned facilities in the same proportion as their respective ownership interest. The Company's share of operating costs is classified in the appropriate operating expense (fuel, operations and maintenance, depreciation, taxes, etc.) in the Consolidated Statements of Income. F. Regulatory Assets-Other 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 Company's regulatory assets included the following:
At December 31, ------------------------- 1997 1996 ----------- ----------- (Millions) Income taxes recoverable through future rates ..................... $ 478.9 $ 477.0 Cost of decommissioning DOE uranium enrichment facilities ......... 67.6 73.5 Deferred losses on reacquired debt, net ........................... 85.4 91.5 North Anna Unit 3 project termination costs ....................... 42.3 73.1 Other ............................................................. 55.1 52.7 -------- -------- Total ............................................................. $ 729.3 $ 767.8 ======== ========
Income taxes recoverable through future rates represent principally the tax effect of depreciation differences not normalized in earlier years for ratemaking purposes. These amounts are amortized as the related temporary differences reverse. The costs of decommissioning the Department of Energy's (DOE) uranium enrichment facilities have been deferred and represent the unamortized portion of Virginia Power's required contributions to a fund for decommissioning and decontaminating the DOE's uranium enrichment facilities. Virginia Power is making such contributions over a 15-year period with escalation for inflation. These costs are being recovered in fuel rates. Losses or gains on reacquired debt are deferred and amortized over the lives of the new issues of long-term debt. Gains or losses resulting from the redemption of debt without refinancing are amortized over the remaining lives of the redeemed issues. The construction of North Anna Unit 3 was terminated in November 1982. All retail jurisdictions have permitted recovery of the incurred costs. For Virginia and FERC jurisdictional customers, the amounts deferred are being amortized from the date termination costs were first includible in rates. 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 $729.3 million of regulatory assets at December 31, 1997, approximately $57.7 million represent past expenditures that are effectively excluded from rate base by the Virginia State Corporation Commission which has primary jurisdiction over the Company's rates. However, of that amount $42.3 million represent the present value of amounts to be recovered through future rates for North Anna Unit 3 37 project termination 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 $15.4 million of regulatory assets, effectively excluded from rate base, to be recovered over various recovery periods up to 21 years, depending on the nature of the deferred costs. G. Leases: Plant and property under capital leases included the following:
At December 31, ----------------------- 1997 1996 ---------- ---------- (Millions) Office buildings (*) ...................................... $ 34.4 $ 34.4 Data processing equipment ................................. 13.3 2.5 ------- ------- Total plant and property under capital leases ......... 47.7 36.9 Less accumulated amortization ............................. 17.8 13.3 ------- ------- Net plant and property under capital leases ............... $ 29.9 $ 23.6 ======= =======
- --------- (*) The Company leases its principal office building from its parent, Dominion Resources. The capitalized cost of the property under that lease, net of accumulated amortization, represented $22 million and $23 million at December 31, 1997 and 1996, respectively. Rental payments for such lease were $3 million for each of the three years ended December 31, 1997, 1996 and 1995. The Company is responsible for expenses in connection with the leases noted above, including maintenance. Future minimum lease payments under noncancellable capital leases and for operating leases that have initial or remaining lease terms in excess of one year as of December 31, 1997, are as follows:
Capital Operating Leases Leases --------- ---------- (Millions) 1998 ................................................... $ 7.1 $ 11.4 1999 ................................................... 6.4 9.9 2000 ................................................... 4.3 7.1 2001 ................................................... 3.2 3.9 2002 ................................................... 3.0 3.2 After 2002 ............................................. 16.7 22.9 ------ ------- Total future minimum lease payments .................... $ 40.7 $ 58.4 ======= Less interest element included above ................... 10.8 ------ Present value of future minimum lease payments ......... $ 29.9 ======
Rents on leases, which have been charged to operations expense, were $17.6 million, $16.5 million and $13.6 million for 1997, 1996 and 1995, respectively. 38 H. Long-term Debt: Long-term debt included the following:
At December 31, -------------------------- 1997 1996 ------------ ----------- (Millions) First and Refunding Mortgage Bonds (1): Series U, 5.125%, due 1997 ................................. $ 49.3 1992 Series B, 7.25%, due 1997 ............................. 250.0 1988 Series A, 9.375%, due 1998 ............................ $ 150.0 150.0 1992 Series F, 6.25%, due 1998 ............................. 75.0 75.0 1989 Series B, 8.875%, due 1999 ............................ 100.0 100.0 1993 Series C, 5.875%, due 2000 ............................ 135.0 135.0 Various series, 6.0-8%, due 2001-2004 ...................... 805.0 805.0 Various series 6.75%-7.625%, due 2007 ...................... 415.0 215.0 Various series, 5.45%-8.75%, due 2021-2025 ................. 1,144.5 1,144.5 --------- --------- Total First and Refunding Mortgage Bonds ................ 2,824.5 2,923.8 --------- --------- Other long-term debt: Term notes: Fixed interest rate, 6.15%-10.00%, due 1997-2003 ......... 551.1 503.1 Tax exempt financings (2): Money Market Municipals, due 2007-2027(3) ................ 488.6 488.6 Convertible interest rate, due 2022 ...................... 10.0 --------- Total other long-term debt .............................. 1,049.7 991.7 --------- --------- 3,874.2 3,915.5 --------- --------- Less amounts due within one year: First and Refunding Mortgage Bonds ......................... 225.0 299.3 Term notes ................................................. 108.5 12.0 --------- --------- Total amount due within one year ........................ 333.5 311.3 --------- --------- Less unamortized discount, net of premium ................... 26.1 24.8 --------- --------- Total long-term debt .................................... $ 3,514.6 $ 3,579.4 ========= =========
- --------- (1) The First and Refunding Mortgage Bonds are secured by a mortgage lien on substantially all of the Company's property. (2) Certain pollution control facilities at the Company's generating facilities have been pledged or conveyed to secure the financings. (3) Interest rates vary based on short-term, tax-exempt market rates. For 1997 and 1996, the weighted average daily interest rates were 3.74 percent and 3.57 percent, respectively. Although these bonds are re-marketed within a one year period, they are classified as long-term debt because the Company intends to maintain the debt and they are supported by long-term bank commitments. The following amounts of debt will mature during the next five years (in millions): 1998 -- $333.5; 1999 -- $321.0; 2000 -- $195.5; 2001 -- $160.7; and 2002 -- $315.0. I. Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust: Virginia Power Capital Trust I (VP Capital Trust) was established as a subsidiary of the Company for the sole purpose of selling $135 million of Preferred Securities (5.4 million shares at $25 par) in 1995. The Company concurrently issued $139.2 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 Preferred Securities and the common securities represent the total beneficial ownership interest in the assets held by VP Capital Trust. The Notes are the sole assets of VP Capital Trust. 39 The Preferred Securities are subject to mandatory redemption upon repayment of the Notes at a liquidation amount of $25 plus accrued and unpaid distributions, including interest. The Notes are due September 30, 2025. However, that date may be extended up to an additional ten years if certain conditions are satisfied. J. Preferred Stock Subject to Mandatory Redemption: The total number of authorized shares for all preferred stock (whether or not subject to mandatory redemption) is 10,000,000 shares. Upon involuntary liquidation, dissolution or winding-up of the Company, all presently outstanding preferred stock is entitled to receive $100 per share plus accrued dividends. Dividends are cumulative. There are two series of preferred stock subject to mandatory redemption outstanding as of December 31, 1997:
Issued and Outstanding Dividend Shares - ------------------- ------------ $5.58 ............. 400,000 Shares are non-callable prior to redemption at 3/1/2000 $6.35 ............. 1,400,000 Shares are non-callable prior to redemption at 9/1/2000 --------- Total ......... 1,800,000 =========
There were no redemptions of preferred stock during 1997 or 1996. In 1995, the Company redeemed 417,319 shares of its $7.30 dividend preferred stock subject to mandatory redemption. K. Preferred Stock Not Subject to Mandatory Redemption: Shown below are the series of preferred stock not subject to mandatory redemption that were outstanding as of December 31, 1997.
Entitled per Share upon Liquidation ------------------------------------------------- Issued and And Thereafter to Outstanding Amounts Declining in Dividend Shares Amount Through Steps to - -------------------------------- ------------- ------------ --------- ---------------------- $5.00 .......................... 106,677 $ 112.50 4.04 .......................... 12,926 102.27 4.20 .......................... 14,797 102.50 4.12 .......................... 32,534 103.73 4.80 .......................... 73,206 101.00 7.05 .......................... 500,000 105.00 7/31/03 $100.00 after 7/31/13 6.98 .......................... 600,000 105.00 8/31/03 $100.00 after 8/31/13 MMP 1/87 (*) ................... 500,000 100.00 MMP 6/87 (*) ................... 750,000 100.00 MMP 10/88 (*) .................. 750,000 100.00 MMP 6/89 (*) ................... 750,000 100.00 MMP 9/92, Series A (*) ......... 500,000 100.00 MMP 9/92, Series B (*) ......... 500,000 100.00 ------- Total .......................... 5,090,140 =========
- --------- (*) Money Market Preferred (MMP) dividend rates are variable and are set every 49 days via an auction process. The combined weighted average rates for these series in 1997, 1996 and 1995, including fees for broker/dealer agreements, were 4.71 percent, 4.48 percent and 4.93 percent, respectively. In 1995, the Company redeemed 400,000 shares of its $7.45 dividend preferred stock not subject to mandatory redemption and 450,000 shares of its $7.20 dividend preferred stock not subject to mandatory redemption. L. Common Stock: There were no changes in the number of authorized and outstanding shares of the Company's Common Stock during the three years ended December 31, 1997. 40 M. Short-term Debt: The Company's commercial paper program has a maximum borrowing capacity of $500 million. It is supported by two credit facilities. One is a $300 million, five-year credit facility that was effective on June 7, 1996, and expires on June 7, 2001. The other is a $200 million credit facility that originated on June 7, 1996, with an initial term of 364 days and provisions for subsequent 364-day extensions. It was renewed on June 6, 1997, for 364 days. The total amount of commercial paper outstanding as of December 31, 1997, was $226.2 million with a weighted average interest rate of 5.88 percent. This represents a decrease of $86.2 million from the December 31, 1996, balance of $312.4 million and a weighted average interest rate of 5.51 percent. N. Retirement Plan, Postretirement Benefits and Other Benefits: Under the terms of its benefit plans, the Company reserves the right to change, modify or terminate the plans. From time to time in the past, benefits have changed, and some of these changes have reduced benefits. Retirement Plan The Company participates in the Dominion Resources, Inc. Retirement Plan (the Retirement Plan), a defined benefit pension plan. The benefits are based on years of service and average base compensation over the consecutive 60-month period in which pay is highest. The Company's pension plan expenses were $20.6 million, $24.8 million and $20.3 million for 1997, 1996 and 1995, respectively, and the amounts funded by the Company were $27.0 million, $28.4 million and $42.7 million in 1997, 1996 and 1995, respectively. Postretirement Benefits In addition to providing pension benefits, Dominion Resources and the Company provide certain health care and life insurance benefits for retired employees. Health care benefits are provided to retirees who have completed at least 10 years of service after attaining age 45. These and similar benefits for active employees are provided through insurance companies. Under the terms of its benefit plans, the Company reserves the right to change, modify or terminate the plans. From time to time in the past, benefits have changed, and some of these changes have reduced benefits. Net periodic postretirement benefit expense was as follows:
Year Ended December 31, --------------------- 1997 1996 ---------- ---------- (Millions) Service cost ..................................... $ 12.3 $ 12.1 Interest cost .................................... 25.1 23.9 Return on plan assets ............................ (25.3) (16.6) Amortization of transition obligation ............ 12.1 12.1 Net amortization and deferral .................... 13.4 7.1 ------- ------- Net periodic postretirement benefit expense ...... $ 37.6 $ 38.6 ======= =======
41 The following table sets forth the funded status of the plan:
At December 31, ----------------------- 1997 1996 ----------- ----------- (Millions) Fair value of plan assets .................................................... $ 176.6 $ 133.0 Accumulated postretirement benefit obligation: Retirees .................................................................... $ 224.5 $ 201.7 Active plan participants .................................................... 136.3 122.2 -------- -------- Accumulated postretirement benefit obligation .............................. 360.8 323.9 -------- -------- Accumulated postretirement benefit obligation in excess of plan assets ..... (184.2) (190.9) Unrecognized transition obligation ........................................... 180.8 192.8 Unrecognized net experience (gain)/loss ...................................... ( 1.8) ( 3.6) -------- -------- Accrued postretirement benefit cost .......................................... $ (5.2) $ (1.7) ======== ========
A one percent increase in the health care cost trend rate would result in an increase of $5.0 million in the service and interest cost components and a $39.5 million increase in the accumulated postretirement benefit obligation. Significant assumptions used in determining the postretirement benefit obligation were:
1997 1996 ----------------------- ---------------------- Discount rates .................... 7.75% 8% Assumed return on plan assets ..... 9% 9% Medical cost trend rate ........... 6% for 1st year 7% for 1st year 5% for 2nd year 6% for 2nd year Scaling down to 4.75% Scaling down to 4.75% beginning in the year beginning in the year 2000 2000
The Company is recovering these costs in rates on an accrual basis in all material respects, in all jurisdictions. The funds being collected for Other Postretirement Benefits (OPEB) in rates, in excess of OPEB benefits actually paid during the year, are contributed to external benefit trusts under the Company's current funding policy (see Future Issues -- Competition -- Exposure to Potentially Stranded Costs under MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS). O. Restructuring: The Company announced the implementation phase of its Vision 2000 program in March 1995. 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 has resulted in outsourcing, decentralization, reorganization and downsizing for portions of the Company's operations. As part of this process, the Company has reevaluated 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. Restructuring charges of $18.4 million, $64.9 million, and $117.9 million in 1997, 1996 and 1995, respectively, included severance costs, purchased power contract restructuring and negotiated settlement costs, capital project cancellation costs, and other costs incurred directly as a result of the Vision 2000 initiatives. While the Company may incur additional charges for severance in 1998, the amounts are not expected to be significant. Employee Severance In 1995, the Company established a comprehensive involuntary severance package for salaried employees who may no longer be employed 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. Through December 31, 1997, management had identified 1,977 positions to be eliminated. The recognition of severance costs resulted in charges to operations in 1997, 1996 and 1995 of $12.5 million, $49.2 million and $51.2 million, respectively. At December 31, 1997, 1,619 employees had been terminated and severance payments totaling $74 million had been paid. The Company estimates that 42 these staffing reductions will result in annual savings, in the range of $80 million to $90 million. However, such savings are being offset by salary increases, outsourcing costs and increased payroll costs associated with staffing for growth opportunities. Purchased Power Contracts In an effort to minimize its exposure to potential stranded investment, 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 has also negotiated settlements with several other parties to terminate their rights to sell power to the Company. The cost of contract modifications, contract cancellations and negotiated settlements was $3.8 million, $7.8 million and $8.1 million in 1997, 1996 and 1995, respectively. Using contract terms, estimated quantities of power that would have otherwise been delivered and other relevant factors at the time of each transaction, the Company estimated that its annual future purchased power costs, including energy payments, would be reduced by up to $0.8 million, $5.8 million and $147.0 million for the 1997, 1996 and 1995 transactions, respectively. The cost of alternative sources of power that might ultimately be required as a result of these settlements is expected to be significantly less than the estimated reduction in purchased power costs. Construction Project Restructuring charges reported in 1995 included $37.3 million for the cancellation of a project to construct a facility to handle low level radioactive waste at the Company's North Anna Power Station. As a result of reevaluating the handling of low level radioactive waste, the Company concluded that the facility should not be completed due to the additional capital investment required, decreased Company volumes of low level radioactive waste resulting from improvements in station procedures and the availability of more economical offsite processing. P. Accelerated Cost Recovery: In this increasingly competitive environment, the Company also has concluded that it is appropriate to utilize available cost reductions, such as those generated by the Vision 2000 program (see Note O to the CONSOLIDATED FINANCIAL STATEMENTS), to accelerate the write-off of existing unamortized regulatory assets. Not only will this strategically position the Company in anticipation of competition, but it also reflects the Company's commitment to mitigate its exposure to potentially stranded costs (see Competition in MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS). The Company identified savings of $38.4 million in 1997 and $26.7 million in 1996 which were used to establish a reserve for expected adjustments to regulatory assets. Q. Commitments and Contingencies: The Company is involved in legal, tax and regulatory proceedings before various courts, regulatory commissions and governmental agencies regarding matters arising in the ordinary course of business, some of which involve substantial amounts. Management is of the opinion that the final disposition of these proceedings will not have a material adverse effect on the results of operations or the financial position of the Company. Utility Rate Regulation In March 1997, the Virginia Commission issued an order that Virginia Power's base rates be made interim and subject to refund as of March 1, 1997. This order was the result of the Commission Staff's report on its review of Virginia Power's 1995 Annual Informational Filing, which concluded that Virginia Power's present rates would cause Virginia Power to earn in excess of its authorized return on equity. The Staff found that, for purposes of establishing rates prospectively, a rate reduction of $95.6 million (including a one-time adjustment of $29.7 million to Virginia Power's deferred capacity balance at December 31, 1996) may be necessary in order to realign rates to the authorized level. In March 1997, Virginia Power filed its Alternative Regulatory Plan (ARP) based on 1996 financial information. Subsequently, the Commission consolidated the proceeding concerned with the 1995 Annual Informational Filing with the proceeding that includes the ARP proposed by the Company. In December 1997, Virginia Power sought to withdraw its ARP, having concluded that resolution of the cost recovery issues raised by the ARP was unlikely without General Assembly action. The Commission has agreed that the Company may withdraw its support of the ARP but has reserved the right to continue consideration of the ARP as well as other regulatory alternatives. In addition, the Commission will continue to consider the issues arising out of the 1995 Annual Informational 43 Filing. The Commission's Staff is scheduled to file its testimony on March 24, 1998; Virginia Power's rebuttal is to be filed by April 27, 1998; and the reply testimony is to be filed by May 11, 1998. A public hearing is scheduled to commence on May 19, 1998. Virginia Power's previous filings in this proceeding support maintaining the Company's rates at current levels; however, opposing parties have made filings recommending rate reductions in excess of $200 million. At this time, management cannot predict the ultimate outcome of the proceeding and its impact on the Company's results of operations, cash flows or financial position. Retrospective Premium Assessments Under several of the Company's nuclear insurance policies, the Company is subject to retrospective premium assessments in any policy year in which losses exceed the funds available to these insurance companies. For additional information, see Note C to CONSOLIDATED FINANCIAL STATEMENTS. Construction Program The Company has made substantial commitments in connection with its construction program and nuclear fuel expenditures. Those expenditures are estimated to total $588.1 million (excluding AFC) for 1998. The Company presently estimates that all of its 1998 construction expenditures, including nuclear fuel, will be met through cash flow from operations. Purchased Power Contracts Since 1984, the Company has entered into contracts for the long-term purchases of capacity and energy from other utilities, qualifying facilities and independent power producers. The Company has 57 non-utility purchase contracts with a combined dependable summer capacity of 3,277 MW. The table below reflects the Company's minimum commitments as of December 31, 1997, for power purchases from utility and non-utility suppliers.
Commitment --------------------------- Year Capacity Other - ---------------------------------------- ------------- ----------- (Millions) 1998 ............................... $ 813.5 $ 154.9 1999 ............................... 816.7 156.7 2000 ............................... 723.8 92.0 2001 ............................... 716.0 83.7 2002 ............................... 721.1 81.5 Later years ........................ 9,069.6 388.2 ---------- -------- Total ............................ $ 12,860.7 $ 957.0 ========== ======== Present value of the total ......... $ 5,878.0 $ 553.3 ========== ========
Payments made by Virginia Power in satisfaction of the minimum purchase commitments shown in the above table are subject to reduction or partial refund if (1) the non-utility suppliers fail to meet performance requirements or (2) changes in federal or state law or administrative actions disallow or have the effect of disallowing Virginia Power's recovery of such costs from its customers. The amount of such payment reductions or refunds, if any, will be determined and administered as provided in individual supply contracts, although (1) the deferral of refund obligations, (2) disputes over the applicability of such payment reductions or refund obligations and (3) the ability of some non-utility suppliers to make refunds could limit Virginia Power's ability to benefit from these contract provisions. In addition to the minimum purchase commitments in the table above, under some of these contracts, the Company may purchase, at its option, additional power as needed. Actual payments for purchased power (including economy, emergency, limited term, short-term and other purchases for utility operations, as well as for trading purposes) for the years 1997, 1996 and 1995 were $1,381 million, $1,183 million and $1,093 million, respectively. For a discussion of the Company's efforts to restructure certain purchased power contracts, see Note O to CONSOLIDATED FINANCIAL STATEMENTS. Fuel Purchase Commitments The Company's estimated fuel purchase commitments for the next five years for system generation are as follows (millions): 1998 -- $293; 1999 -- $233; 2000 -- $144; 2001 -- $144; and 2002 -- $127. 44 Sale of Power The Company enters into agreements with other utilities and with other parties to purchase and sell capacity and energy. These agreements may cover current and future periods ("forward positions"). The volume of these transactions varies from day to day based on the market conditions, our current and anticipated load, and other factors. The combined amounts of sales and purchases range from 500 MW to 7,000 MW at various times during a given year. These operations are closely monitored from a risk management perspective. Environmental Matters The Company is subject to rising costs resulting from a steadily increasing number of federal, state and local laws and regulations designed to protect human health and the environment. These laws and regulations affect future planning and existing operations. These laws and regulations can result in increased capital, operating and other costs as a result of compliance, remediation, containment and monitoring obligations of the Company. These costs have been historically recovered through the ratemaking process; however, should material costs be incurred and not recovered through rates, the Company's results of operations and financial condition could be adversely impacted. Site Remediation The EPA has identified the Company 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 $61.5 million to $72.5 million. The Company's proportionate share of the cost is expected to be in the range of $1.7 million to $2.5 million, based upon allocation formulas and the volume of waste shipped to the sites. The Company has accrued a reserve of $1.7 million to meet its obligations at these two sites. Based on a financial assessment of the PRPs involved at these sites, the Company has determined that it is probable that the PRPs will fully pay the costs apportioned to them. The Company and Dominion Resources have remedial action responsibilities remaining at two coal tar sites. The Company accrued a $2 million reserve to meet its estimated liability based on site studies and investigations performed at these sites. In addition, two civil actions have been instituted against the City of Norfolk and Virginia Power by property owners who allege that their property has been contaminated by toxic pollutants originating from one of the coal tar sites now owned by the City of Norfolk and formerly owned by the Company. The first civil action reached settlement without trial in September 1997. The remaining plaintiff is seeking compensatory damages of $2 million and punitive damages of $1 million. It is too early in this case for the Company to predict the outcome. The Company has filed answers denying liability. No trial date has been set. The Company generally seeks to recover its costs associated with environmental remediation from third party insurers. At December 31, 1997, any pending or possible claims were not recognized as an asset or offset against recorded obligations of the Company. R. Fair Value of Financial Instruments: The Company used available market information and appropriate valuation methodologies to estimate the fair value of each class of financial instrument for which it is practicable to estimate fair value. These estimates are not necessarily indicative of the amounts the Company could realize in a market exchange. In addition, the use of different market assumptions may have a material effect on the estimated fair value amounts. 45
December 31, ------------------------------------------------- 1997 1996 ----------------------- ----------------------- Carrying Fair Carrying Fair Amount Value Amount Value ---------- ---------- ---------- ---------- (Millions) Assets: Cash and cash equivalents ............................... $ 36.0 $ 36.0 $ 47.9 $ 47.9 Nuclear decommissioning trust funds ..................... 569.1 569.1 443.3 443.3 Liabilities and capitalization: Short-term debt ......................................... 226.2 226.2 312.4 312.4 Long-term debt: First and Refunding Mortgage Bonds .................... 2,824.5 2,937.7 2,923.8 2,957.4 Medium-term notes ..................................... 551.1 573.7 503.1 531.3 Money Market Municipal tax-exempt securities .......... 488.6 488.6 488.6 488.6 Convertible interest rate tax-exempt bonds ............ 10.0 10.4 Preferred stock subject to mandatory redemption ......... 180.0 186.6 180.0 185.8 Preferred securities of subsidiary trust ................ 135.0 137.7 135.0 135.0
Cash and cash equivalents and short-term debt: The carrying amount of these items approximates fair value because of their short maturity. Nuclear decommissioning trust funds: The fair value is based on available market information and generally is the average of bid and asked price. First and Refunding Mortgage Bonds: Fair value is based on market quotations. Medium-term notes: These notes were valued by discounting the remaining cash flows at a rate estimated for each issue. A yield curve rate was estimated to relate Treasury Bond rates for specific issues to the corresponding maturities. Money Market Municipal tax-exempt securities: The interest rates for these notes vary so that fair value approximates carrying value. Convertible interest rate tax-exempt bonds and preferred stock subject to mandatory redemption: The fair value is based on market quotations or is estimated by discounting the dividend and principal payments for a representative issue of each series over the average remaining life of the series. Preferred securities of subsidiary trust: Fair value is based on market quotations. S. Quarterly Financial Data (unaudited): The following amounts reflect all adjustments, consisting of only normal recurring accruals (except as discussed below), necessary in the opinion of the management for a fair statement of the results for the interim periods.
Income from Net Balance Available Quarter Revenues Operations Income for Common Stock - ------------- ------------- ------------- ----------- ------------------ (Millions) 1997 - ---- 1st ......... $ 1,174.8 $ 248.6 $ 110.3 $ 101.5 2nd ......... 1,051.5 184.6 72.3 63.3 3rd ......... 1,499.9 381.0 201.1 192.1 4th ......... 1,352.8 205.1 85.4 76.5 1996 - ---- 1st ......... $ 1,169.7 $ 311.1 $ 152.8 $ 143.8 2nd ......... 1,032.1 224.0 96.6 87.8 3rd ......... 1,180.8 325.8 162.2 153.3 4th ......... 1,038.3 149.1 45.7 36.9
Results for interim periods may fluctuate as a result of weather conditions, rate relief and other factors. 46 Certain accruals were recorded in 1997 and 1996 that are not ordinary, recurring adjustments, consisting of restructuring (see Note O to CONSOLIDATED FINANCIAL STATEMENTS) and accelerated cost recovery (see Note P to CONSOLIDATED FINANCIAL STATEMENTS). Restructuring -- The Company expensed $6.3 million, $1.4 million and $10.7 million during the second, third and fourth quarters of 1997, respectively, and $5.4 million, $19.3 million, $4.6 million and $35.6 million during the first, second, third and fourth quarters of 1996. Accelerated cost recovery -- Amounts reserved for accelerated cost recovery were $2.8 million, $28.3 million and $7.3 million during the second, third and fourth quarters of 1997, respectively, and $26.7 million during the fourth quarter of 1996. Charges for restructuring and accelerated cost recovery reduced Balance Available for Common Stock by $5.8 million, $19.3 million, and $11.7 million for the second, third, and fourth quarters of 1997, respectively, and $3.5 million, $12.5 million, $3.0 million and $40.6 million for first, second, third and fourth quarters of 1996. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None 47 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT On September 12, 1997, the Board of Directors elected Thos. E. Capps as Chairman, succeeding John B. Adams, Jr., who had held the position since 1994. Mr. Capps also is Chairman of the Board of Directors of Dominion Resources, Inc., the parent company of Virginia Power. (a) Information concerning directors of Virginia Electric and Power Company is as follows:
Year First Principal Occupation for Last 5 Years, Elected a Term Name and Age Directorships in Public Corporations Director Expires - ------------------------------- -------------------------------------------------------------- ----------- -------- Thos. E. Capps (62) Chairman of the Board of Directors of Virginia Electric an d 1986 2000 Power Company from September 12, 1997 to date and Chairman, President and Chief Executive Officer of Dominion Resources from September 1, 1995 to date (from August 15, 1994 to September 1, 1995, Chairman and Chief Executive Officer; prior to August 15, 1994, Chairman, President and Chief Executive Officer). He is a Director of Bassett Furniture Industries, Inc. and NationsBank Corporation. Norman Askew (55) President and Chief Executive Officer of Virginia Electric 1997 1998 and Power Company and Executive Vice President of Dominion Resources from August 1, 1997 to date; Executive Vice President of Dominion Resources and Chief Executive of East Midlands from February 21, 1997 to August 1, 1997; Chief Executive of East Midlands from April 1, 1994 to February 21, 1997; Managing Director prior to April 1, 1994. John B. Adams, Jr. (53) President and Chief Executive Officer of The Bowman 1987 1998 Companies, Fredericksburg, Virginia, a manufacturer and bottler of alcohol beverages and he is a Director of Dominion Resources. John B. Bernhardt (68) Managing Director, Bernhardt/Gibson Financial 1986 2000 Opportunities, financial services, Newport News, Virginia. He is a Director of Resource Bank and Dominion Resources. James F. Betts (65) Former Chairman of the Board and President, The Life 1978 2000 Insurance Company of Virginia, Richmond, Virginia. He is a Director of Wachovia Corporation. Jean E. Clary (53) President and owner of Century 21 Clary and Associates, 1996 2000 Inc., South Hill, Virginia. John W. Harris (50) President, The Harris Group, a real estate consulting firm, 1997 1998 Charlotte, North Carolina. He is a Director of Piedmont Natural Gas Company, Inc. and US Airways Group, Inc. Benjamin J. Lambert, III (61) Optometrist, Richmond, Virginia. He is a Director of 1992 1998 Consolidated Bank and Trust Company, Student Loan Marketing Association (SallieMae) and Dominion Resources. Richard L. Leatherwood (58) Retired, Baltimore, Maryland. Former President and Chief 1994 1998 Executive Officer, CSX Equipment, an operating unit of CSX Transportation, Inc.). He is a Director of Dominion Resources and CACI International, Inc. Harvey L. Lindsay, Jr. (68) Chairman and Chief Executive Officer of Harvey Lindsay 1986 1999 Commercial Real Estate, Norfolk, Virginia, a commercial real estate firm. He is a Director of Dominion Resources. Kenneth A. Randall (70) Corporate Director for various companies, Williamsburg, 1971 1999 Virginia. He is a Director of Oppenheimer Funds, Inc., Kemper Insurance Companies and Prime Retail, Inc. He is a Director of Dominion Resources.
48
Retired, Hampton, Virginia (prior to December 31, 1993, President of Penn Luggage, Inc., retail specialty stores). William T. Roos (69) He is a Director of Dominion Resources. 1975 1999 Frank S. Royal (58) Physician, Richmond, Virginia. He is a Director of 1997 1998 Columbia/HCA Healthcare Corporation, Crestar Financial Corporation, Chesapeake Corporation, CSX Corporation and Dominion Resources. Judith B. Sack (49) Senior Advisor, Morgan Stanley & Co., Inc., an investment 1997 1999 banking firm, New York, New York, as of September 1, 1995 (prior to September 1, 1995, Advisor). She is a Director of Dominion Resources. S. Dallas Simmons (58) President of Virginia Union University, Richmond, Virginia. 1997 2000 He is a Director of Dominion Resources. Robert H. Spilman (70) President, Spilman Properties, Basset, Virginia and Chairman 1994 2000 of the Board and a Director of Jefferson-Pilot Corp., Greensboro, North Carolina. Retired Chairman and Chief Executive Officer of Bassett Furniture Industries, Inc. He is a Director of International Home Furnishing Center, The Pittston Company and Dominion Resources. William G. Thomas (58) President of Hazel & Thomas, Alexandria, Virginia, a law 1987 1999 firm. David A. Wollard (60) Retired President, Bank One Colorado, N.A., Denver, 1997 1999 Colorado.
The Directors are divided into three classes, with staggered terms. Each class consists, as nearly as possible, of one-third of the total number of Directors. Each Director holds office until the annual meeting for the year in which his class term expires, or until his successor is duly qualified and elected as provided in the Company's Articles of Incorporation. Mr. Thomas has entered into a Consent Decree with the Office of Thrift Supervision in connection with the lending and credit granting activities of Perpetual Savings Bank, FSB, which Mr. Thomas formerly served as a director. The Consent Decree requires that Mr. Thomas obtain approval from the appropriate federal banking agency before accepting certain positions involving lending or credit activities with an insured depository institution. (b) Information concerning the executive officers of Virginia Electric and Power Company is as follows:
Name and Age Business Experience past Five Years - ---------------------------- --------------------------------------------------------------------------------------- Norman Askew (55) President and Chief Executive Officer of Virginia Electric and Power Company and Executive Vice President of Dominion Resources from August 1, 1997 to date; Executive Vice President of Dominion Resources and Chief Executive of East Midlands from February 21, 1997 to August 1, 1997; Chief Executive of East Midlands from April 1, 1994 to February 21, 1997; Managing Director prior to April 1, 1994. Thomas F. Farrell, II (43) Executive Vice President of Virginia Electric and Power Company and Senior Vice President-Corporate Affairs of Dominion Resources, September 1, 1997 to date; Senior Vice President-Corporate & General Counsel of Dominion Resources, January 1, 1997 to September 1, 1997; Vice President and General Counsel of Dominion Resources, July 1, 1995 to January 1, 1997; Partner in the law firm of McGuire, Woods, Battle, & Boothe LLP prior to July 1, 1995. Robert E. Rigsby (48) Executive Vice President, January 1, 1996 to date; Senior Vice President-Finance and Controller, January 1, 1995 to January 1, 1996; Vice President-Human Resources prior to January 1, 1995. William R. Cartwright (55) Senior Vice President-Fossil and Hydro, July 1, 1995 to date; Vice President Fossil and Hydro prior to July 1, 1995. Lawrence E. De Simone (50) Senior Vice President-Energy Services, July 15, 1996 to date; vice president-strategic planning for Central & South West Corp., a Dallas-based electric utility holding company, prior to July 15, 1996. Larry M. Girvin (54) Senior Vice President-Commercial Operations, January 1, 1996 to date; Vice President-Human Resources, January 1, 1995 to January 1, 1996; Vice President- Nuclear Services prior to January 1, 1995. James P. O'Hanlon (54) Senior Vice President-Nuclear, June 1, 1994 to date; Vice President-Nuclear Operations prior to June 1, 1994.
49
Senior Vice President-Finance, March 16, 1998 to date; Vice President Financial Service for ARCO Chemical Company, Philadelphia, Pennsylvania, prior to March 16, 1998. During the past 5 years, he has also served as Treasurer and John A. Shaw (49) Controller of ARCO Chemical. Eva S. Teig (53) Senior Vice President-External Affairs & Corporate Communications, September 1, 1997 to date; Vice President-External Affairs & Corporate Communications, June 1, 1997 to September 1, 1997; Vice President-Public Affairs prior to June 1, 1997. Said Ziai (44) Senior Vice President-Corporate Strategy, October 1,1997 to date; Corporate Planning Director, East Midlands Electricity plc, Nottingham, England prior to October 1, 1997. Thomas L. Caviness, Jr. (52) Vice President-Retail Energy Services, July 1, 1995 to date;Vice President-Eastern Division prior to July 1, 1995. David A. Christian (43) Site Vice President-Surry, March 1, 1998 to date; Station Manager-Surry Power Station, September 1, 1994 to March 1, 1998; Assistant Station Manager-Surry, prior to September 1, 1994. J. Kennerly Davis, Jr. (52) Vice President-Finance and Administrative Services, Treasurer and Corporate Secretary, January 1, 1996 to date; Vice President, Treasurer and Corporate Secretary, October 1, 1994 to January 1, 1996; Vice President and Corporate Secretary of Dominion Resources prior to October 1, 1994. James T. Earwood, Jr. (54) Vice President-Bulk Power Delivery, January 1, 1997 to date;Vice President-Energy Efficiency and Division Services, January 1, 1996 to January 1, 1997; Vice President-Division Services prior to January 1, 1996. E. Paul Hilton (54) Vice President-Regulation, October 1, 1997 to date; Manager, Rates and Regulation, February 20, 1996 to October 1, 1997; Manager, Rates prior to February 20, 1996. Thomas A. Hyman, Jr. (46) Vice President-Distribution Operations and North Carolina Power, June 1, 1997 to date;Vice President-Eastern Division and North Carolina Power, July 1, 1995 to June 1, 1997; Vice President-Southern Division, June 1, 1994 to July 1, 1995; Station Manager-Bremo Power Station prior to June 1, 1994. Michael R. Kansler (43) Vice President-Nuclear Operations, January 1, 1997 to date;Vice President-Nuclear Engineering and Services, October 1, 1995 to January 1, 1997; Vice President- Nuclear Services, January 1, 1995 to October 1, 1995 ; Manager-Nuclear Operations Support, September 1, 1994 to January 1, 1995; Station Manager-Surry Nuclear Power Station prior to September 1, 1994. William R. Matthews (51) Site Vice President-North Anna, March 1, 1998 to date; Station Manager-North Anna Power Station, May 1, 1996 to March 1, 1998; Assistant Station Manager-North Anna Power Station, December 1, 1993 to May 1, 1996; Superintendent- Maintenance, prior to December 1, 1993. Mark F. McGettrick (40) Vice President-Customer Service, January 1, 1997 to date; Corporate Restructuring Project Manager, February 1, 1995 to January 1, 1997; Assistant Controller prior to February 1, 1995. William S. Mistr (50) Vice President-Information Technology, January 1, 1996 to date and Vice President of Dominion Resources, February 20, 1997 to date; Vice President and Treasurer, Dominion Energy, Inc., October 1, 1994 to January 1, 1996; Assistant Treasurer, Dominion Resources prior to October 1, 1994. Thomas J. O'Neil (55) Vice President-Human Resources, January 1, 1996 to date; Vice President-Energy Efficiency prior to January 1, 1996. Edward J. Rivas (53) Vice President-Fossil & Hydro Operations, January 1, 1998 to date; Manager-Clover Power Station, March 16, 1994 to January 1, 1998; Manager-Fossil & Hydro Training prior to March 16, 1994. Robert F. Saunders (54) Vice President-Nuclear Engineering and Services, January 1, 1997 to date; Vice President-Nuclear Operations, June 1, 1994 to January 1, 1997; Assistant Vice President-Nuclear Operations, prior to June 1, 1994. Johnny V. Shenal (52) Vice President-Distribution Construction, June 1, 1997 to date;Vice President-Northern and Western Divisions, June 1, 1994 to June 1, 1997; Vice President-Western Division, prior to June 1, 1994. Richard T. Thatcher (48) Vice President-Wholesale Power Group, September 1, 1997 to date; Managing Director, Wholesale Power, April 10, 1997 to September 1, 1997; Manager, Wholesale Power Group, July 1, 1995 to April 10, 1997; Project Manager, January 1, 1995 to July 1, 1995; Director-Generation and Interconnection Planning prior to January 1, 1995.
There is no family relationship between any of the persons named in response to Item 10. 50 Section 16(a) Beneficial Ownership Reporting Compliance Our Directors and Executive Officers report their ownership of our preferred stock pursuant to Section 16(a) of the Exchange Act. Through administrative oversight, the following individuals failed to file their initial statements of beneficial ownership on Form 3 on a timely basis: Thos. E. Capps, Norman Askew, John B. Bernhardt, John W. Harris, Kenneth A. Randall, Frank S. Royal, Judith B. Sack, S. Dallas Simmons, David A. Wollard, Thomas F. Farrell, II, Said Ziai, E. Paul Hilton, Richard T. Thatcher, David A. Christian and William R. Matthews. None of the individuals owned any of our preferred stock at the time their initial reports should have been filed nor have they or any other Director or Executive Officer have any reportable transactions in the preferred stock which have not been reported. The required filings have now been made. ITEM 11. EXECUTIVE COMPENSATION Summary Compensation Table The Summary Table below includes compensation paid by the Company for services rendered in 1997, 1996 and 1995 for the Chief Executive Officer and the four other most highly compensated executive officers (as of December 31, 1997) as determined by total salary and incentive payments for 1997. Summary Compensation Table
Annual Compensation ------------------------------------------------------- Other Annual Name & Principal Position Year Salary Incentive(1) Compensation(2) - --------------------------- ------ ----------- ------------------ ----------------- James T. Rhodes 1997 $244,800 $ 159,250 (4) $ 0 President and CEO 1996 $410,575 $ 247,606 $ 0 (retired August 1, 1997) 1995 $406,075 $ 273,000 $ 0 Norman Askew 1997 $177,084 $ 85,833 $14,560 President and CEO (effective August 1, 1997) Robert E. Rigsby 1997 $254,850 $ 129,920 $ 0 Executive Vice President 1996 $226,469 $ 143,892 $ 0 1995 $171,456 $ 105,000 $ 0 James P. O'Hanlon 1997 $270,250 $ 110,240 $ 0 Senior Vice President -- 1996 $220,815 $ 128,511 $ 0 Nuclear 1995 $207,555 $ 136,400 $ 0 Lawrence E. DeSimone 1997 $212,751 $ 85,520 $ 0 Senior Vice President -- 1996 $ 94,419 $ 50,441 $ 0 Energy Services Larry M. Girvin 1997 $187,050 $ 85,520 $ 0 Senior Vice President -- 1996 $164,600 $ 89,200 $ 0 Commercial Operations 1995 $139,650 $ 66,606 $ 0 Long Term Compensation Awards ------------------------ Securities Payouts Restricted Underlying ---------------------------------------- Stock Options/ LTIP All Other Name & Principal Position Awards SAR Grants Pay out Compensation(3) - --------------------------- ------------ ----------- ------------------- -------------------- James T. Rhodes $ 0 $0 $ 803,429(5) $ 7,977,039 (6) President and CEO $ 0 $0 $ 75,684 $ 4,500 (retired August 1, 1997) $ 0 $0 $ 77,970 $ 4,500 Norman Askew $ 0(7) $0 $ 18,791(8) $ 120,000(9) President and CEO (effective August 1, 1997) Robert E. Rigsby $0(10 ) $0 $ 83,171(11) $ 4,800 Executive Vice President $ 0 $0 $ 43,157 $ 4,500 $ 0 $0 $ 34,569 $ 4,500 James P. O'Hanlon $ 0(12) $0 $ 80,140(13) $ 4,800 Senior Vice President -- $ 0 $0 $ 56,152 $ 4,500 Nuclear $ 0 $0 $ 45,109 $ 4,500 Lawrence E. DeSimone $ 0(14) $0 $ 0 $ 3,180 Senior Vice President -- $ 0 $0 $ 0 $ 0 Energy Services Larry M. Girvin $ 0(15) $0 $ 52,935 (16) $ 4,800 Senior Vice President -- $ 0 $0 $ 30,717 $ 4,500 Commercial Operations $ 0 $0 $ 24,685 $ 4,500
- --------- (1) The Company does not maintain "bonus" plans which are used by some companies to supplement salaries based on the success of the company without regard to individual performance. However, the Company has in place various incentive plans that compensate officers and employees for achieving specified performance goals. (2) Unless noted, none of the executive officers above received perquisites or other personal benefits in excess of either $50,000 or 10% of total salary and incentive payment. (3) Employer matching contribution of $4,800 on Employee Savings Plan contributions, unless otherwise noted. (4) Amount represents a lump sum settlement of his rights under the 1997 Annual Incentive Plan. (5) $158,025 was paid under the 1995-1997 Performance Achievement Plan. 7,326 shares of Dominion Resources, Inc. Common Stock (worth $269,231 @ $36.75 per share) were issued under the 1996-1998 Long Term Incentive Plan. 10,326 shares of Dominion Resources, Inc. Common Stock (worth $376,173 @ $36.75 per share) were issued under the 1997-1999 Long Term Incentive Plan. 51 (6) Upon his retirement, Dr. Rhodes received the following payments from the Company: $51,078 for unused vacation; $1,023,271 as provided by his employment contract; $4,184,220 lump sum settlement of pension benefits not payable from the qualified retirement plan; $2,715,926 as a lump sum settlement of his benefit under the Executive Supplemental Retirement Plan, and $2,544 in employer match on Employee Savings Plan contributions. (7) Mr. Askew held no restricted stock as of 12/31/97. (8) Amount represents incentive plan pay outs from Virginia Power, on a prorated basis, for performance cycles that ended in 1997: $7,550 in lieu of dividends on restricted stock for partial participation in the 1996-1998 and the 1997-1999 performance cycles; and $11,241 for the 1995-1997 performance cycle. (9) A one time payment related to his international transfer from the UK to the US. (10) Aggregate number of shares of restricted stock on December 31, 1997: 13,763 with an aggregate value of $585,788 (based on a closing price on December 31, 1997 of $42.5625 per share). (11) 2,085 shares of stock, with 50% of the value awarded in cash ($41,133) and the remaining 1,042 shares being issued (valued at $42,038 or $40.3437 per share as of 2/20/98). (12) Aggregate number of shares of restricted stock on December 31, 1997: 9,773 with aggregate value of $415,963 (closing price on December 31, 1997 of $42.5625 per share). (13) 2,009 shares of stock, with 50% of the value awarded in cash ($39,635) and the remaining 1,004 shares being issued (valued at $40,505 or $40.3437 per share as of 2/20/98). (14) Mr. DeSimone held no restricted stock as of 12/31/97. (15) Aggregate number of shares of restricted stock on December 31, 1997: 7,528 with aggregate value of $320,411 (closing price on December 31, 1997 of $42.5625 per share). (16) 1,327 shares of stock, with 50% of the value awarded in cash ($26,187) and the remaining 663 shares being issued (valued at $26,748 or $40.3437 per share as of 2/20/98). Long-term Incentive Compensation Long-term incentive awards made during 1997 are shown in the following table. Long-term Incentive Plans -- Awards in the Last Fiscal Year 1997-1999 Long-term Incentive Plan
Estimated Future Payouts under Non-stock Price Based Performance or Plans Number of Other Period ------------------------- Shares, Units until Maturation Threshold Target Name or Other Rights(#) or Payout ($ or #) ($ or #) - ----------------------- -------------------- ----------------- ----------- ----------- J.T. Rhodes ........... $259,448 3 years $129,724 $259,448 N. Askew .............. $261,250 3 years $130,625 $261,250 J.P. O'Hanlon ......... $112,843 3 years $ 56,422 $112,843 R.E. Rigsby ........... $163,714 3 years $ 81,857 $163,714 L.E. DeSimone ......... 87,750 3 years $ 43,875 $ 87,750 L.M. Girvin ........... 87,750 3 years $ 43,875 $ 87,750
52 Retirement Plans The table below sets forth the estimated annual straight life benefit that would be paid following retirement under the benefit formula of the Dominion Resources, Inc. Retirement Plan (the Retirement Plan). Estimated Annual Benefits Payable upon Retirement
Credited Years of Service -------------------------------------------- Final Average Earnings 15 20 25 30 - ----------------------- ---------- ---------- ---------- ----------- $ 185,000 $ 51,501 $ 68,668 $ 85,836 $103,003 200,000 56,069 74,758 93,448 112,138 225,000 63,681 84,908 106,136 127,363 250,000 71,294 95,058 118,823 142,588 300,000 86,519 115,358 144,198 173,038 350,000 101,744 135,658 169,573 203,488 400,000 116,969 155,958 194,948 233,938 450,000 132,194 176,258 220,323 264,388 500,000 147,419 196,558 245,698 294,838 550,000 162,644 216,858 271,073 325,288 600,000 177,869 237,158 296,448 355,738 650,000 193,094 257,458 321,823 386,188 750,000 223,544 298,058 372,573 447,088
Benefits under the Retirement Plan are based on (i) average base compensation over the consecutive 60-month period in which pay is highest, (ii) years of credited service, (iii) age at retirement, and (iv) the offset of Social Security Benefits. Certain officers have entered into retirement agreements that give additional credited years of service for retirement and retirement life insurance purposes, and retirement medical benefit purposes contingent upon the officer reaching a specified age and remaining in the employ of the Company or an affiliate. For purposes of the above table, based on 1997 compensation, credited years of service (including any additional years earned in connection with the retirement agreements) for each of the individuals named in the cash compensation table would be as follows: James T. Rhodes: 30; Norman Askew: 0; Robert E. Rigsby: 26; James P. O'Hanlon: 8; Lawrence E. De Simone: 0; Larry M. Girvin: 31. Virginia Power's executive compensation program has placed increased emphasis on incentive compensation opportunities linked to financial and operating performance. Base salaries have been held below the mean for comparable positions at comparable companies. The Retirement Plan benefit formula recognizes base salary, but not incentive compensation payments. Therefore, each year the Organization and Compensation Committee approves a market-based adjustment to executive base salaries for use in calculating the retirement benefit under the Dominion Resources, Inc. Benefit Restoration Plan (the Restoration Plan). In 1997, this adjustment was 11 percent. Also, the Internal Revenue Code limits the annual retirement benefit that may be paid from a qualified retirement plan and the amount of compensation that may be recognized by the Retirement Plan. To the extent that benefits determined under the Retirement Plan's benefit formula exceed the limitations imposed by the Internal Revenue Code, they will be paid under the Dominion Resources, Inc. Benefit Restoration Plan. The Company also provides an Executive Supplemental Retirement Plan (the Supplemental Plan) to its elected officers designated to participate by the Board of Directors. The Supplemental Plan provides an annual retirement benefit equal to 25 percent of a participant's final compensation (base pay plus annual incentive plan payments). The normal form of benefit is monthly installments for 120 months to a participant with 60 months of service, who (i) retires at or after age 55 from the employ of the Company, (ii) has become permanently disabled, or (iii) dies. The accrued benefit vests proportionately between the time an officer is elected and when he or she reaches age 55 when the benefit is fully vested If a participant dies while employed, the normal form of benefit will be paid to a designated beneficiary. If a participant dies while retired, but before receiving all benefit payments, the remaining installments will be paid to a designated beneficiary. A lump sum payment is available under certain conditions. Based on 1997 compensation, the estimated annual retirement benefit for each of the executive officers under the Supplemental Plan would be as follows: N. Askew: $167,406; R.E. Rigsby: $104,345; J.P. O'Hanlon: $113,228; L.E. De Simone: $79,139; L.M. Girvin: $73,764. 53 Retirement Benefit Funding Plan The Company maintains a Retirement Benefit Funding Plan to provide a means to secure obligations under the Supplemental Plan, the Restoration Plan, and retirement agreements. The Retirement Benefit Funding Plan does not provide any additional benefits; it simply helps secure the funding for these benefit obligations. The amount payable by Virginia Power under the Supplemental Plan, the Restoration Plan and retirement agreements is reduced, on a dollar-for-dollar basis, by the funds available under the Retirement Benefit Funding Plan. Employment Agreements The Company has entered into employment continuity agreements (the Agreements) with its key management executives, including, Norman Askew, Robert E. Rigsby, James P. O'Hanlon, Lawrence E. De Simone, and Larry M. Girvin, which provide benefits in the event of a change in control. Each Agreement has a three-year term and thereafter is automatically extended on its anniversary date for an additional year unless notified that the Agreement will not be extended by the Company. If, following a change in control (as defined in the Agreements) of Dominion Resources or the Company, an executive's employment is terminated by the Company without cause, or voluntarily by the executive within sixty days after a material reduction in the executive's compensation, benefits or responsibilities, the Company will be obligated to pay to the executive continued compensation equaling the average base salary and cash incentive bonuses for the thirty-six full month period of employment preceding the change in control or employment termination. In addition, the terminated executive will continue to be entitled to any benefits due under any stock or benefit plans. The Agreements do not alter the compensation and benefits available to an executive whose employment with the Company continues for the full term of the executive's Agreement. The amount of benefits provided under each executive's Agreement will be reduced by any compensation earned by the executive from comparable employment by another employer during the thirty-six months following termination of employment with the Company. An executive shall not be entitled to the above benefits in the event termination is for cause. Compensation of Directors The non-employee members of the Board receive an annual retainer of $19,000 and a fee of $900 for each Board or committee meeting attended. Committee chairmen receive an additional annual retainer of $3,000. Consistent with the Company's philosophy concerning equity-based compensation for officers, effective in 1998 non-employee directors will also receive an annual retainer in Dominion Resources common stock valued at $19,000. These Directors may elect to defer their annual retainer and/or their meeting fees under the Deferred Compensation Plan until they retire from the Board or otherwise direct. The deferred fees are credited, for bookkeeping purposes, with earnings and losses as if they were invested in either an interest bearing account or Dominion Resources Common Stock, depending on the Director's election. Directors Charitable Contribution Program Dominion Resources administers a Directors' Charitable Contribution Program (the Program) that covers Directors of the Company, as part of its overall program of charitable giving. Beginning at the death of a Director a donation in an aggregate amount of $50,000 per year for 10 years will be made to one or more qualifying charitable organizations recommended by the individual Director. Life insurance policies have been purchased on the lives of the Directors in connection with the Program. These policies are owned by Dominion Resources, which is also the beneficiary. The Directors derive no financial or tax benefits from the Program. 54 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The table below sets forth as of February 20, 1998, except as noted, the number of shares of Common Stock of Dominion Resources owned by Directors and four other more highly compensated executive officers of Virginia Electric and Power Company.
Shares of Common Stock Director Plan Name Beneficially Owned Accounts(1) - ----------------------------------------- ------------------------ -------------- John B. Adams, Jr. ...................... 3,891 9,091 John B. Bernhardt ....................... 1,500 9,091 James F. Betts .......................... 7,500 9,091 Thos. E. Capps .......................... 44,914(2) Jean E. Clary ........................... 116 9,162 John W. Harris .......................... 500 9,091 Benjamin J. Lambert, III ................ 90 10,212 Richard L. Leatherwood .................. 1,000 17,616 Harvey L. Lindsay ....................... 400 9,091 Kenneth A. Randall ...................... 3,027 9,091 William T. Roos ......................... 14,603(3) 9,091 Frank S. Royal .......................... 10,430 Judith B. Sack .......................... 1,000 14,575 S. Dallas Simmons ....................... 650 13,370 Robert H. Spilman ....................... 1,187 9,091 William G. Thomas ....................... 1,000 13,257 David A. Wollard ........................ 9,879 Norman Askew ............................ 1,290(2) Lawrence E. De Simone ................... 92 Larry M. Girvin ......................... 7,654 James P. O'Hanlon ....................... 11,100 Robert E. Rigsby ........................ 22,079 All Directors and Executive Officers as a group -- 41 persons (4) ................ 397,599(2)(5)
- --------- (1) Amounts in this column represent share equivalents accumulated under the non-employee director Stock Accumulation Plan. Balances of 9,091 shares are the amounts accumulated thus far under the plan. Because of the plan's vesting provisions, these amounts will not necessarily be distributed to a director. Any balance in excess of 9,091 is an amount of shares accumulated-at the director's election-under the Deferred Cash Compensation plan. That excess amount will be distributed in actual shares to the director. (2) Amounts include restricted stock as follows: Mr. Capps -- 23,984 shares; Mr. Askew -- 1,290; and all directors and executive officers as a group -- 89,859. (3) Mr. Roos disclaims beneficial ownership of 4,387 shares that are held in trusts for family members. (4) All current directors and executive officers as a group own less than one percent of the number of shares outstanding as of February 20, 1998. (5) Beneficial ownership is disclaimed for a total of 4,786 shares. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Hazel & Thomas, a professional corporation, from time to time acts as counsel to the Company. Mr. Thomas, a Director of the Company, is a shareholder of Hazel & Thomas. 55 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Form 10-K: 1. Financial Statements See Index on page 21. 2. Exhibits 3.1 -- 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). 3.2 -- Bylaws, as amended, as in effect on October 17, 1997 (Exhibit 3(ii), Form 10-Q for the period ended September 30, 1997, File No. 1-2255, incorporated by reference). 4.1 -- See Exhibit 3 (i) above. 4.2 -- Indenture of Mortgage of the Company, dated November 1, 1935, as supplemented and modified by fifty-eight Supplemental Indentures (Exhibit 4(ii), Form 10-K for the fiscal year ended December 31, 1985, File No. 1-2255, incorporated by reference); 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 8-K, dated June 2, 1987, File No. 1-2255, incorporated by reference); Sixty-Second Supplemental Indenture (Exhibit 4(i), 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 4(i), Form 8-K, dated August 6, 1992, File No. 1-2255, incorporated by reference); Seventy-Fourth Supplemental Indenture (Exhibit 4(i), Form 8-K, dated February 10, 1993, File No. 1-2255, incorporated by reference); Seventy-Fifth Supplemental Indenture (Exhibit 4(i), Form 8-K, dated April 6, 1993, File No. 1-2255, incorporated by reference); Seventy-Sixth Supplemental Indenture (Exhibit 4(i), Form 8-K, dated April 21, 1993, File No. 1-2255, incorporated by reference); Seventy- Seventh Supplemental Indenture (Exhibit 4(i), Form 8-K, dated June 8, 1993, File No. 1-2255, incorporated by reference); Seventy-Eighth Supplemental Indenture (Exhibit 4(i), Form 8-K, dated August 10, 1993, File No. 1-2255, incorporated by reference); Seventy-Ninth Supplemental Indenture (Exhibit 4(i), Form 8-K, dated August 10, 1993, File No. 1-2255, incorporated by reference); Eightieth Supplemental Indenture (Exhibit 4(i), Form 8-K, dated October 12, 1993, File No. 1-2255, incorporated by reference); Eighty-First Supplemental Indenture (Exhibit 4(iii), Form 10-K for the fiscal year ended December 31, 1993, File No. 1-2255, incorporated by reference); Eighty-Second Supplemental Indenture (Exhibit 4(i), Form 8-K, dated January 18, 1994, File No. 1-2255, incorporated by reference); Eighty-Third Supplemental Indenture (Exhibit 4(i), Form 8-K, dated October 19, 1994, File No. 1-2255, incorporated by reference); Eighty-Fourth Supplemental Indenture (Exhibit 4(i), Form 8-K, dated March 22, 1995, File No. 1-2255, incorporated by reference; and Eighty-Fifth Supplemental Indenture (Exhibit 4(i), Form 8-K, dated February 20, 1997, File No. 1-2255, incorporated by reference).
56 4.3 -- Indenture, dated April 1, 1985, between Virginia Electric and Power Company and Crestar Bank (formerly United Virginia Bank) (Exhibit 4(iv), Form 10-K for the fiscal year ended December 31, 1993, File No. 1-2255, incorporated by reference). 4.4 -- Indenture, dated as of June 1, 1986, between Virginia Electric and Power Company and The Chase Manhattan Bank (formerly Chemical Bank) (Exhibit 4(v), Form 10-K for the fiscal year ended December 31, 1993, File No. 1-2255, incorporated by reference). 4.5 -- Indenture, dated April 1, 1988, between Virginia Electric and Power Company and The Chase Manhattan Bank (formerly Chemical Bank), as supplemented and modified by a First Supplemental Indenture, dated August 1, 1989, (Exhibit 4(vi), Form 10-K for the fiscal year ended December 31, 1993, File No. 1-2255, incorporated by reference). 4.6 -- Subordinated Note Indenture, dated as of August 1, 1995 between Virginia Electric and Power Company and The Chase Manhattan Bank (formerly Chemical Bank), as Trustee, as supplemented (Exhibit 4(a), Form S-3 Registration Statement File No. 333-20561 as filed on January 28, 1997, incorporated by reference). 4.7 -- Virginia Electric and Power Company agrees to furnish to the Commission upon request any other instrument with respect to long-term debt as to which the total amount of securities authorized thereunder does not exceed 10 percent of Virginia Electric and Power Company's total assets. 10.1 -- Operating Agreement, dated June 17, 1981, between Virginia Electric and Power Company and Monongahela Power Company, the Potomac Edison Company, West Penn Power Company, and Allegheny Generating Company (Exhibit 10(vi), Form 10-K for the fiscal year ended December 31, 1983, File No. 1-8489, incorporated by reference). 10.2 -- Purchase, Construction and Ownership Agreement, dated as of December 28, 1982 but amended and restated on October 17, 1983, between Virginia Electric and Power Company and Old Dominion Electric Cooperative (Exhibit 10(viii), Form 10-K for the fiscal year ended December 31, 1983, File No. 1-8489, incorporated by reference). 10.3 -- Amended and Restated Interconnection and Operating Agreement, dated as of July 29, 1997 between Virginia Electric and Power Company and Old Dominion Electric Cooperative (filed herewith). 10.4 -- Nuclear Fuel Agreement, dated as of December 28, 1982 as amended and restated on October 17, 1983, between Virginia Electric and Power Company and Old Dominion Electric Cooperative (Exhibit 10(x), Form 10-K for the fiscal year ended December 31, 1983, File No. 1-8489, incorporated by reference). 10.5 -- Credit Agreements dated June 7, 1996, between The Chase Manhattan Bank (formerly Chemical Bank) and Virginia Electric and Power Company (Exhibits 10(i) and 10(ii), Form 10-Q for the period ended June 30, 1996, File No. 1-2255, incorporated by reference). 10.6 -- Credit Agreement, dated December 1, 1985, between Virginia Electric and Power Company and Old Dominion Electric Cooperative (Exhibit 10(xix), Form 10-K for the fiscal year ended December 31, 1985, File No. 1-8489, incorporated by reference). 10.7 -- Agreement for Northern Virginia Services, dated as of November 1, 1985, between Potomac Electric Power Company and Virginia Electric and Power Company (Exhibit 10(xxi), Form 10-K for the fiscal year ended December 31, 1985, File No. 1-8489, incorporated by reference). 10.8 -- Purchase, Construction and Ownership Agreement, dated May 31, 1990, between Virginia Electric and Power Company and Old Dominion Electric Cooperative (Exhibit 10(xi), Form 10-K for the fiscal year ended December 31, 1990, File No. 1-2255, incorporated by reference). 10.9 -- Operating Agreement, dated May 31, 1990, between Virginia Electric and Power Company and Old Dominion Electric Cooperative (Exhibit 10(xii), Form 10-K for the fiscal year ended December 31, 1990, File No. 1-2255, incorporated by reference). 10.10 -- Coal-Fired Unit Turnkey Contract (Volume 1), dated April 6, 1989, and the Unit 2 Amendment (Volume 1), dated May 31, 1990 between Virginia Electric and Power Company and Old Dominion Electric Cooperative, Westinghouse, Black & Veatch, Combustion Engineering and H. B. Zachry (Volumes 2-11 contain technical specifi- cations) (Exhibit 10(xiii), Form 10-K for the fiscal year ended December 31, 1990, File No. 1-2255, incorporated by reference). 10.11* -- Description of arrangements with certain officers regarding additional credited years of service for retirement purposes (Exhibit 10(xii), Form 10-K for the fiscal year ended December 31, 1992, File No. 1-2255, incorporated by reference).
57 10.12* -- Dominion Resources, Inc. Directors' Deferred Compensation Plan effective July 1, 1986, as amended and restated on January 1, 1996 (Exhibit 10(xii), Form 10-K for the fiscal year ended December 31, 1996, File No. 1-2255, incorporated by reference). 10.13* -- Dominion Resources, Inc. Performance Achievement Plan, effective January 1, 1986, as amended and restated effective February 19, 1988 (Exhibit 10(xxiii), Form 10-K for the fiscal year ended December 31, 1994, File No. 1-2255, incorporated by reference). 10.14* -- Dominion Resources, Inc. Executive Supplemental Retirement Plan, effective January 1, 1981 as amended and restated September 1, 1996 with first amendment dated June 20, 1997 and second amendment dated March 3, 1998 (filed herewith). 10.15* -- Dominion Resources, Inc.'s Cash Incentive Plan as adopted December 20, 1991 (Exhibit 10(xxv), Form 10-K for the fiscal year ended December 31, 1994, File No. 1-2255, incorporated by reference). 10.16* -- Dominion Resources, Inc. Retirement Benefit Funding Plan, effective June 29, 1990 as amended and restated September 1, 1996 (filed herewith). 10.17* -- Dominion Resources, Inc. Retirement Benefit Restoration Plan as adopted effective January 1, 1991 as amended and restated September 1, 1996 (filed herewith). 10.18* -- Dominion Resources, Inc. Executives' Deferred Compensation Plan, effective January 1, 1994, as amended and restated on January 1, 1997 (Exhibit 10(xix), Form 10-K for the fiscal year ended December 31, 1996, File No. 1-2255, incorporated by reference). 10.19* -- Form of an Employment Agreement dated June 23, 1994 between Virginia Power and certain executive officers (Exhibit 10(xxi), Form 10-K for the fiscal year ended December 31, 1996, File No. 1-2255, incorporated by reference). 10.20* -- Employment Agreement dated September 15, 1995 between Virginia Power and Robert E. Rigsby (Exhibit 10(xxii), Form 10-K for the fiscal year ended December 31, 1996, File No. 1-2255, incorporated by reference). 10.21* -- Employment Agreement dated February 21, 1997 between Dominion Resources and Norman Askew (filed herewith). 10.22* -- Dominion Resources, Inc. Stock Accumulation Plan for Outside Directors, effective April 23, 1996 (Exhibit 10(xxiv), Form 10-K for the fiscal year ended December 31, 1996, File No. 1-2255, incorporated by reference). 10.23* -- Dominion Resources, Inc. Incentive Compensation Plan, effective April 22, 1997 (filed herewith) 23.1 -- Consent of Hunton & Williams (filed herewith). 23.2 -- Consent of Jackson & Kelly (filed herewith). 23.3 -- Consent of Deloitte & Touche LLP (filed herewith). 27 -- Financial Data Schedule (filed herewith).
- --------- * Indicates management contract or compensatory plan or arrangement (b) Reports on Form 8-K None 58 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. VIRGINIA ELECTRIC AND POWER COMPANY Date: March 20, 1998 By THOS. E. CAPPS -- ------------------------------------------------------ (Thos. E. Capps., Chairman of the Board of Directors) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 20, 1998.
Signature Title - ------------------------------------------ ---------------------------------------- THOS E. CAPPS Chairman of the Board of Directors and ---------------------------------- Thos E. Capps Director JOHN B. ADAMS, JR. Director ---------------------------------- John B. Adams, Jr. NORMAN ASKEW President (Chief Executive Officer) and ---------------------------------- Norman Askew Director JOHN B. BERNHARDT Director ---------------------------------- John B. Bernhardt JAMES F. BETTS Director ---------------------------------- James F. Betts JEAN E. CLARY Director ---------------------------------- Jean E. Clary JOHN W. HARRIS Director ---------------------------------- John W. Harris BENJAMIN J. LAMBERT, III Director ---------------------------------- Benjamin J. Lambert, III RICHARD L. LEATHERWOOD Director ---------------------------------- Richard L. Leatherwood HARVEY L. LINDSAY, JR. Director ---------------------------------- Harvey L. Lindsay, Jr.
59
Signature Title - ------------------------------------------ --------------------------------- Director ---------------------------------- Kenneth A. Randall WILLIAM T. ROOS Director ---------------------------------- William T. Roos FRANK S. ROYAL Director ---------------------------------- Frank S. Royal JUDITH B. SACK Director ---------------------------------- Judith B. Sack S. DALLAS SIMMONS Director ---------------------------------- S. Dallas Simmons ROBERT H. SPILMAN Director ---------------------------------- Robert H. Spilman WILLIAM G. THOMAS Director ---------------------------------- William G. Thomas Director ---------------------------------- David A. Wollard M. S. BOLTON, JR. Controller (Principal Accounting ---------------------------------- M. S. Bolton, Jr. Officer)
60 EX-10 2 EXHIBIT 10.3 Exhibit 10.3 AMENDED AND RESTATED INTERCONNECTION AND OPERATING AGREEMENT Between VIRGINIA ELECTRIC AND POWER COMPANY and OLD DOMINION ELECTRIC COOPERATIVE Dated: As of July 29, 1997 TABLE OF CONTENTS ARTICLE I - DEFINITIONS...................................................... 1.01 Agreement............................................................ 1.02 Alternate Power Source............................................... 1.03 Annual Fuel Adjustment Factor........................................ 1.04 Capability........................................................... 1.05 Clover Agreements.................................................... 1.06 Clover Facilities.................................................... 1.07 Clover Operating Agreement........................................... 1.08 Clover Ownership Interest............................................ 1.09 Clover Purchase, Construction and Ownership Agreement................ 1.10 Combined Electric Systems............................................ 1.11 Combined System Annual Peak Demand................................... 1.12 Combined System Loss Percentage...................................... 1.13 Combined System Monthly Capability................................... 1.14 Combined System Monthly Peak Demand.................................. 1.15 Common Facilities.................................................... 1.16 Displacement Peaking Energy.......................................... 1.17 Displacement Reserve Energy.......................................... 1.18 Displacement Supplemental Energy..................................... 1.19 Effective Date....................................................... 1.20 Events of Default.................................................... 1.21 Excluded Peaking Capacity............................................ 1.22 Excluded Peaking Energy.............................................. 1.23 Excluded Supplemental Capacity....................................... 1.24 Excluded Supplemental Energy......................................... 1.25 Executive Committee.................................................. 1.26 FERC................................................................. 1.27 Fixed Monthly A&G Fee................................................ 1.28 Holidays............................................................. 1.29 Interconnected Systems............................................... 1.30 Interconnection Points............................................... 1.31 Interest Rates....................................................... 1.32 Major Spare Parts.................................................... 1.33 Market Price......................................................... 1.34 Monthly Peaking Energy Charge........................................ 1.35 Monthly Reserve Energy Charge........................................ 1.36 Monthly Supplemental Demand Charge................................... 1.37 Monthly Supplemental Energy Charge................................... 1.38 Network Operating Agreement.......................................... 1.39 North Anna A&G Costs................................................. 1.40 North Anna Facilities................................................ 1.41 North Anna Nuclear Power Station..................................... 1.42 North Anna Operating Committee....................................... 1.43 North Anna Unit 1.................................................... 1.44 North Anna Unit 2.................................................... 1.45 North Anna Unit(s)................................................... 1.46 Nuclear Fuel......................................................... 1.47 Nuclear Fuel Agreement............................................... 1.48 Off-Peak Hours....................................................... 1.49 Old Dominion......................................................... 1.50 Old Dominion Generation Resources.................................... 1.51 Old Dominion Members................................................. 1.52 Old Dominion Monthly Accredited Firm Capacity........................ 1.53 Old Dominion Monthly Accredited Firm Energy.......................... 1.54 Old Dominion Monthly Accredited Non-firm Capacity.................... 1.55 Old Dominion Monthly Accredited Non-firm Energy...................... 1.56 Old Dominion Monthly Billing Demand.................................. 1.57 Old Dominion Monthly Billing Energy.................................. 1.58 Old Dominion Monthly Clover Capacity................................. 1.59 Old Dominion Monthly Delivered Demand................................ 1.60 Old Dominion Monthly Delivered Energy................................ 1.61 Old Dominion Monthly Delivered SEPA Capacity......................... 1.62 Old Dominion Monthly Delivered SEPA Energy........................... 1.63 Old Dominion Monthly Demand.......................................... 1.64 Old Dominion Monthly Energy.......................................... 1.65 Old Dominion Monthly Maximum Diversified Demand...................... 1.66 Old Dominion Monthly North Anna Capacity............................. 1.67 Old Dominion Monthly North Anna Energy............................... 1.68 Old Dominion Monthly Reserve Energy.................................. 1.69 Old Dominion Monthly Supplemental Demand............................. 1.70 Old Dominion Monthly Supplemental Energy............................. 1.71 Old Dominion's North Anna Percentage Ownership Interest.............. 1.72 Old Dominion Reserve Capacity........................................ 1.73 Old Dominion System.................................................. 1.74 On-Peak Hours........................................................ 1.75 Open Access Transmission Tariff...................................... 1.76 Operating Inventory.................................................. 1.77 Parties.............................................................. 1.78 Peaking Capacity..................................................... 1.79 Peaking Capacity Charge.............................................. 1.80 Peaking Energy....................................................... 1.81 Planning and Administration Committee................................ 1.82 Prudent Utility Practices............................................ 1.83 Purchase, Construction and Ownership Agreement....................... 1.84 Reserve Capacity Charge.............................................. 1.85 RUS.................................................................. 1.86 SEPA................................................................. 1.87 Support Facilities................................................... 1.88 System Reserve Margin................................................ 1.89 Transmission Service Agreement....................................... 1.90 Virginia Power....................................................... 1.91 Virginia Power System................................................ 1.92 Wholesale Power Contracts............................................ ARTICLE II - NORTH ANNA OPERATING COMMITTEE.................................. 2.01 North Anna Operating Committee....................................... 2.02 Meetings and Voting Rights........................................... 2.03 Duties of Operating Committee........................................ 2.04 Expenses of Operating Committee...................................... 2.05 Resolution of Disputes............................................... ARTICLE III - PLANNING AND ADMINISTRATION.................................... 3.01 Planning and Administration Committee................................ 3.02 Meetings............................................................. 3.03 Duties of the Planning and Administration Committee.................. 3.04 Future Transmission Planning......................................... 3.05 Exchange of Information.............................................. 3.06 Expenses of the Planning and Administration Committee................ 3.07 Resolution of Disputes............................................... 3.08 SEPA Contract........................................................ ARTICLE IV - INTERCONNECTION AND PROTECTION OF SYSTEMS....................... 4.01 Obligation for Adequate Facilities................................... 4.02 Protection of Systems................................................ ARTICLE V - VIRGINIA POWER'S AUTHORITY AND RESPONSIBILITY WITH RESPECT TO OLD DOMINION'S NORTH ANNA GENERATION.......................... 5.01 Virginia Power as Agent of Old Dominion.............................. ARTICLE VI - TRANSMISSION SERVICES........................................... 6.01 Old Dominion Transmission Service.................................... 6.02 Native Load Status................................................... 6.03 SEPA Capacity Transmission Service................................... ARTICLE VII - ENTITLEMENTS TO CAPACITY AND ENERGY............................ 7.01 Entitlements of the Parties to Capacity and Energy................... ARTICLE VIII - SUPPLEMENTAL DEMAND AND ENERGY, PEAKING CAPACITY AND ENERGY, AND RESERVE CAPACITY AND ENERGY..................... 8.01 Supplemental Demand and Energy....................................... 8.02 Charges for Purchases By Old Dominion Pursuant to Section 8.01....... 8.03 Peaking Capacity and Energy Purchases................................ 8.04 Limitation on Virginia Power's Obligation to Serve Supplemental Demand and Provide Supplemental Energy.................. 8.05 Reserve Capacity and Energy and Charges Therefor Related to the North Anna Facilities and Clover Facilities................... 8.06 Reserve Capacity and Reserve Capacity Charges for Jointly Planned Generation Resources................................. 8.07 Exchange of Displacement Energy...................................... 8.08 Limitations of Parties' Rights to Seek Regulatory Review............. ARTICLE IX - FACILITIES CHARGES.............................................. 9.01 Facilities Charges................................................... ARTICLE X - BILLING.......................................................... 10.01 Billing Methods..................................................... 10.02 Rendering Bill...................................................... 10.03 Payment............................................................. 10.04 Methods of Payment.................................................. 10.05 No Arbitration; Resolution of Disputes.............................. 10.06 Billing Adjustments................................................. ARTICLE XI - OPERATING COSTS................................................. 11.01 Operating Costs..................................................... 11.02 Nuclear Fuel Costs.................................................. ARTICLE XII - ACCOUNTING MATTERS AND ACCESS TO BOOKS AND RECORDS.............................................................. 12.01 Responsibility and Method of Accounting............................. 12.02 Right to Inspect Records, Etc....................................... 12.03 Confidentiality..................................................... ARTICLE XIII - LIABILITY, SERVICE INTERRUPTIONS AND FORCE MAJEURE........................................................... 13.01 Liability........................................................... 13.02 Responsibility on Either Side of Interconnection Point.............. 13.03 Force Majeure....................................................... 13.04 Remedy.............................................................. ARTICLE XIV - REPRESENTATIONS AND WARRANTIES................................. 14.01 Representations and Warranties of Virginia Power.................... 14.02 Representations and Warranties of Old Dominion...................... 14.03 Conditions Precedent................................................ ARTICLE XV - TERM OF AGREEMENT............................................... ARTICLE XVI - FILING WITH FERC............................................... ARTICLE XVII - DEFAULT....................................................... 17.01 Events of Default................................................... 17.02 Virginia Power's Rights on Default of Old Dominion.................. 17.03 Old Dominion's Rights on Default of Virginia Power.................. 17.04 Disputes Concerning Default......................................... 17.05 Additional Obligations.............................................. 17.06 Injunctive Relief................................................... 17.07 No Remedy Exclusive................................................. 17.08 Agreement to Pay All Costs to Cure Default.......................... 17.09 General Covenant by the Parties..................................... ARTICLE XVIII - MISCELLANEOUS................................................ 18.01 No Delay............................................................ 18.02 Further Documentation............................................... 18.03 Notice.............................................................. 18.04 Headings Not to Affect Meaning...................................... 18.05 No Association, Trust, Joint Venture or Partnership; Tax Matters.... 18.06 Successors and Assigns.............................................. 18.07 Counterparts........................................................ 18.08 Severability........................................................ 18.09 Applicable Law...................................................... 18.10 No Waiver........................................................... 18.11 Computation of Time................................................. 18.12 Survivorship of Obligations......................................... 18.13 Executive Committee................................................. 18.14 Entire Agreement.................................................... 18.15 Non-Exclusive Agreement............................................. 18.16 Relationship of the Parties......................................... 18.17 Singular and Plural................................................. 18.18 Equal Opportunity................................................... 18.19 Good Faith.......................................................... 18.20 Merger of Documents................................................. 18.21 Environment......................................................... 18.22 Kick-backs.......................................................... 18.23 Nonsegregated Facilities............................................ 18.24 Historic Places..................................................... 18.25 Public Officials Not to Benefit..................................... 18.26 Flood Insurance Act................................................. 18.27 Safety.............................................................. 18.28 Buy American........................................................ 18.29 Regulatory Changes.................................................. ARTICLE XIX - AMENDMENT...................................................... APPENDIX A - COMMON FACILITIES APPENDIX B - MAJOR SPARE PARTS APPENDIX C - NORTH ANNA UNIT 1 APPENDIX D - NORTH ANNA UNIT 2 APPENDIX E - OLD DOMINION MEMBERS APPENDIX F - SUPPORT FACILITIES APPENDIX G - CHARGES FOR PURCHASES BY OLD DOMINION APPENDIX H - DETERMINATION OF PURCHASE AMOUNTS BY OLD DOMINION APPENDIX I - CHARGES FOR RESERVE CAPACITY APPENDIX J - FACILITIES CHARGES APPENDIX K - VIRGINIA ELECTRIC AND POWER COMPANY MONTHLY STATEMENT TO OLD DOMINION APPENDIX L - VIRGINIA POWER NORTH ANNA NUCLEAR STATION NUCLEAR PRODUCTION AND MAINTENANCE EXPENSES APPENDIX M - PEAKING CAPACITY AND ENERGY This AGREEMENT, dated as of July 29, 1997 and amending and restating the Interconnection and Operating Agreement Between Virginia Electric and Power Company and Old Dominion Electric Cooperative Dated: As of December 28, 1982, Amended and Restated October 17, 1983, between VIRGINIA ELECTRIC AND POWER COMPANY ("Virginia Power"), a Virginia public service corporation with its principal office at One James River Plaza, Richmond, Virginia, and OLD DOMINION ELECTRIC COOPERATIVE ("Old Dominion"), a Virginia generation and transmission cooperative with its principal office at 4201 Dominion Boulevard, Glen Allen, Virginia (individually, a "Party," together, the "Parties"), provides as follows: WHEREAS, Virginia Power is a public service corporation engaged in furnishing electric utility service in portions of Virginia and North Carolina, and as such owns and operates facilities for the generation, transmission and distribution of electricity within those states; and WHEREAS, Old Dominion, a generation and transmission cooperative organized and existing under the laws of the Commonwealth of Virginia and comprising, among others, the Old Dominion Members, is charged with the responsibility of providing power and energy to its Old Dominion Members either through generation facilities owned by it or by the purchase of power and energy from others; and WHEREAS, Virginia Power and Old Dominion entered into a Purchase, Construction and Ownership Agreement, under which Virginia Power sold and Old Dominion purchased an ownership interest in North Anna Unit 1, North Anna Unit 2, Common Facilities, Support Facilities, Major Spare Parts, Operating Inventory and the Nuclear Fuel used or to be used for North Anna Units 1 and 2, all as set forth in the Purchase, Construction and Ownership Agreement and Nuclear Fuel Agreement; and WHEREAS, pursuant to that Purchase, Construction and Ownership Agreement, Virginia Power sold to Old Dominion a portion of its North Anna generation facilities and, through the Interconnection and Operating Agreement Between Virginia Power and Old Dominion Dated: December 28, 1982, Amended and Restated October 17, 1983 ("Interconnection and Operating Agreement"), agreed to operate Old Dominion's portion of such generation, supplying to it at the Interconnection Points such electricity as is generated from Old Dominion's portion of these facilities; and WHEREAS, pursuant to this amended and restated Agreement, Virginia Power will continue to operate Old Dominion's portion of the North Anna generation facilities and supply such electricity as is generated from Old Dominion's portion of these facilities to the Interconnection Points; and WHEREAS, pursuant to the Clover Purchase, Construction and Ownership Agreement and the Clover Operating Agreement, Virginia Power and Old Dominion each hold a fifty-percent undivided interest in the two unit, coal-fired Clover Power Station, and Virginia Power has agreed to operate and supply to Old Dominion such electricity that is generated from Old Dominion's portion of that facility in accordance with the terms and conditions of the Clover Operating Agreement; and WHEREAS, Old Dominion will require capacity and energy in an amount exceeding that available from its portion of generation at North Anna and Clover and may desire to purchase supplemental electric service from Virginia Power, or from others, or to construct and operate additional generation facilities of its own pursuant to the terms and conditions of this amended and restated Agreement; and WHEREAS, Virginia Power and Old Dominion entered into Amendment No. 1 to the Interconnection and Operating Agreement, dated as of the 12th day of October 1994, which amendment provided for the purchase and sale of firm Peaking Capacity and associated energy and Virginia Power and Old Dominion wish to incorporate the terms of that Amendment No. 1, as modified herein, into this amended and restated Agreement; and WHEREAS, Virginia Power and Old Dominion desire to enter into this Agreement which will include revised terms, conditions, and pricing under which Virginia Power will provide, among other things, Old Dominion supplemental demand and energy, reserve capacity and energy, peaking capacity and energy, and transmission service. NOW, THEREFORE, in consideration of the premises and the mutual obligations hereafter stated, the Parties hereto agree as follows: ARTICLE I Definitions The following definitions shall be included as part of this Agreement. Other terms used herein shall have the respective meanings set forth in the Purchase, Construction and Ownership Agreement, the Nuclear Fuel Agreement, the Clover Agreements and the Virginia Power Open Access Transmission Tariff. 1.01 Agreement . This amended and restated Interconnection and Operating Agreement dated as of July 29, 1997, between Virginia Power and Old Dominion. 1.02 Alternate Power Source . Any source of capacity or energy that provides Excluded Supplemental Capacity, Excluded Supplemental Energy, Displacement Supplemental Energy, Excluded Peaking Capacity, Excluded Peaking Energy, Displacement Peaking Energy or Displacement Reserve Energy. Virginia Power shall be an Alternate Power Source to the extent it supplies such capacity or energy on terms and conditions other than those set forth in this Agreement. 1.03 Annual Fuel Adjustment Factor. The annual fuel cost adjustment factor described in Appendix G, Section VI. hereof. 1.04 Capability. The net summer or winter (as applicable) rating of a generating unit or other power supply resource, measured in megawatts, as determined by Virginia Power. Capability shall be established and modified in accordance with Prudent Utility Practices following the same methodology Virginia Power uses in establishing the capability of all generating units on its system. 1.05 Clover Agreements. The Clover Operating Agreement and the Clover Purchase, Construction and Ownership Agreement. 1.06 Clover Facilities . The coal-fired generating units located in Halifax County, Virginia, ("Clover") designated as Clover Unit 1 and Clover Unit 2, and the related real property, equipment and facilities, as more specifically defined in the Clover Purchase, Construction and Ownership Agreement, wherever located, that are properly chargeable to Clover Unit 1 or Clover Unit 2 under the Uniform System of Accounts. 1.07 Clover Operating Agreement. The Clover Operating Agreement Between Virginia Electric and Power Company and Old Dominion Electric Cooperative Dated as of May 31, 1990. 1.08 Clover Ownership Interest. The respective fee simple undivided ownership interest, expressed as a percentage, in the Clover Facilities owned by each Party, as may be modified from time to time pursuant to the Clover Agreements. 1.09 Clover Purchase, Construction and Ownership Agreement . The Clover Purchase, Construction and Ownership Agreement Between Old Dominion Electric Cooperative and Virginia Electric and Power Company Dated as of May 31, 1990. 1.10 Combined Electric Systems . The combined electric generating, transmission, and distribution facilities of the Virginia Power System and the Old Dominion System. 1.11 Combined System Annual Peak Demand . The maximum 60-minute integrated Combined System Monthly Peak Demand in a single clock hour at generation level for the calendar year. 1.12 Combined System Loss Percentage. The losses, expressed as a percentage, incurred by Virginia Power in delivering capacity and energy from the generation level to the Interconnection Points, including transmission and distribution energy losses pursuant to the Open Access Transmission Tariff. 1.13 Combined System Monthly Capability. The sum of North Anna Unit 1 monthly Capability, North Anna Unit 2 monthly Capability, Clover Unit 1 monthly Capability, Clover Unit 2 monthly Capability, Old Dominion Monthly Accredited Firm Capacity and Old Dominion Monthly Accredited Non-Firm Capacity, plus the monthly Capability of all other Virginia Power owned or leased generation. 1.14 Combined System Monthly Peak Demand. The maximum combined net one-hour kilowatt demand at the generation level for that calendar month made up of the combined individual demands for that hour of Virginia Power and Old Dominion Members excluding those demands of the Old Dominion Members supplied through arrangements with parties other than Virginia Power. 1.15 Common Facilities. All those facilities, including but not limited to both real and personal property, exclusive of North Anna Unit 1, North Anna Unit 2, Support Facilities, Nuclear Fuel, Operating Inventory and Major Spare Parts which are purchased, leased or otherwise obtained only in connection with the construction, operation and maintenance of more than one nuclear unit located at North Anna Nuclear Power Station. Common Facilities are more specifically described as of the date hereof in Appendix A. 1.16 Displacement Peaking Energy. The amount of energy, at generation level, by which Old Dominion's purchase of Peaking Energy from Virginia Power is reduced pursuant to Section 8.03(b)(ii). 1.17 Displacement Reserve Energy. The amount of energy, at generation level, by which Old Dominion's purchase of Old Dominion Monthly Reserve Energy from Virginia Power is reduced pursuant to Section 8.05(c). 1.18 Displacement Supplemental Energy. The amount of energy, at generation level, by which Old Dominion's purchase of Old Dominion Monthly Supplemental Energy from Virginia Power is reduced pursuant to Section 8.01(d)(ii). 1.19 Effective Date. The later of (1) January 1, 1998 or (2) the date on which FERC permits this Agreement to become effective. 1.20 Events of Default. The events of default pursuant to Section 17.01 hereof. 1.21 Excluded Peaking Capacity. The amount of capacity, at generation level, which Old Dominion obtains pursuant to Section 8.03(a)(iii), other than purchases from Virginia Power under this Agreement to serve Peaking Capacity, and such capacity shall be treated as Old Dominion Monthly Accredited Firm Capacity. 1.22 Excluded Peaking Energy. The amount of energy, at generation level, associated with Excluded Peaking Capacity. 1.23 Excluded Supplemental Capacity. The amount of capacity, at generation level, which Old Dominion obtains pursuant to Sections 8.01(a)(iii), (iv) or (v), other than purchases from Virginia Power under this Agreement to serve the Old Dominion Monthly Supplemental Demand and also the amount of capacity, at generation level, described in Section 8.02 (c)(v). All such capacity shall be treated as Old Dominion Monthly Accredited Firm Capacity. 1.24 Excluded Supplemental Energy. The amount of energy, at generation level, associated with Old Dominion's Excluded Supplemental Capacity. 1.25 Executive Committee. The committee as provided in Section 18.13 hereof. 1.26 FERC. The Federal Energy Regulatory Commission, including any successor governmental agency. 1.27 Fixed Monthly A&G Fee. The fixed amount of monthly North Anna A&G Costs to be paid by Old Dominion for administration and general services performed by Virginia Power on behalf of the North Anna plant and its employees, as described in Section 11.01(b) and Appendix L. 1.28 Holidays. The days on which banking institutions in the City of Richmond, Virginia, are authorized by law to close. 1.29 Interconnected Systems. The Virginia Power System and the Old Dominion System. 1.30 Interconnection Points. The points at which the Virginia Power System and the Old Dominion System are interconnected. 1.31 Interest Rates (a) Special Interest Rate. A rate per annum equal to the prime rate of The Chase Manhattan Bank, N.A., New York, New York, or its successor, in effect from time to time plus three percentage points (3%). (b) Regular Interest Rate. In the case of interest payments owing to Virginia Power or Old Dominion pursuant to this Agreement, an interest rate per annum equal to the prime rate of the Chase Manhattan Bank, N.A., or its successor, as in effect from time to time. 1.32 Major Spare Parts. Those major items designated by the Parties that the Parties keep in inventory for possible use in replacing similar items in units located not only at the North Anna Nuclear Power Station but also at other power stations. The parts that shall be designated as Major Spare Parts for purposes of this Agreement shall be designated by the Parties in Appendix B. Thereafter, Major Spare Parts shall be designated by the North Anna Operating Committee established under Article II of this Agreement. The Major Spare Parts are further described, and the methods of calculating the percentage ownership and cost responsibilities of the Parties in the Major Spare Parts are also included in Appendix B. 1.33 Market Price. The price for electric capacity as determined by market forces and based on existing or projected market conditions for wholesale power. Old Dominion and Virginia Power agree that on or before July 1, 2000, Old Dominion and Virginia Power shall begin negotiations that are to be concluded no later than December 31, 2000, to select a methodology to determine a benchmark of the Market Price. 1.34 Monthly Peaking Energy Charge. The monthly charge for peaking energy as calculated pursuant to Appendix G, Sections V. and VI., hereof. 1.35 Monthly Reserve Energy Charge. The monthly charge for reserve energy as calculated pursuant to Appendix G, Sections IV. and VI., hereof. 1.36 Monthly Supplemental Demand Charge. The monthly charge for supplemental demand calculated pursuant to Appendix G, Section I., hereof. 1.37 Monthly Supplemental Energy Charge. The monthly charge for supplemental energy as calculated pursuant to Appendix G , Sections III. and VI., hereof. 1.38 Network Operating Agreement. The Network Operating Agreement Between Virginia Electric and Power Company and Old Dominion Electric Cooperative under Virginia Power's Open Access Transmission Tariff and any amendments or supplements thereto entered into by Old Dominion and Virginia Power for network service that have been accepted and permitted to go into effect by FERC. 1.39 North Anna A&G Costs. Any administrative and general costs directly attributable to North Anna pursuant to Article XI. 1.40 North Anna Facilities. North Anna Unit 1, North Anna Unit 2, the Common Facilities, the Support Facilities, the Operating Inventory, and the Major Spare Parts, but excluding Nuclear Fuel, which is the subject of the Nuclear Fuel Agreement. 1.41 North Anna Nuclear Power Station. The nuclear generating plant located in Louisa, Orange, and Spotsylvania Counties, Virginia ("North Anna"). 1.42 North Anna Operating Committee. The committee ("Operating Committee") as provided in Article II hereof. 1.43 North Anna Unit 1. The nuclear generating unit located in Louisa County, Virginia, designated as North Anna Unit 1 (more specifically described in Appendix C hereto), representing the cost of all additions, improvements, betterments and replacements thereto, but excluding the Common Facilities, the Support Facilities, the Nuclear Fuel, the Operating Inventory and the Major Spare Parts. 1.44 North Anna Unit 2. The nuclear generating unit located in Louisa County, Virginia, designated as North Anna Unit 2 (more specifically described in Appendix D hereto), representing the cost of all additions, improvements, betterments and replacements thereto, but excluding the Common Facilities, the Support Facilities, the Nuclear Fuel, the Operating Inventory and the Major Spare Parts. 1.45 North Anna Unit(s). Either, or both, of North Anna Unit 1 or North Anna Unit 2. 1.46 Nuclear Fuel. For the purpose of this Agreement, Nuclear Fuel shall have the meaning as defined in the Nuclear Fuel Agreement. 1.47 Nuclear Fuel Agreement. The Nuclear Fuel Agreement Between Virginia Electric and Power Company and Old Dominion Electric Cooperative Dated: As of December 28, 1982, Amended and Restated October 17, 1983. 1.48 Off-Peak Hours. Off-Peak Hours are all hours other than those described as On-Peak Hours. 1.49 Old Dominion. Old Dominion Electric Cooperative, a Virginia generation and transmission cooperative, and its successors and assigns. 1.50 Old Dominion Generation Resources. Old Dominion Monthly North Anna Capacity, Old Dominion Monthly Accredited Firm Capacity, Old Dominion Monthly Accredited Non-firm Capacity, Old Dominion Monthly Delivered SEPA Capacity and any additional generation resources obtained by Old Dominion through joint planning with Virginia Power provided, however, any portion of an Old Dominion generating resource that serves demands other than those of the Old Dominion Members shall not be considered Old Dominion Generation Resources. 1.51 Old Dominion Members. For purposes of this Agreement, those rural electric distribution cooperatives, including their successors and assigns, each of which distributes electricity in areas in which Virginia Power provides requirements service at wholesale or retail as of the Effective Date. For purposes of this Agreement, the Old Dominion Members shall mean those cooperatives listed in Appendix E as of the Effective Date subject to the deletion of members from time to time, together with their respective delivery points, as such delivery points have been added or deleted from time to time. 1.52 Old Dominion Monthly Accredited Firm Capacity. Monthly firm capacity owned or obtained by Old Dominion and that is determined by the Planning and Administration Committee in accordance with Prudent Utility Practice as not requiring reserves. 1.53 Old Dominion Monthly Accredited Firm Energy. The energy associated with the Old Dominion Monthly Accredited Firm Capacity. 1.54 Old Dominion Monthly Accredited Non-firm Capacity. Monthly non-firm capacity owned or obtained by Old Dominion and that is determined by the Planning and Administration Committee in accordance with Prudent Utility Practice as requiring reserves. 1.55 Old Dominion Monthly Accredited Non-firm Energy. The energy associated with the Old Dominion Monthly Accredited Non-firm Capacity. 1.56 Old Dominion Monthly Billing Demand. The Old Dominion Monthly Supplemental Demand less Excluded Supplemental Capacity plus, if any, the kilowatts by which the most recent 12-month average Old Dominion Monthly Maximum Diversified Demand exceeds 110% of the most recent 12-month average Old Dominion Monthly Delivered Demand with such excess being adjusted for losses to reflect load at the generation level by multiplying by the factor of 100 divided by 100 minus the Combined System Loss Percentage. 1.57 Old Dominion Monthly Billing Energy. The Old Dominion Monthly Supplemental Energy, less Excluded Supplemental Energy, less Displacement Supplemental Energy. 1.58 Old Dominion Monthly Clover Capacity. For each Clover Unit, the Capability of such unit multiplied by Old Dominion's Clover Ownership Interest. The total Old Dominion Monthly Clover Capacity shall be the sum of such capacity for Clover Units 1 and 2. Such capacity shall be considered an Old Dominion Generation Resource and treated as Old Dominion Monthly Accredited Non-Firm Capacity. 1.59 Old Dominion Monthly Delivered Demand. The combined Old Dominion hourly demands measured at the Interconnection Points for the clock-hour during which the Combined System Monthly Peak Demand occurs. 1.60 Old Dominion Monthly Delivered Energy. The combined Old Dominion Members' energy requirements for that month measured at the Interconnection Points. 1.61 Old Dominion Monthly Delivered SEPA Capacity. The total megawatts of monthly capacity delivered at the Interconnection Points in accordance with contract(s) between SEPA and Old Dominion Members. 1.62 Old Dominion Monthly Delivered SEPA Energy. The energy associated with the Old Dominion Monthly Delivered SEPA Capacity. 1.63 Old Dominion Monthly Demand. The Old Dominion Monthly Delivered Demand less Old Dominion Monthly Delivered SEPA Capacity with such difference being adjusted for losses to reflect load at the generation level by multiplying by the factor of 100 divided by 100 minus the Combined System Loss Percentage. 1.64 Old Dominion Monthly Energy. Old Dominion Monthly Delivered Energy less Old Dominion Monthly Delivered SEPA Energy, as such energy may be available from time to time, with such difference being adjusted for losses to reflect energy at the generation level by multiplying by the factor of 100 divided by 100 minus the Combined System Loss Percentage. 1.65 Old Dominion Monthly Maximum Diversified Demand. The combined Old Dominion Members' monthly maximum coincident hourly demand measured at the Interconnection Points during the On-Peak Hours. 1.66 Old Dominion Monthly North Anna Capacity. For each generating unit at the North Anna Nuclear Power Station, the Capability of such unit multiplied by Old Dominion's North Anna Percentage Ownership Interest. The total Old Dominion Monthly North Anna Capacity shall be the sum of such capacity for North Anna Units l and 2. 1.67 Old Dominion Monthly North Anna Energy. The energy associated with Old Dominion Monthly North Anna Capacity at the North Anna Nuclear Power Station. 1.68 Old Dominion Monthly Reserve Energy . The total amount of energy at 100% capacity factor that could have been produced by Old Dominion Monthly North Anna Capacity and any other Old Dominion Monthly Accredited Nonfirm Capacity for which Virginia Power provides reserves when the resource is subject to full or partial outage conditions (planned, unplanned, scheduled or unscheduled outages and including any deration of generator units), less Old Dominion Monthly Accredited Non-firm Energy that could have been produced but was not produced for economic dispatch reasons, less Old Dominion Monthly North Anna Energy, less Old Dominion Monthly Accredited Non-firm Energy, less Displacement Reserve Energy. 1.69 Old Dominion Monthly Supplemental Demand. The Old Dominion Monthly Demand, less the Old Dominion Monthly North Anna Capacity, less other Old Dominion Monthly Accredited Firm Capacity, less Old Dominion Monthly Accredited Non-firm Capacity, less Peaking Capacity and less Excluded Peaking Capacity. 1.70 Old Dominion Monthly Supplemental Energy. The Old Dominion Monthly Energy, less the Old Dominion Monthly North Anna Energy, less the Old Dominion Monthly Accredited Firm Energy, less the Old Dominion Monthly Accredited Non-firm Energy (less Clover Economy Sales to Virginia Power), less the Old Dominion Monthly Reserve Energy, less Displacement Reserve Energy, less the energy associated with Clover Economy Purchases from Virginia Power, less Peaking Energy, less Displacement Peaking Energy and less Excluded Peaking Energy. 1.71 Old Dominion's North Anna Percentage Ownership Interest. Except as otherwise modified by the operation of Sections 15.03, 16.01 or 16.02 of the Purchase, Construction and Ownership Agreement, an undivided ownership interest in the North Anna Facilities equal to 11.6 percent in each of North Anna Unit 1, North Anna Unit 2, the Common Facilities, the Operating Inventory and the Major Spare Parts, and a percentage in the Support Facilities as determined in accordance with Appendix F. 1.72 Old Dominion Reserve Capacity. An amount in kilowatts equal to: the sum of (a) the actual Old Dominion Monthly North Anna Capacity and (b) the actual Old Dominion Monthly Accredited Non-firm Capacity, such sum multiplied by the System Reserve Margin. 1.73 Old Dominion System. The generation, transmission, distribution and other facilities owned or leased by Old Dominion or the Old Dominion Members as shown on their books of account from time to time and located in the area in which Virginia Power provides requirements service at wholesale or retail as of the Effective Date. 1.74 On-Peak Hours. On-Peak Hours are the hours between 7:00 a.m. and 10:00 p.m., Monday through Friday, for the months of October through May, and the hours between 10:00 a.m. and 10:00 p.m., Monday through Friday, for the months of June through September. 1.75 Open Access Transmission Tariff. Virginia Power's Open Access Transmission Tariff, and any successors thereto, filed with, accepted, and permitted to go into effect by FERC. 1.76 Operating Inventory. Equipment, spare parts, tools, goods and supplies (excluding Nuclear Fuel and Major Spare Parts) to be used solely for the operation, maintenance or modification of the North Anna Units and recorded on Virginia Power's books of account in accordance with the Uniform System of Accounts. 1.77 Parties. Virginia Power and Old Dominion. 1.78 Peaking Capacity. Firm peaking capacity supplied by Virginia Power pursuant to Sections 8.03(a)(i) and (ii) and 8.03(e) hereof. Old Dominion's purchase of such capacity shall be considered an additional Old Dominion Generation Resource and treated as Old Dominion Monthly Accredited Firm Capacity. 1.79 Peaking Capacity Charge. The monthly charge for Peaking Capacity as calculated pursuant to Appendix G, Section II. hereof. 1.80 Peaking Energy. The energy associated with the Peaking Capacity as determined pursuant to Sections 8.03(b)(i) and (ii). 1.81 Planning and Administration Committee. The committee as provided in Article III hereof. 1.82 Prudent Utility Practices. Any of the practices, methods, and acts engaged in or accepted by a significant portion of the electric utility industry at the time the decision was made, or any of the practices, methods, and acts that, in the exercise of reasonable judgment in light of the facts known at the time the decision was made, would have been expected to accomplish the desired result at a reasonable cost consistent with reasonable reliability, safety, expedition and protection of the environment. Prudent Utility Practices are not intended to be limited to the optimum practices, methods, or acts to the exclusion of all others, but rather to a spectrum of possible practices, methods, or acts engaged in or accepted by a significant portion of the electric utility industry at the time the decision was made. 1.83 Purchase, Construction and Ownership Agreement. The Purchase, Construction and Ownership Agreement Between Virginia Electric and Power Company and Old Dominion Electric Cooperative Dated: As of December 28, 1982 Amended and Restated October 17, 1983. 1.84 Reserve Capacity Charge. The monthly charge for Old Dominion Reserve Capacity as determined pursuant to Section 8.05 and Appendix I, hereof. 1.85 RUS. The Rural Utilities Service, successor agency to the Rural Electrification Administration, and any successor governmental agency. 1.86 SEPA. The Southeastern Power Administration, including any successor governmental agency. 1.87 Support Facilities. All those facilities, wherever situated, including, but not limited to, both real and personal property, exclusive of Common Facilities, Nuclear Fuel, Operating Inventory and Major Spare Parts, which are purchased, leased or otherwise obtained for the construction, operation and maintenance of one or more nuclear unit(s) located at the North Anna Nuclear Power Station and one or more nuclear unit(s) located at Virginia Power's Surry Nuclear Power Station or at such other location as Virginia Power may have an interest in any nuclear facility. Support Facilities, and investment and cost responsibilities of the Parties therefor, are more specifically described in Appendix F hereto. 1.88 System Reserve Margin . Shall be determined for the month of the projected Combined System Annual Peak Demand as (1) the ratio of (a) the projected Combined System Monthly Capability in that month plus projected purchases from third parties in that month of the approximate reliability of the Combined System Monthly Capability less projected sales to third parties in that month of the approximate reliability of the Combined System Monthly Capability, but in no event to include purchases or sales of economy energy, emergency energy, or other such nondependable transactions, divided by (b) the projected Combined System Annual Peak Demand, (2) less one. The System Reserve Margin shall be calculated in accordance with the orders, directives or guidelines of regulatory bodies or regional reliability councils. 1.89 Transmission Service Agreement . The Service Agreement For Network Integration Transmission Service To Old Dominion Electric Cooperative under Virginia Power's Open Access Transmission Tariff and any amendments or supplements thereto entered into by Old Dominion and Virginia Power for transmission service that have been accepted and permitted to go into effect by FERC. 1.90 Virginia Power. Virginia Electric and Power Company, a Virginia public service corporation, and its successors and assigns. 1.91 Virginia Power System. The generation, transmission, distribution and other facilities owned by Virginia Power as shown on its books of accounts from time to time or facilities leased by Virginia Power. 1.92 Wholesale Power Contracts. The several wholesale power contracts between Old Dominion and the Old Dominion Members for the purchase of electric energy and capacity by the Old Dominion Members from Old Dominion, as in effect from time to time. ARTICLE II North Anna Operating Committee 2.01 North Anna Operating Committee. To coordinate operations in carrying out the terms of this Agreement associated with the North Anna Facilities, Virginia Power will appoint four members and Old Dominion will appoint two members to the North Anna Operating Committee ("Operating Committee"). Each member of the Operating Committee shall be fully authorized to act on behalf of its Party with respect to all matters contemplated by this Agreement but will not be authorized to alter or amend the Agreement. Each Party shall notify the other in writing of the names of the persons who will serve as the members of the Operating Committee and, if desired, the names of any persons who may serve as alternates when the members are unable to act. Virginia Power's members may be changed, in Virginia Power's sole discretion and from time to time, by at least ten (10) days' prior written notice to Old Dominion. Old Dominion's members may be changed, in Old Dominion's sole discretion and from time to time, by at least ten (10) days' prior written notice to Virginia Power. 2.02 Meetings and Voting Rights. Meetings shall be held at the discretion of the Operating Committee but at least shall be held quarterly. Minutes of each meeting shall be kept and shall be approved by the Operating Committee at its next meeting. Decisions of the Operating Committee shall be made upon vote by the Operating Committee with the voting power of each Party determined by its entitlement to the capability of North Anna Units 1 and 2 as provided in Section 2.03 of the Purchase, Construction and Ownership Agreement. 2.03 Duties of Operating Committee. The Operating Committee shall, subject to Virginia Power's authority and obligations under Article V and any other limitations in this Agreement, act upon those matters relating to the coordination of the operation of the North Anna Facilities necessary for the implementation of this Agreement. 2.04 Expenses of Operating Committee. The expenses of each member of the Operating Committee, and his alternate and associates, shall be borne by the Party he represents. Other expenses of the Operating Committee will be shared as agreed upon by the Operating Committee. Any expense not agreed to unanimously by the Operating Committee shall be borne by the Party incurring it. 2.05 Resolution of Disputes. If any dispute should arise regarding the operating function that cannot be resolved by the Operating Committee, the dispute and the circumstances surrounding such dispute shall be presented to the Executive Committee, which is empowered in Section 18.13 to resolve such disputes. ARTICLE III Planning and Administration 3.01 Planning and Administration Committee. In order to carry out the terms of this Agreement, Virginia Power will appoint four members and Old Dominion will appoint two members to the Planning and Administration Committee. Each member of the Planning and Administration Committee shall be fully authorized to act on behalf of its Party with respect to all matters contemplated by this Agreement but will not be authorized to alter or amend the Agreement. Each Party shall notif the other in writing of the names of the persons who will serve as the members of the Planning and Administration Committee and, if desired, the names of any persons who may serve as alternate when the members are unable to act. Virginia Power's members may be changed in Virginia Power's sole discretion and from time to time, by at least ten (10) days' prior written notice to Old Dominion. Old Dominion's members may be changed, in Old Dominion's sole discretion and from time to time, by at least ten (10) days' prior written notice to Virginia Power. 3.02 Meetings. Meetings shall be held at the discretion of the Planning and Administration Committee but at least shall be held semi-annually. 3.03 Duties of the Planning and Administration Committee. (a) The Planning and Administration Committee shall be responsible for the general administration of this Agreement in accordance with Prudent Utility Practices. In addition, the Planning and Administration Committee may, but is not obligated to, consider joint planning of future generation facilities. The Planning and Administration Committee will also discuss new governmental regulations, issues and changes in the industry in which the Parties have a mutual interest, establish committees required for the orderly administration of the Agreement but not specifically provided for in the Agreement, and address any other matter in which cooperation, coordination or agreement is necessary. (b) For the purposes of joint planning, Old Dominion shall furnish Virginia Power annually, prior to January 1, a forecast of its system loads for at least the succeeding ten (10) year period. Virginia Power shall furnish Old Dominion annually, prior to January 1, a forecast of its system loads for at least the succeeding ten (10) year period and its target reserve level. If either Old Dominion or Virginia Power makes an official revision to the forecasts during the year, notification of such revision shall be given in writing to the other Party in a timely fashion. Each Party shall provide an explanation of any significant deviation from historic trends in its forecast. 3.04 Future Transmission Planning. Virginia Power shall continue to plan and be responsible for its future transmission system pursuant to the Virginia Power Open Access Transmission Tariff and the Network Operating Agreement. Virginia Power and Old Dominion agree to consider in the future joint ownership of transmission facilities where reasonable net benefits will accrue to both Parties. 3.05 Exchange of Information. Each Party will make available, upon request, information used in, or useful to, the administration of this Agreement. Other specific rights for information are covered in other parts of this Agreement. 3.06 Expenses of the Planning and Administration Committee. Each Party shall pay all expenses of its representatives. Other expenses incurred by the committee will be shared as agreed upon by the Planning and Administration Committee. Any expense not agreed to unanimously by the Planning and Administration Committee shall be borne by the Party incurring it. 3.07 Resolution of Disputes. If any disputes relating to the duties of the Planning and Administration Committee should arise that cannot be resolved by the Planning and Administration Committee, the dispute and the circumstances surrounding such dispute shall be presented to the Executive Committee, which is empowered in Section 18.13 to resolve such disputes. 3.08 SEPA Contract. The Parties agree that if and when Virginia Power's contract with SEPA is changed from time to time, the Planning and Administration Committee shall recommend to the Parties such modifications in this Agreement as are necessary to conform with any such changes. ARTICLE IV Interconnection and Protection of Systems 4.01 Obligation for Adequate Facilities. Virginia Power and Old Dominion are each obliged to provide, on its own system or through this Agreement and other arrangements, generation or distribution facilities or service adequate to serve expected loads and to maintain all such facilities in a suitable condition of repair so that they may be operated in accordance with Prudent Utility Practices and not impose a burden on any other system. 4.02 Protection of Systems. Old Dominion shall refrain from, and shall require Old Dominion Members to refrain from, any acts, transactions, and uses of equipment, appliances or devices which may have a significant adverse effect upon the reliability or characteristics of the Virginia Power System. Virginia Power shall refrain and shall require its customers to refrain from any acts, transactions, and uses of equipment, appliances or devices which may have a significant adverse effect upon the reliability or characteristics of the Old Dominion System. 24 ARTICLE V Virginia Power's Authority and Responsibility with Respect to Old Dominion's North Anna Generation 5.01 Virginia Power as Agent of Old Dominion . (a) Old Dominion hereby appoints Virginia Power (such appointment shall be irrevocable for the term of this Agreement and coupled with an interest) its sole agent, subject, however, to Old Dominion's right of reasonable inspection through authorized representatives, to act on its behalf for the operation, maintenance, modifications and fueling (including the procurement of nuclear fuel), of the North Anna Facilities and authorizes Virginia Power in the name of and on behalf of Old Dominion to take all reasonable actions which, in the discretion and judgment of Virginia Power, are deemed necessary or advisable to effect the operation, maintenance, modifications and fueling (including the procurement of nuclear fuel) of the North Anna Facilities, including, without limitation, the following: (i) the making of such agreements and modifications of existing agreements and the taking of such other action as Virginia Power deems necessary or appropriate, in its sole discretion, or as may be required under the regulations or directives of such governmental bodies and regulatory agencies having jurisdiction, with respect to the operation, maintenance, modifications and fueling (including the procurement of nuclear fuel) of the North Anna Facilities; (ii) the execution and filing with such governmental bodies and regulatory agencies having jurisdiction of applications, amendments, reports and other documents and filings for or in connection with licensing, operation and other regulatory matters with respect to the North Anna Facilities; and 25 (iii) the receipt on Old Dominion's behalf of any notice or other communication from any governmental body or regulatory agency having jurisdiction, as to any licensing, operation or other regulatory matter with respect to the North Anna Facilities. (b) As relates to all third parties, this agency designation shall be binding on Old Dominion, and such appointment shall be deemed in effect by each third party until termination of this Agreement pursuant to the terms hereof and until such third party receives written notification from Virginia Power of any termination thereof. (c) Virginia Power accepts such appointment. In discharging all of its duties and responsibilities hereunder, Virginia Power will act in good faith and in accordance with Prudent Utility Practices. Virginia Power's duties and responsibilities shall include, but not be limited to, establishing organizational structure and manpower requirements, maintaining an adequate work force through Virginia Power's personnel administration policies, arranging and procuring necessary or desirabl materials and services for operation of the North Anna Facilities, determining scheduled outages for routine inspections, refueling and general maintenance, scheduling, dispatching and loading of the North Anna Facilities, preparing and filing applications, reports and other documents relating to operation of the North Anna Facilities, establishing reasonable rules for visits to the North Anna Facilities, and determining the need for, and subsequently constructing, any capital additions or modifications to the North Anna Facilities. Virginia Power shall not, solely because of Old Dominion's ownership interest in the North Anna Facilities make any adverse distinctions in operation, maintenance, modifications, fueling, scheduling, or dispatching as between the North Anna Facilities and any other generating 26 unit or facilities in which Virginia Power has an ownership interest. Nothing herein shall interfere with Virginia Power's authority and responsibility for the operation of, maintenance of, modifications to, fueling of, and improvements to all of its other generation facilities. Virginia Power shall make available upon request by Old Dominion regularly prepared monthly reports which contain specific information on all generating facilities including, but not limited to, operating expenses, maintenance expenses, fuel expenses, generating statistics, fuel reports, operating statistics and other information reasonably available. Virginia Power will also have the right to submit data relating to operation of the North Anna Facilities to any other entity. Old Dominion will make available all information or data necessary for Virginia Power to schedule and dispatch generation. (d) Old Dominion agrees that it will take all necessary action in a prompt manner to execute any agreements for the operation, maintenance, modifications and fueling of the North Anna Facilities as and when requested by Virginia Power to permit Virginia Power to carry out its authority and responsibilities pursuant to this Section 5.01. 27 ARTICLE VI Transmission Services 6.01 Old Dominion Transmission Service. Except as provided for in Section 6.03, Virginia Power will furnish transmission service and all related ancillary services required by Old Dominion for the Old Dominion Members under Virginia Power's Open Access Transmission Tariff, commencing on the Effective Date. Due to the unique characteristics of network customers' systems and the level of customer-specific information and arrangements required under a network operating agreement, specific terms and conditions recognizing local or system-specific factors affecting transmission service to Old Dominion will be stated in the Transmission Service Agreement or Network Operating Agreement. 6.02 Native Load Status. (a) Virginia Power will plan, construct, operate and maintain the Virginia Power transmission system, in accordance with Prudent Utility Practices, such that Virginia Power will be able to provide reliable transmission service to Old Dominion over the Virginia Power transmission system. Virginia Power shall include Old Dominion's network load in its transmission system planning and shall, consistent with Prudent Utility Practices, construct and place into service sufficient transmission capacity to deliver Old Dominion's network resources to serve Old Dominion's network load on a basis comparable to Virginia Power's delivery of its own generating and purchased resources. (b) Protecting and preserving Old Dominion's native load status as defined under Order Nos. 888 and 888A is a fundamental principle of this Agreement. Failure to meet the requirements of Section 6.02(a) shall frustrate the intent of the Parties to this Agreement. 28 6.03 SEPA Capacity Transmission Service. Old Dominion Monthly Delivered SEPA Capacity and Old Dominion Monthly Delivered SEPA Energy will be transmitted to the Interconnection Points by separate agreement between Virginia Power and SEPA or pursuant to Virginia Power's Open Access Transmission Tariff. 29 ARTICLE VII Entitlements to Capacity and Energy 7.01 Entitlements of the Parties to Capacity and Energy. Subject to the provisions of Sections 15.03, 16.01 and 16.02 of the Purchase, Construction and Ownership Agreement, Old Dominion shall be entitled to 11.6% of the capacity and energy from North Anna Units 1 and 2. Subject to the provisions of Sections 15.03, 16.01 and 16.02 of the Purchase, Construction and Ownership Agreement, Virginia Power shall be entitled to the balance of the capacity and energy from each unit. 30 ARTICLE VIII Supplemental Demand and Energy, Peaking Capacity and Energy, and Reserve Capacity and Energy 8.01 Supplemental Demand and Energy . (a) Supplemental Demand. (i) Virginia Power shall sell monthly to Old Dominion, and Old Dominion shall purchase monthly from Virginia Power, the Old Dominion Monthly Supplemental Demand in the amounts necessary to supply the needs of the Old Dominion Members not met from Old Dominion Generation Resources, from the Effective Date through December 31, 2001, and one-half of the Old Dominion Monthly Supplemental Demand requirements for calendar year 2002. (ii) Except as otherwise provided in this Article VIII of the Agreement, effective January 1, 2002 through December 31, 2002, Virginia Power shall also offer to sell capacity equal to the remaining one-half of the Old Dominion Monthly Supplemental Demand requirements and for January 1, 2003, through August 31, 2005, Virginia Power shall offer to sell all of the Old Dominion Monthly Supplemental Demand requirements, unless Virginia Power provides written notice to Old Dominio prior to January 1, 2000, that it elects not to so supply Old Dominion. Prior to October 1, 2000, Old Dominion shall provide to Virginia Power a projection of the remaining one-half of the Old Dominion Monthly Supplemental Demand for each month of calendar year 2002. The Parties shall review Old Dominion's projection, and the projection of the remaining one-half of the Old Dominion Monthly Supplement Demand shall be subject to the mutual 31 acceptance of the Parties. The remaining one-half of the Old Dominion Monthly Supplemental Demand shall be equivalent to this mutually accepted projection and shall be considered fixed and Virginia Power shall provide the balance of the Old Dominion Monthly Supplemental Demand pursuant to Section 8.01(a)(i) regardless of the actual Old Dominion Monthly Supplemental Demand in calendar year 2002. (iii) For calendar year 2002, if Virginia Power has provided the notice described in Section 8.01(a)(ii), Old Dominion shall purchase capacity from an Alternate Power Source to serve the remaining one-half of the Old Dominion Monthly Supplemental Demand for that year. Such capacity shall be deemed Excluded Supplemental Capacity. (iv) For calendar year 2002, if Virginia Power does not provide the notice described in Section 8.01(a)(ii), Old Dominion shall by January 1, 2001, provide Virginia Power with written notice of whether Old Dominion will: (1) purchase the remaining one-half of the Old Dominion Monthly Supplemental Demand from Virginia Power at the Monthly Supplemental Demand Charge rates applicable for that year under Appendix G, Section I.A.; or (2) obtain the remaining one-half of the Old Dominion Monthly Supplemental Demand from Virginia Power or an Alternate Power Source pursuant to the terms of Section 8.02(b)(ii). Such capacity obtained from an Alternate Power Source shall be deemed Excluded Supplemental Capacity. (v) From January 1, 2003 through August 31, 2005, if Virginia Power does not provide the notice described in Section 8.01(a)(ii), Old Dominion will obtain all of the Old Dominion Monthly Supplemental Demand from Virginia 32 Power or an Alternate Power Source pursuant to the terms of Section 8.02(b)(ii). Such capacity obtained from an Alternate Power Source shall be deemed Excluded Supplemental Capacity. (vi) After August 31, 2005, Virginia Power is not obligated to sell to Old Dominion, and Old Dominion is not obligated to purchase from Virginia Power, the Old Dominion Monthly Supplemental Demand. (vii) The calculation to determine the Old Dominion Monthly Supplemental Demand shall be as set forth in Appendix H, Section I. (b) Increases in Supplemental Demand. Old Dominion may not increase the Old Dominion Monthly Supplemental Demand requirements beyond that occasioned by normally expected load growth unless Virginia Power shall agree. Except as otherwise provided in this Article VIII of the Agreement, Virginia Power agrees to provide the Old Dominion Monthly Supplemental Demand in the amounts required by Old Dominion to serve its present and future demands except for such increases in demands which may arise from an undertaking by Old Dominion, or one or more of the Old Dominion Members, to serve (1) a source of demand outside the area in which Virginia Power provides requirements service at wholesale or retail as of the Effective Date or (2) any additional load which is substantially different from the size and type of load included by Virginia Power in its system planning and which, if served, (i) would compel an enlargement of Virginia Power's generation facilities not otherwise included by Virginia Power in its system planning or (ii) would impair Virginia Power's ability to render reasonably adequate service to its other retail and wholesale customers. However, a new customer imposing a load in excess of 100 megawatts shall not be defined as normally expected load growth unless sufficient notice shall have been provided to Virginia Power. Furthermore, 33 increases in load occurring after the Effective Date resulting from mergers between Old Dominion Members and entities that are not Old Dominion Members or acquisitions of new wholesale customers by Old Dominion or Old Dominion Members shall not be defined as normally expected load growth. (c) Reductions in Supplemental Demand. Old Dominion's purchases of supplemental demand shall be reduced by the amount of Old Dominion Monthly Accredited Firm Capacity and Old Dominion Monthly Accredited Non-firm Capacity obtained by Old Dominion, which for any period shall be equal to the sum of: (1) the amount of capacity jointly owned or planned with Virginia Power, other than North Anna, (2) the amount of Excluded Supplemental Capacity obtained by Old Dominion, (3) the amount o Peaking Capacity obtained by Old Dominion, (4) the amount of Excluded Peaking Capacity obtained by Old Dominion, and (5) those amounts purchased pursuant to Section 8.02(c). (d) Supplemental Energy. (i) Except as otherwise provided in this Article VIII of the Agreement, from the Effective Date through August 31, 2005, Virginia Power shall offer to sell to Old Dominion the Old Dominion Monthly Supplemental Energy less any Excluded Supplemental Energy, to the extent that Virginia Power supplies supplemental capacity. (ii) Old Dominion shall be entitled to displace up to two-thirds of the annual Old Dominion Monthly Supplemental Energy requirements for calendar year 1998 by obtaining such energy from an Alternate Power Source. Effective January 1, 1999, Old Dominion shall be entitled to displace all or any portion of its annual purchases of Old Dominion Monthly Supplemental Energy requirements 34 from Virginia Power by obtaining such energy from an Alternate Power Source. Such displaced energy shall be deemed Displacement Supplemental Energy. (iii) From the Effective Date forward, delivery of any Displacement Supplemental Energy will be in accordance with the schedules provided by Old Dominion or its power suppliers to Virginia Power and pursuant to Sections 6.01 and 6.02 of this Agreement and the Transmission Service Agreement. (iv) From the Effective Date through August 31, 2005, whenever Old Dominion obtains Excluded Supplemental Capacity, it also shall be responsible for obtaining all of the energy associated with such Excluded Supplemental Capacity. Such energy shall be deemed Excluded Supplemental Energy. (v) Prior to October 1, 2000, Old Dominion shall provide to Virginia Power a projection of the remaining one-half of the Old Dominion Monthly Supplemental Energy for each month of calendar year 2002. The Parties shall review Old Dominion's projection, and the projection of the remaining one-half of the Old Dominion Monthly Supplemental Energy shall be subject to the mutual acceptance of the Parties. The remaining one-half of the Old Dominion Monthly Supplemental Energy shall be equivalent to this mutually accepted projection and shall be considered fixed and Virginia Power shall provide the balance of the Old Dominion Monthly Supplemental Energy pursuant to 8.01(d)(i) regardless of the actual Old Dominion Monthly Supplemental Energy in calendar year 2002. (vi) The calculation to determine Old Dominion Monthly Supplemental Energy shall be as set forth in Appendix H, Section V. 8.02 Charges for Purchases By Old Dominion Pursuant to Section 8.01. 35 (a) Supplemental Energy. (i) Through December 31, 2000, for purchases by Old Dominion of Old Dominion Monthly Supplemental Energy from Virginia Power pursuant to Section 8.01(d), Old Dominion shall pay Virginia Power a Monthly Supplemental Energy Charge based on Virginia Power's average system energy cost, less North Anna energy cost, as set forth initially in Appendix G, Sections III.A. and VI. (ii) Commencing January 1, 2001, for purchases by Old Dominion of Old Dominion Monthly Supplemental Energy from Virginia Power pursuant to Section 8.01(d), Old Dominion shall pay Virginia Power at rates, set by Virginia Power, that are based on the projected cost of energy from its combined cycle and peaking units subject to an annual true-up as set forth in Appendix G, Section III.B. The generating units to be included in the determination of the Old Dominion Monthly Supplemental Energy cost during this period shall be agreed to by the Parties. Selection of the generating units and the appropriate rate calculation will be finalized on or before October 1 of each year for the following calendar year, as set forth in Appendix G, Section III.B. (b) Supplemental Demand. (i) Old Dominion shall pay Virginia Power for Old Dominion Monthly Supplemental Demand purchased, exclusive of Excluded Supplemental Capacity, pursuant to Section 8.01(a) at the rates set forth in Appendix G, Section I. (ii) For the capacity defined in Section 8.01(a)(ii), the maximum price Old Dominion shall pay to Virginia Power for capacity to serve such Old Dominion Monthly Supplemental Demand shall be the Market Price for wholesale 36 capacity at that time. As an incentive for Virginia Power to minimize the rate to Old Dominion, Old Dominion agrees to share the savings between the Market Price and Virginia Power's proposed price to supply such capacity if Old Dominion purchases from Virginia Power. If however, Old Dominion demonstrates to Virginia Power that Old Dominion can obtain Excluded Supplemental Capacity at a lower cost under comparable terms and conditions from an Alternate Power Source, then Virginia Power will have the option to adjust its price to match the lower cost from an Alternate Power Source or Old Dominion may obtain the Excluded Supplemental Capacity from the Alternate Power Source without any obligation to Virginia Power under this Agreement. At such time as Virginia Power has no obligation to serve any Old Dominion Monthly Supplemental Demand, Old Dominion will have no obligation to pay Virginia Power for any Old Dominion Monthly Billing Demand as set forth in Appendix H, Section III. (c) Alternative Power Supply and Rates. (i) In the event that (1) any existing customer of Old Dominion or any Old Dominion Member or (2) any future customer located in an Old Dominion Member's service territory obtains the right to receive electric service from an "alternate power supplier" and receives a firm offer from such "alternate power supplier", Old Dominion and its appropriate Member shall use their best efforts to obtain or retain that service to the customer. Such best efforts by Old Dominion and its Member shall include, but shall not be limited to, proposing to the 37 customer reasonable options using economic development or discounted rates, each of which may include a reasonable margin over costs. (ii) In order to assist Old Dominion or any Old Dominion Member in attracting a new retail customer or retaining the load of an existing Old Dominion Member retail customer that is considered by Old Dominion to be at risk ("at-risk load"), Virginia Power, upon notification by Old Dominion, shall make available to Old Dominion and Old Dominion shall, through the Old Dominion Members, make available to the "at-risk load" the most cost-effective alternative tariff contained in Virginia Power's then-current Virginia retail tariffs for which such "at-risk load" would qualify pursuant to that tariff's applicability clause. Verifiable billing determinants shall be made available to Virginia Power each month, and Virginia Power shall calculate the billing credit based on the difference in the "at-risk load" billing determinants billed under this Agreement and those billing determinants billed under the alternate available Virginia Power rate schedule and credit Old Dominion accordingly. (iii) In the event that Old Dominion or the Old Dominion Member is still at risk of losing a retail customer after making all of the efforts as set forth herein, then Old Dominion shall have the right to reduce its purchases from Virginia Power accordingly and generate, purchase or otherwise obtain an equivalent amount of power (i.e., demand and energy) elsewhere in order to retain that customer. (iv) In the event that, notwithstanding Old Dominion's and the Old Dominion Member's best efforts as defined above, a retail customer of Old 38 Dominion or one of its Members has rejected in writing all of the proposals set forth in this section and has purchased electric service from an "alternate power supplier," then Old Dominion may reduce its purchases of supplemental demand and energy from Virginia Power to the extent of the existing load lost to the "alternate power supplier" and may purchase an equivalent amount of demand and energy elsewhere. (v) When Virginia Power's obligation to provide Peaking Capacity ceases, the capacity and energy serving load (1) under an alternative Virginia Power tariff pursuant to Section 8.02(c)(ii), (2) with power purchased or obtained elsewhere pursuant to Section 8.02 (c)(iii), or (3) lost to the "alternate power supplier" pursuant to Section 8.02(c)(iv) shall be deemed to be Old Dominion Excluded Supplemental Capacity and Excluded Supplemental Energy. (vi) This Section 8.02(c) shall not be applicable to any new "at risk load" after December 31, 2002. 8.03 Peaking Capacity and Energy Purchases. Virginia Power shall sell to Old Dominion and Old Dominion shall purchase Peaking Capacity and associated energy as provided below: (a) Peaking Capacity (i) Except as provided otherwise in this Article VIII of the Agreement, for each month from March 28, 1996, through December 31, 2002, Virginia Power shall provide and sell to Old Dominion firm Peaking Capacity as determined pursuant to Appendix M, Section I., in an amount equal to four percent (4%) of the maximum Old Dominion Monthly Delivered Demand in each 39 of the preceding calendar years beginning with January 1, 1995, and Old Dominion shall purchase suc capacity, which shall be considered an additional Old Dominion Generation Resource. The Old Dominion annual supplemental demand reductions and the related Peaking Capacity supplied by Virginia Power will be cumulative. The four percent (4%) annual supplemental demand reduction will occur on January 1 of each subsequent year. (ii) For calendar year 2003, Old Dominion will have the option of continuing to purchase Peaking Capacity from Virginia Power. Old Dominion must notify Virginia Power by January 1, 2002, if Old Dominion will continue to purchase the cumulative Peaking Capacity. If Old Dominion does not provide such notice, Virginia Power's obligations to provide Peaking Capacity shall cease on December 31, 2002 and the amount of such Peaking Capacity shall be fixed at the capacity level in effect for 2002 through August 31, 2005. If Old Dominion provides such notice, Old Dominion will continue to purchase Peaking Capacity from Virginia Power in 2003, which will increase from the capacity level in effect for 2002 by the four percent (4%) calculation. After December 31, 2003, the amount of such Peaking Capacity shall be fixed at the capacity level in effect for 2003 through August 31, 2005. Virginia Power will not be obligated to provide Peaking Capacity after December 31, 2003. (iii) After Virginia Power's obligation to provide Peaking Capacity ceases, Old Dominion shall obtain such capacity from an Alternate Power Source and such capacity shall be deemed Excluded Peaking Capacity. 40 (iv) The amount of cumulative Peaking Capacity shall be reduced by the amount of any load transfers after the Effective Date either to other utility's(ies') control area(s) or through the installation of diesel generators, by Old Dominion or any of the Old Dominion Members for improvement in operations or reliability. Furthermore, if for any reason existing load is transferred from another utility's(ies') control area(s) to Old Dominion or any Old Dominion Member's service territory falling within Virginia Power's control area, the cumulative Peaking Capacity shall be increased by the amount of such load transfer. (b) Peaking Energy Purchases. (i) Virginia Power shall sell and Old Dominion shall purchase Peaking Energy as determined pursuant to Appendix M, Section II. (ii) Old Dominion will have the right to displace up to two-thirds of the accumulated Peaking Energy from January 1, 1998, through December 31, 1998, and all or any portion of its accumulated Peaking Energy requirements beginning January 1, 1999 through December 31, 2002 by obtaining such energy from an Alternate Power Source. Such displaced Peaking Energy shall be deemed Displacement Peaking Energy. However, whether or not Old Dominion obtains Displacemen Peaking Energy, Virginia Power is obligated to plan for and be prepared to supply Old Dominion's Peaking Energy requirements until Virginia Power's obligation to provide Peaking Capacity ceases. Thereafter, Virginia Power will not be obligated to provide Old Dominion's Peaking Energy requirements and Old Dominion shall obtain Peaking Energy from an Alternate 41 Power Source to serve such energy requirements. Such energy shall be deemed Excluded Peaking Energy. (c) Peaking Capacity Charges. Old Dominion shall pay Virginia Power for Peaking Capacity purchased pursuant to Section 8.03(a) at the rates set forth in Appendix G, Section II. (d) Peaking Energy Charges. Through December 31, 1999, for purchases by Old Dominion of monthly Peaking Energy from Virginia Power pursuant to Section 8.03(b), Old Dominion shall pay Virginia Power a Monthly Peaking Energy Charge based on Virginia Power's average system energy cost, less North Anna energy cost, as set forth in Appendix G, Sections V.A. and VI. For the period commencing January 1, 2000, Virginia Power shall charge Old Dominion a Monthly Peaking Energy Charge for Peaking Energy purchased from Virginia Power based on the projected generation cost of Virginia Power's owned and operated peaking units subject to an annual true-up as set forth in Appendix G, Section V.B. The Virginia Power peaking units to be used in determining a Monthly Peaking Energy Charge shall be mutually agreed to by the Parties on or before each October 1 for the following calendar year. (e) Supplemental Billing Demands. On a monthly basis, if the Old Dominion Monthly Supplemental Demand, as determined in accordance with Appendix H, Section I., prior to crediting the Peaking Capacity, is less than the total Peaking Capacity provided by Virginia Power, then the Peaking Capacity shall be equal to the Old Dominion Monthly Demand less the sum of the Old Dominion Monthly North Anna Capacity and Old Dominion Monthly Accredited Firm Capacity (other than Peaking Capacity) and Old Dominion Monthly Accredited Non-Firm Capacity. Accordingly, the Old Dominion Monthly Supplemental Demand component of the Old Dominion Monthly Billing Demand shall be equal to zero for the month. 42 8.04 Limitation on Virginia Power's Obligation to Serve Supplemental Demand and Provide Supplemental Energy. (a) Virginia Power shall not be required by this Agreement to serve supplemental demand or provide energy outside the area in which Virginia Power provides requirements service at wholesale or retail as of the Effective Date, except for any minor boundary adjustments and minor reallocations between Old Dominion Members and contiguous systems. (b) If generating capacity or energy should become inadequate to supply the full needs of both the Old Dominion Members' consumers and Virginia Power customers, Old Dominion and Virginia Power shall share such deficiency on a pro rata basis for Old Dominion purchases from Virginia Power. (c) For any amount of the Old Dominion Monthly Supplemental Demand with respect to which Old Dominion obtains Excluded Supplemental Capacity, Old Dominion shall not be entitled to obtain from Virginia Power and Virginia Power shall have no obligations to serve such amount of Old Dominion Monthly Supplemental Demand or the associated Old Dominion Monthly Supplemental Energy. 8.05 Reserve Capacity and Energy and Charges Therefor Related to the North Anna Facilities and Clover Facilities. (a) During the term of this Agreement, Old Dominion will purchase and Virginia Power will provide Old Dominion Reserve Capacity for Old Dominion's ownership interest in North Anna Unit 1 and Unit 2 and Clover Unit 1 and Unit 2 until each of these units is retired or Old Dominion's ownership interest in any of such units is reduced to zero. For the period January 1, 1998, through December 31, 2001, for Old Dominion Monthly North Anna 43 Capacity and Old Dominion Monthly Clover Capacity Old Dominion shall carry generation reserves equal to the annual projected System Reserve Margin, less three and 23/100ths percent (3.23%). Beginning January 1, 2002, for Old Dominion Monthly North Anna Capacity and Old Dominion Monthly Clover Capacity, Old Dominion shall carry a percentage of generation reserves equal to the annually projected System Reserve Margin. Virginia Power agrees to sell and Old Dominion agrees to purchase Old Dominion Reserve Capacity at the rates set forth in Appendix I. Prior to October 1, 2001, the Parties will negotiate a Reserve Capacity Charge for 2002 and beyond. The Reserve Capacity Charge will be calculated based on mutually acceptable, designated Virginia Power-owned peaking units operating at that time. (b) Subject to the provisions of Section 8.05(c), Old Dominion Monthly Reserve Energy for the North Anna Facilities and Clover Facilities shall be sold by Virginia Power and purchased by Old Dominion at the Monthly Reserve Energy Charge based on Virginia Power average system energy costs, less North Anna energy costs, as set forth initially in Appendix G, Sections IV.A. and VI., through December 31, 2001. Effective January 1, 2002, Virginia Power will charge Old Dominion the negotiated and agreed upon Monthly Reserve Energy Charge based on the associated peaking energy costs from mutually acceptable, designated Virginia Power-owned peaking units operating at that time subject to an annual true-up pursuant to Appendix G, Section IV.B. Selection of the generating units and the appropriate rate calculation will be finalized on or before October 1 of each year for the following calendar year. (c) Old Dominion may displace all or any portion of its purchases of Old Dominion Monthly Reserve Energy from Virginia Power by purchasing such energy from an Alternate Power Source as of the Effective Date. Such energy shall be deemed Displacement 44 Reserve Energy. Delivery of any Displacement Reserve Energy will be scheduled in accordance with the schedules provided by Old Dominion or its reserve energy suppliers to Virginia Power, pursuant to Sections 6.01 and 6.02 and the Transmission Service Agreement. 8.06 Reserve Capacity and Reserve Capacity Charges for Jointly Planned Generation Resources. For future generation resources jointly planned between Virginia Power and Old Dominion, Old Dominion and Virginia Power shall at all times carry a percentage of generation reserves equal to the annually projected System Reserve Margin. If Virginia Power provides the necessary reserves for the jointly planned generation resource to Old Dominion, the Planning and Administrative Committee shall determine the price of such reserves. 8.07 Exchange of Displacement Energy. For any overscheduling of Displacement Supplemental Energy, Displacement Reserve Energy and Displacement Peaking Energy, Old Dominion and Virginia Power will exchange like-kind energy. 8.08 Limitations of Parties' Rights to Seek Regulatory Review. The terms and conditions of service specified in this Agreement, including the terms regarding rates for service and the term of the Agreement itself shall remain in effect for the term of the Agreement and shall not be subject to change through application to FERC pursuant to the provisions of Section 205 or 206 of the Federal Power Act absent the consent of both Parties hereto. 45 ARTICLE IX Facilities Charges 9.01 Facilities Charges. Old Dominion shall pay all facilities charges related to the facilities listed on Appendix J and any additional excess facilities requested by Old Dominion. Those charges shall be for facilities in excess of those normally required and shall initially be at the levels shown on Appendix J and shall be changed from time to time pursuant to the provisions of Appendix J. 46 ARTICLE X Billing 10.01 Billing Methods. Billing for all payments due under this Agreement shall be in the format provided in Appendix K. 10.02 Rendering Bill. Each Party shall render to the other Party monthly a billing statement no later than the twentieth day of the month, transmitted by wire or delivered by courier, covering the charges for rendering services under the Agreement. 10.03 Payment. (a) Payment for items 3 through 17 on Appendix K shall be due upon presentation of the bill. If payment is not received within ten (10) days from the date the invoice is transmitted or delivered, interest at the Special Interest Rate will accrue from date of presentation until payment is received. Date of presentation is the day the bill is wired or, if delivered by courier, the date delivered. (b) Payment for items 1 and 2 of Appendix K shall be due upon presentation. If payment is not received by the fifteenth of the month following presentation of the bill, interest at the Special Interest Rate will accrue from date of presentation until payment is received. Date of presentation is the day the bill is wired or, if delivered by courier, the date delivered. 10.04 Methods of Payment. All payments required to be made by either Party under this Agreement in excess of $10,000 shall be paid on or before the due date in immediately available funds by delivery (before 11:00 a.m., Richmond time) of either a Federal Reserve check or evidence of bank wire to the other Party's account, at a bank designated by such Party. If any such payment is to be made by bank wire, the Party entitled to the payment shall advise the other Party of the appropriate bank and account number at least one business day before the payment is 47 due. All other payments required to be made under this Agreement may be made by check deposited in the United States mail, first-class postage prepaid, and addressed to Treasurer, Virginia Electric and Power Company, P.O. Box 26666, Richmond, Virginia 23261, if payable to Virginia Power, and addressed to Vice President - Finance and Accounting, Old Dominion Electric Cooperative, P. O. Box 2310, Glen Allen, Virginia 23060, if payable to Old Dominion. 10.05 No Arbitration; Resolution of Disputes. No Party shall have the right to arbitrate any dispute that might arise with respect to this Agreement. Any disagreement between the Parties as to their rights or obligations under this Agreement shall first be addressed by consultation between the Authorized Virginia Power Representatives as determined in accordance with Section 19.03 of the Purchase, Construction and Ownership Agreement and the Authorized Old Dominion Representatives as determined in accordance with Section 19.02 of the Purchase, Construction and Ownership Agreement. In the event such representatives are unable to satisfactorily resolve their disagreement, they shall refer the matter to the Executive Committee created pursuant to Section 18.13 of this Agreement. No dispute as to the payment of an invoice rendered by either Party shall permit the other Party to delay payment of the disputed invoice, in full, on its payment date. If the invoiced Party shall have paid any such disputed invoice, in full, on or before its payment date and if the Authorized Virginia Power Representatives and the Authorized Old Dominion Representatives, or the Executive Committee created pursuant to Section 18.13, or a court of competent jurisdiction, should later determine that a disputed invoice was for an amount in excess of the correct amount due, then the invoicing Party shall be obligated to refund the difference to the invoiced Party within ten (10) days of such determination with interest, if any, upon such amount as follows: 48 (a) If such difference resulted from a deviation from an estimate not caused by error or bad faith, interest shall be payable at the Regular Interest Rate; (b) If such difference resulted from an error, interest shall be payable at the Regular Interest Rate; and (c) If such difference resulted from bad faith, such interest shall be payable at the Special Interest Rate. 10.06 Billing Adjustments. Billing errors or adjustments to estimates of $5,000 per event or more discovered through (i) resolution of billing disagreements pursuant to Section 10.05, (ii) audit or (iii) normal billing procedures, will be adjusted and interest will accrue at the Regular Interest Rate from the date of payment of the original bill through the date of payment of the adjustment. Adjustments of less than $5,000 per event will be made, but no interest will accrue. Adjustments including interest must be paid in accordance with Section 10.03 hereof. 49 ARTICLE XI Operating Costs 11.01 Operating Costs. (a) During the term of this Agreement, Old Dominion shall pay to Virginia Power only its pro rata share of the direct costs of operating and maintaining the North Anna Facilities, including any administrative and general costs directly attributable to North Anna ("North Anna A&G Costs"). A billing format is presented in Appendix L, Section I. hereto. The billing format is subject to review in accordance with Section 11.01(e) and any proposed changes to the format must be agreed to by both parties prior to any changes being implemented. For purposes of this Section 11.01(a), Old Dominion's pro rata share of the North Anna Facilities shall be 11.6%. This pro rata share shall be subject to change from time to time in accordance with Sections 15.03, 16.01 and 16.02 of the Purchase, Construction and Ownership Agreement. (b) As of the Effective Date, the Parties have been unable to identify to their mutual satisfaction those administrative and general costs that are to be allocated to Old Dominion under the "directly attributable" standard of Section 11.01(a). In lieu of allocating costs under this standard, the Parties agree that for the period January 1, 1996, through December 31, 2000, Old Dominion shall pay to Virginia Power a fixed monthly fee of $100,000, inclusive of costs previously billed as Cooperative Billing Fees and Nuclear Fuel Accounting Fees ("Fixed Monthly A&G Fee") as full and complete compensation for administrative and general services on behalf of the North Anna plant and its employees provided by Virginia Power. Virginia Power will not transfer costs from current corporate center functions and activities to North Anna or nuclear support O&M cost centers in order to recover costs from Old Dominion that are not directly attributable to North Anna. (c) "Administrative and general services" as used in this Article XI includes all functions or activities properly chargeable to the "Administrative and General Expenses" category of accounts as defined by FERC in its Uniform System of Accounts (accounts 920-935). Without regard to whether these are appropriate categories for inclusion in a future methodology for determining North Anna A&G Costs, services covered by the Fixed Monthly A&G Fee include, but are not limited to, the following Virginia Power corporate center functions or activities: Payroll Telecommunications Purchasing Human Resources Data Processing Auditing Rates Public Affairs Legal Governmental Affairs Treasury Corporate Communications Accounting General Administration and Supervision Finance The Parties agree that for the period January 1, 1996, through December 31, 2000, the Fixed Monthly A&G Fee expressly covers all administrative and general services and that these services or functions shall not be directly charged or allocated in any other fashion to Old Dominion except as follows: (i) North Anna NRC fees will be billed to Old Dominion as part of the North Anna operating costs based on Old Dominion's North Anna Percentage Ownership Interest. (ii) North Anna insurance premiums will be billed to Old Dominion as part of the "new investment" section of the invoice based on Old Dominion's North Anna Percentage Ownership Interest. (iii) North Anna and nuclear support payroll benefits (billed as payroll add-on) related to salaries included in the O&M FERC accounts will be billed to Old Dominion as part of the O&M section of the invoice. (The Fixed Monthly A&G Fee will cover payroll benefits (billed as payroll add-on) related to North Anna A&G Costs.) (d) In addition, Old Dominion shall pay a pro rata share of only the specific expenses associated with involuntary severance of employees arising out of Virginia Power's Vision 2000 program directly attributable to North Anna for only the years 1996 through 1998. Those payments shall be calculated as follows: 1996 - pro rata share of actual severance expenses, not to exceed $400,000; 1997 - pro rata share of actual severance expenses, not to exceed $200,000; 1998 - pro rata share of actual severance expenses, not to exceed $20,000. For purposes of this Section 11.01 (d), Old Dominion's pro rata share of actual severance expenses shall be based on: (i) 11.6% of severance expenses associated with employees at North Anna, in accordance with Appendix L, Footnote (A); (ii) 6.12% of severance expenses associated with employees in nuclear support business units in accordance with Appendix L, Footnote (B); (iii) .881% of severance expenses associated with employees in the corporate center. (e) In the event Virginia Power institutes a cost savings program after the Effective Date that is intended to benefit both Parties, Virginia Power shall give Old Dominion prior notice of the program and demonstrate the expected cost savings to Old Dominion from the program if it expects Old Dominion to bear its reasonable proportion of the costs of such program. Old Dominion shall pay its reasonable, proportionate share of the costs of such program provided that the cost savings have been adequately demonstrated. (f) The Parties shall negotiate in good faith so that on or before December 31, 2000, they (1) mutually agree to a new methodology to calculate the North Anna A&G Costs, (2) mutually agree to use improved Virginia Power accounting or billing systems which allow for the specific identification and assignment of North Anna A&G Costs or; (3) mutually agree to adjust the Fixed Monthly A&G Fee to reflect changes in the costs or benefits to either Party. In the event the Parties are unable to agree on any of the foregoing, Virginia Power shall bill Old Dominion based on Virginia Power's understanding of the administrative and general costs directly attributable to North Anna for Old Dominion's share of North Anna A&G Costs and Old Dominion reserves all of its rights to take exception to and to object to such billings including making payments to Virginia Power under protest, based on Old Dominion's understanding of the administrative and general costs directly attributable to North Anna. (g) Virginia Power will continue to be obligated to provide all information provided to Old Dominion as of January 1, 1997, including all information shown in Appendix L, Section II. Any changes or improvements made by Virginia Power in its accounting system for North Anna costs should also be incorporated into the information provided to Old Dominion. 11.02 Nuclear Fuel Costs. Old Dominion will pay its pro rata share of the expenses associated with nuclear fuel as provided in the Nuclear Fuel Agreement. ARTICLE XII Accounting Matters and Access to Books and Records 12.01 Responsibility and Method of Accounting. All accounting related to the transactions contemplated by this Agreement shall utilize the accrual method of accounting and shall be in accordance with Generally Accepted Accounting Principles, FERC's Uniform System of Accounts or as prescribed by other regulatory agencies having jurisdiction, all as in effect from time to time. 12.02 Right to Inspect Records, Etc . (a) During normal business hours and subject to conditions consistent with the conduct by Virginia Power of its regular business affairs and responsibilities, Virginia Power will provide Old Dominion, Old Dominion's Authorized Representative(s) or any auditor utilized by Old Dominion reasonably acceptable to Virginia Power or any nationally recognized auditing firm retained by Old Dominion, access to Virginia Power's books, records, and other documents, directly related to the performance of Virginia Power's obligations under this Agreement (but excluding internal memoranda, records and documents relating to such matters and minutes of the Board of Directors and committees thereof) and, upon request, copies thereof, which set forth (i) all costs applicable to the construction, operation, maintenance and retirement of the North Anna Facilities to the extent necessary to enable Old Dominion to verify the costs for which Old Dominion is billed pursuant to the provisions of this Agreement, and (ii) matters relating to the design, construction, operation, and retirement of the North Anna Facilities in proceedings before any regulatory body or governmental agency having jurisdiction. Old Dominion will bear the cost of any copying, review or audit of such books and records. Notwithstanding the foregoing, however, Virginia Power shall not be required to make available to Old Dominion any reports and information relating to personnel practices, staffing or labor relations. (b) During normal business hours and subject to conditions consistent with the conduct by Old Dominion of its regular business affairs and responsibilities, Old Dominion will provide Virginia Power, Virginia Power's Authorized Representative(s), or any auditor utilized by Virginia Power reasonably acceptable to Old Dominion or any nationally recognized auditing firm retained by Virginia Power, access to Old Dominion's books, records, and other documents (but excluding internal memoranda, records and documents relating to such matters and minutes of the Board of Directors and committees thereof), and, upon request, copies thereof, which relate to this Agreement. Virginia Power will bear the cost of any copying, review or audit of such books and records. Notwithstanding the foregoing, however, Old Dominion shall not be required to make available to Virginia Power any reports and information relating to personnel practices, staffing or labor relations. 12.03 Confidentiality. During the term of this Agreement, it may become necessary or desirable, from time to time, for one Party to provide to the other Party information which is either privileged, confidential or proprietary (whether so designated by the Party providing it or at the time of that Party's having obtained it from a third party, and if the latter, there will be no obligation to disclose such information to the requesting Party without the consent of such third party; provided, however, that the Party that obtained such information will use its best efforts to obtain such consent). The Party desiring to protect any such information (the labeling Party) may label such information as either privileged, confidential or proprietary and thereafter the other Party will not reproduce, copy, use or disclose (except when required by governmental authorities or in connection with obtaining requisite governmental licenses, permits or approvals) any such information in whole or i part for any purpose without the written consent of the labeling Party, which consent will not be unreasonably withheld. Each Party may use any such copy, the information contained therein, or both, only in the exercise of its respective rights and obligations pursuant to this Agreement and such information will neither be sold nor used in connection with other generating plants or for the benefit of any third party. Each Party will take all reasonable steps to protect the other Party's proprietary, privileged, or confidential information, including, but not limited to, by (a) restricting its use internally on a "need-to-know" basis, (b) obtaining appropriate confidentiality agreements from those employees, agents, and contractors to whom such information may be otherwise disclosed under this Agreement, and (c) ensuring the return of all copies of labeled information to the labeling party when the need therefor to aid in performance of this Agreement no longer exists. The respective mortgagees and security deed holders of the Parties will be entitled to inspect (but not to copy) any information labeled by one of the Parties that has not been designated as proprietary, privileged or confidential by any other person or entity. In disclosing confidential or proprietary information to governmental authorities, the disclosing Party shall cooperate with the labeling Party in minimizing the amount of such information furnished including the redaction of information appearing on specific documents as is appropriate under the circumstances. At the specific request of the labeling Party, the other Party will endeavor to secure the agreement of such governmental authorities to maintain specified portions of such information in confidence. Notwithstanding the foregoing, no Party will be liable to protect the confidentiality of information as provided in this Section 12.03 if such information is otherwise available to such Party or is in the public domain. This Section 12.03 will not limit or restrict compliance by RUS or any governmental authority with requests under the Freedom of Information Act for any copies of, or the information contained in, anything in the possession of RUS or other governmental authority obtained pursuant to this Agreement. Compliance by RUS or other governmental authority with any such request will not constitute a violation of this Agreement. ARTICLE XIII Liability, Service Interruptions and Force Majeure 13.01 Liability. (a) In providing the services called for by this Agreement, Virginia Power shall use reasonable diligence at all times to provide reasonably adequate service. Virginia Power, however, does not guarantee continuous service. The Parties acknowledge that, at the request of and for the convenience of Old Dominion, Virginia Power is to have full responsibility for the maintenance and operation of the North Anna Facilities. The judgment of Virginia Power personnel shall be final in decisions concerning operation and maintenance of the North Anna Facilities. With respect to claims of third parties, Old Dominion agrees that Virginia Power does not by this Agreement assume any risks or liabilities with respect to the operation and maintenance of Old Dominion's share in the North Anna Facilities, and that the amounts payable to Virginia Power for its performance under this Agreement are determined on the basis that Virginia Power does not assume such risks or liabilities. Virginia Power's obligation to Old Dominion with respect to the operation and maintenance of the North Anna Facilities shall be as set forth in this Agreement, the Purchase, Construction and Ownership Agreement and the Nuclear Fuel Agreement. (b) In addition to all other limitations on liability contained in this Agreement, neither Party hereto shall be liable to the other Party to this Agreement for any damage or loss resulting from the interruption, prevention, suspension or failure of service caused by: (i) Force Majeure, as defined in Section 13.03 below; or (ii) An emergency action due to an adverse condition or disturbance on a Party's system, or on any other system which requires automatic or manual interruption of the supply of electricity to some customers or areas in order to limit the extent of, or damage caused by, the adverse condition or disturbance, or to prevent damage to generating or transmission facilities, or to expedite restoration of service, or to effect a reduction in service to compensate for an emergency condition on an interconnected system; or (iii) The making of necessary inspections of, adjustments to, changes in, or repairs to a Party's lines, substations or other facilities and in cases where the continuation of services would endanger persons or property. (c) With respect to claims relating to the quality, continuity, reliability or price of electric service, (i) Virginia Power shall not be liable to Old Dominion Members or the member-consumers of Old Dominion Members or any other persons or entities claiming through or against Old Dominion or Old Dominion Members for any expenses, damages, injuries or loss arising out of or resulting from the maintenance or operation of facilities, and Old Dominion shall indemnify Virginia Power against such liability; and (ii) Old Dominion shall not be liable to the retail or wholesale customers of Virginia Power or any other persons or entities claiming through or against Virginia Power for any expenses, damages, injuries or loss arising out of or resulting from the operation or maintenance of the North Anna Facilities, and Virginia Power shall indemnify Old Dominion against such liabilities. With respect to all other claims, the Parties will share all expenses and liabilities in the same proportion that they share ownership in the North Anna Facilities. 13.02 Responsibility on Either Side of Interconnection Point. Neither Party shall be responsible for the transmission, control, use or application of electric power provided under this Agreement on the other Party's side of any Interconnection Point. Electricity is supplied by Virginia Power to Old Dominion upon the express condition that after it passes the Interconnection Point it becomes the property of Old Dominion; and neither Party, unless and except to the extent that such results from the negligence or misuse of the property on the part of its employees or agents, subject to the limitations of Section 13.01, will be liable for loss or damage to any persons or property whatsoever, resulting directly or indirectly from the use, misuse, or presence of the said electricity, on the other Party's side of the Interconnection Point or for any loss or damage resulting from the presence, character, or condition of the wires or equipment of the other Party, nor shall it be responsible for the inspection or repair of such wires or equipment. 13.03 Force Majeure. Virginia Power and Old Dominion shall not be liable or responsible for any delay in the performance of, or the ability to perform, any duties or obligations required by this Agreement when such delay in performance or inability to perform results from a Force Majeure occurrence, except that the obligation to pay money in a timely manner is absolute and shall not be subject to the Force Majeure provisions. Force Majeure as used herein shall mean without limitation, the following: Acts of God; strikes, lockouts or other industrial disturbances; acts of public enemies; orders, or absence of necessary orders and permits of any kind which have been properly applied for, from the Government of the United States or from any State or Territory, or any of their departments, agencies or officials, or from any civil or military authority; extraordinary delay in transportation; inability to transport, store or reprocess spent nuclear fuel; unforeseen soil conditions; equipment, material, supplies, labor or machinery shortages; epidemics; landslides; lightning; earthquakes; fire; hurricanes; tornadoes; storms; floods; washouts; drought; war; civil disturbances; explosions; breakage or accident to machinery, generation, transmission or distribution facilities, pipes or canals; partial or entire failure of utilities; breach of contract by any supplier, contractor, subcontractor, laborer or materialman; sabotage; injunction; blight; famine; blockade; quarantine; or any other similar cause or event not reasonably within the control of Virginia Power or Old Dominion. 13.04 Remedy. A Party suffering an occurrence of Force Majeure shall remedy with all reasonable dispatch the cause or causes preventing such Party from carrying out its duties and obligations as required in this Agreement; provided, that the settlement of strikes, lockouts and other industrial disturbances affecting Virginia Power or Old Dominion facilities shall be entirely within the discretion of that Party, and it shall not be required to make settlement of strikes, lockouts, or other industrial disturbances by acceding to the demands of the opposing party or parties when such course is unfavorable in the judgment of such employer. ARTICLE XIV Representations and Warranties 14.01 Representations and Warranties of Virginia Power. Virginia Power represents and warrants as follows: (a) Virginia Power is a corporation duly incorporated and validly existing, in good standing, under the laws of Virginia, is duly qualified and authorized to do business and is in good standing in each jurisdiction where the character of its properties or the nature of its actions makes such qualification necessary, and has the corporate power to carry on its business as now being conducted and possesses all Federal and State authority and local franchises necessary for the maintenance and operation of its properties and business with such minor exceptions as will not materially interfere with the operation and maintenance of the North Anna Facilities. (b) Consummation of the transactions hereby contemplated and performance of this Agreement by Virginia Power will not result in violation of any laws, ordinance or governmental rules to which Virginia Power is subject. Virginia Power either has obtained, or at the Effective Date shall have obtained, all necessary governmental approvals and consents in connection with the consummation by Virginia Power of the transactions hereby contemplated and the performance by it of this Agreement. (c) The consummation of the transactions hereby contemplated and the performance by Virginia Power of this Agreement will not result in the breach of, or constitute a default under, the Articles of Incorporation or By-Laws of Virginia Power or any indenture (including the Indenture of Mortgage), mortgage, deed of trust, bank loan or credit agreement, or other agreement or instrument to which Virginia Power is a party or by which Virginia Power or its properties may be bound or affected, or result in the creation of any lien, charge, security interest or encumbrance upon any property of Virginia Power, and Virginia Power is not in default under any term of any such agreement or instrument. (d) Virginia Power is not a "registered holding company," but is a "subsidiary company" of an exempt registered holding company within the meaning of the Public Utility holding Company Act of 1935; and Virginia Power is not, and is not directly or indirectly controlled by, or acting on behalf of any person which is, an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (e) On the date hereof there exists, as to Virginia Power, no Event of Default or event or condition which, with the giving of notice or the lapse of time or both, would constitute an Event of Default. 14.02 Representations and Warranties of Old Dominion. Old Dominion represents and warrants as follows: (a) Old Dominion is a generation and transmission cooperative duly incorporated and validly existing, in good standing, under the laws of Virginia, is duly qualified and authorized to do business and is in good standing in each jurisdiction where the character of its properties or the nature of its actions makes such qualification necessary, and has the corporate power to carry on its business as now being conducted and possesses substantially all Federal and State authority and local franchises necessary for the maintenance, operation of its properties and business with such minor exceptions as will not materially interfere with the maintenance and operation of the North Anna Facilities. (b) Consummation of the transactions hereby contemplated and performance of this Agreement by Old Dominion will not result in violation of any laws, ordinances, or governmental rules to which it is subject. Old Dominion either has obtained, or at the Effective Date shall have obtained, all necessary governmental approvals and consents, including the approval of RUS, if needed, in connection with the consummation by Old Dominion of the transactions hereby contemplated and the performance by it of this Agreement. (c) The consummation of the transactions hereby contemplated and the performance by Old Dominion of this Agreement, the Purchase Construction and Ownership Agreement and the Nuclear Fuel Agreement will not result in the breach of, or constitute a default under, the Articles of Incorporation or By-Laws of Old Dominion or any indenture, mortgage, deed of trust, bank loan or credit agreement, or other agreement or instrument to which Old Dominion is a party or by which Old Dominion or its properties may be bound or affected, or result in the creation of any lien, charge, security interest or encumbrance upon any property of Old Dominion (other than Permitted Encumbrances, as that term is defined in the Purchase Construction and Ownership Agreement) and Old Dominion is not in default under any term of any such agreement or instrument. (d) On the date hereof there exists, as to Old Dominion, no Event of Default or event or condition which, with the giving of notice or the lapse of time or both, would constitute an Event of Default. (e) Each of the Old Dominion Members has entered into and will be bound by the Wholesale Power Contracts on the Effective Date. (f) Old Dominion is authorized to act solely for each and all of the Old Dominion Members in all communications, transactions and relationships with Virginia Power pursuant to this Agreement. 14.03 Conditions Precedent. On or prior to the Effective Date, each of the following conditions shall have been satisfied: (a) this Agreement shall have been accepted for filing by the FERC, (b) all representations and warranties in Sections 14.01 and 14.02 hereof shall be true with the same effect as though such representations and warranties had been made on and as of such date, and (c) each Party shall have performed all agreements on its part required to be performed on or prior to such date. ARTICLE XV Term of Agreement This Agreement shall become effective on the Effective Date. Unless earlier terminated pursuant to the provisions of Article XVII, this Agreement shall terminate upon the earlier of (1) the date on which the last of the North Anna Facilities is retired (2) the date upon which Old Dominion's ownership interest in the North Anna Facilities and Nuclear Fuel is reduced to zero, or (3) or as otherwise agreed to by the Parties. ARTICLE XVI Filing with FERC This Agreement shall be filed with FERC, with the request that it become effective on the Effective Date. Old Dominion will join in Virginia Power's request that this Agreement and the initial rates contained herein be accepted for filing with a suspension of no longer than one day and will support the other provisions of this Agreement. If FERC does not accept the provisions of this Agreement for filing or allows the contract to become effective only with changes or conditions which materially alter the Agreement (thereby defeating the intent of the Parties), then, notwithstanding any other provisions of this Agreement the Parties will make a good faith effort to re-negotiate this Agreement to make mutually acceptable changes to remedy any issues cited by FERC as reasons for its non-acceptance. In the event that the Parties are unable to reach a mutually satisfactory re-negotiated Agreement, this Agreement shall be null and void. In the event implementation of this Agreement is delayed beyond January 1, 1998, because of required regulatory approvals, Virginia Power, with the support of Old Dominion, will take such steps as are necessary and feasible to provide Old Dominion with the economic benefit of the pricing agreed upon herein. ARTICLE XVII Default 17.01 Events of Default. Each of the following shall be "Events of Default" under this Agreement: (a) The failure of either Party to make any payment then due to the other Party as required by this Agreement within 30 days of the date when such payment became due and payable; provided, however, that no Party shall be in default for nonpayment of any amount due and payable hereunder to the other Party that can be offset within 30 days after the date on which such amount became due and payable. (b) Willful failure by any Party to perform any other obligation to the other Party, other than obligations for the payment of money, provided that the defaulting party shall have been given not less than 60 days' notice of such willful failure by the non-defaulting Party and such defaulting Party shall have failed to correct such default or shall have failed to use its reasonable best efforts to correct such default. (c) Any of the following acts by any Party: (i) the insolvency or bankruptcy of a Party or its inability or admission in writing of its inability to pay its debts as they mature, or the making of a general assignment for the benefit of, or entry into any composition or arrangement with, its creditors other than Old Dominion's or Virginia Power's mortgagee, as the case may be; or (ii) the application for, or consent (by admission of material allegations of a petition or otherwise) to, the appointment of a receiver, trustee or liquidator for any Party or for all or substantially all of its assets, or its authorization of such application or consent, or the commencement of any proceedings seeking such appointment against it without such authorization, consent or application, which proceedings continue undismissed or unstayed for a period of 60 days; or (iii) the authorization or filing by any Party of a voluntary petition in bankruptcy or application for or consent (by admission of material allegations of a petition or otherwise) to the application of any bankruptcy, reorganization, readjustment of debt, insolvency, dissolution, liquidation or other similar law of any jurisdiction or the institution of such proceedings against any Party without such authorization, application or consent, which proceedings remain undismissed or unstayed for 60 days or which result in adjudication of bankruptcy or insolvency within such time. 17.02 Virginia Power's Rights on Default of Old Dominion. Whenever any Event of Default by Old Dominion shall have occurred and Virginia Power intends to require that the default be remedied, Virginia Power shall give Old Dominion written notice to remedy the default. If the default shall not have been fully cured within 30 days from the date of the notice, Virginia Power shall have the rights set forth herein, in addition to all other rights it may have at law or in equity. (a) Where the default is a failure to pay money when due: (i) Subject to the limitations contained in the Federal Power Act or regulations duly promulgated thereunder, Virginia Power may, 30 days after delivery to Old Dominion and the Old Dominion Members of written notice of termination, terminate all service under this Agreement. Notwithstanding such termination, Virginia Power shall be authorized to continue to operate, maintain and fuel the North Anna Facilities and to schedule and dispatch the capacity and energy from such North Anna Facilities. In the event this provision is invoked Virginia Power shall maintain an accurate record of all the benefits, including but not limited to the capacity and energy from Old Dominion's ownership interest in the North Anna Facilities, and costs of such continued operation, maintenance and fueling to provide for a reasonable settlement following removal of the default. (ii) Failure of Old Dominion to make any payment on the date required under this Agreement shall obligate Old Dominion to pay to Virginia Power (a) the unpaid amount, (b) interest on the unpaid amount at the Special Interest Rate from the date such payment was due until the amount is paid and (c) the reasonable expenses incurred by Virginia Power in collecting the unpaid amount. (iii) Where a default under Article XV of the Purchase, Construction and Ownership Agreement shall have otherwise permitted Virginia Power to purchase all or a portion of Old Dominion's ownership interest in the North Anna Facilities (as those terms are defined in the Purchase, Construction and Ownership Agreement) any amount in default hereunder shall be offset against the purchase price to be paid to Old Dominion. (b) Where the default is the willful failure by Old Dominion to perform an obligation hereunder other than the obligation to pay money when due, Virginia Power may take any lawful action that will remedy the default or mitigate its effects, and Old Dominion shall, upon demand by Virginia Power, pay reasonable losses or damages incurred by Virginia Power as a direct and proximate result of the default and all expenses incurred by Virginia Power in remedying the default or mitigating its effects, together with interest at the Special Interest Rate on that amount until the total amount is paid. A failure by Old Dominion to make payment hereunder shall constitute a default under Section 17.01(a) and give rise to the remedies available under Section 17.02(a). (c) Where the default is any of the acts set forth in Section 17.01(c), Virginia Power shall have the right to take any lawful action, including termination of this Agreement, that Virginia Power determines to be necessary to minimize its losses or enhance its prospects of recovery of amounts due and to become due to it. 17.03 Old Dominion's Rights on Default of Virginia Power. Whenever any Event of Default by Virginia Power shall have occurred and Old Dominion intends to require that the default be remedied, Old Dominion shall give Virginia Power written notice to remedy the default. If the default shall not have been fully cured within 30 days from the date of the notice, Old Dominion shall have the rights set forth herein, in addition to all other rights it may have at law or in equity. (a) Where the default is a failure to pay money when due, Old Dominion shall have the right to withhold from Virginia Power payment of Old Dominion's obligations hereunder to the extent of the amount in default plus interest at the Special Interest Rate thereon until the amount is paid. (b) Where the default is the willful failure by Virginia Power to perform an obligation hereunder other than the obligation to pay money when due, Old Dominion may take any lawful action that will remedy the default or mitigate its effects, and Virginia Power shall, upon demand by Old Dominion, pay reasonable losses or damages incurred by Old Dominion as a direct and proximate result of the default and all expenses incurred by Old Dominion in remedying the default or mitigating its effects, together with interest at the Special Interest Rate on that amount until the total amount is paid. A failure by Virginia Power to make payment hereunder shall constitute a default under Section 17.01(a) and give rise to the remedies available under Section 17.03(a). (c) Where the default is any of the acts set forth in Section 17.01(c), Old Dominion shall have the right to take any lawful action, including termination of this Agreement, that Old Dominion determines to be necessary to minimize its losses or enhance its prospects of recovery of amounts due and to become due to it. 17.04 Disputes Concerning Default . In the event that any Party shall dispute an asserted default by it, such Party shall pay the disputed payment or perform the disputed obligations, but may do so under protest. The protest shall be in writing, shall precede or accompany the disputed payment or performance of the disputed obligations, shall specify the reasons upon which the protest is based and shall be delivered to the other Party hereunder. In the event it is determined that the protesting Party is entitled to a refund of all or any portion of a disputed payment or payments, or is entitled to reimbursement of the cost of performing a disputed obligation theretofore made or performed, then the protesting Party shall be reimbursed such amount with interest at the Regular Interest Rate for the period involved. 17.05 Additional Obligations . With respect to any Party as to which an Event of Default has occurred, such Party shall use its best efforts to take any and all such further actions and shall execute and file, where appropriate, any and all such further legal documents and papers as may be reasonable under the circumstances in order to facilitate the carrying out of this Agreement or otherwise effectuating its purpose, including but not limited to action to seek any required governmental or regulatory approval and to obtain any other required consent, release, amendment or other similar document. 17.06 Injunctive Relief . The Parties hereto agree and acknowledge that the failure of a Party to perform any of its obligations under this Agreement, including the execution of legal documents which may be reasonably requested as set forth in this Article XVII, would cause irreparable injury to the other Party and that the remedy at law for any violations or threatened violation thereof would be inadequate, and agree that the other Party shall be entitled to a temporary or permanent injunction or other equitable relief specifically to enforce such obligation without the necessity of proving the inadequacy of its legal remedies. 17.07 No Remedy Exclusive . No remedy conferred upon or reserved to the Parties hereto in this Article XVII is intended to be exclusive of any other remedy or remedies available hereunder or now or hereafter existing at law, in equity, or by statute or otherwise, but each and every such remedy shall be cumulative and shall be in addition to every other such remedy. The pursuit by any Party of any specific remedy shall not be deemed to be an election of that remedy to the exclusion of any other or others, whether provided hereunder or by law, equity or statute. 17.08 Agreement to Pay All Costs to Cure Default . (a) A late payment charge during periods of default shall accrue on any amount in default at an annual rate equal to that of the Special Interest Rate. (b) If an Event of Default should occur and a Party not in default should employ attorneys or incur other expenses for the collection of any payment or the enforcement of performance or observation of any condition or obligation on the part of a defaulting Party or for the exercise of any other remedy hereunder, the defaulting Party agrees that it will on demand therefore reimburse the other Party for its reasonable expenses of such attorneys and such other expenses incurred. No default shall be deemed cured until all costs payable under this Article, including any attorneys' fees incurred by the Party not in default, and payments pursuant to this Agreement shall have been paid or reimbursed. 17.09 General Covenant by the Parties. Each Party hereto covenants and agrees that if any event shall occur or condition exist which constitutes, or which after notice, lapse of time or both, would constitute an Event of Default on its part pursuant to this Article, it shall immediately notify the other Party thereof, specifying the nature thereof and any action taken or proposed to be taken with respect thereto. ARTICLE XVIII Miscellaneous 18.01 No Delay. No disagreement or dispute of any kind between the Parties to this Agreement or between a Party and any other entity, concerning any matter, including, without limitation, the amount of any payment due from said Party or the correctness of any billing made to the Party, shall permit either Party to delay or withhold any payment or the performance of any other obligation pursuant to this Agreement. Each Party shall promptly and diligently undertake to resolve such disagreement or dispute without undue delay and in good faith. 18.02 Further Documentation. From time to time after the execution of this Agreement, the Parties hereto shall, within their legal authority, execute other documents as may be necessary, helpful or appropriate to carry out the terms of this Agreement. 18.03 Notice. Any notice, request, consent or other communication permitted or required by this Agreement (other than payments as provided in Section 10.04) shall be in writing and shall be deemed given when delivered by hand or (unless otherwise required by the terms of this Agreement) when deposited in the United States Mail, first class, postage prepaid, and if to Virginia Power, addressed to: Senior Vice President - Commercial Operations Virginia Electric and Power Company P.O. Box 26666 Richmond, Virginia 23261 and if to Old Dominion, addressed to: President Old Dominion Electric Cooperative P. O. Box 2310 Glen Allen, Virginia 23060 unless a different officer or address shall have been designated by the respective Party by notice in writing sent to the other Party hereto. 18.04 Headings Not to Affect Meaning. The descriptive headings of the various articles and sections of this Agreement have been inserted for convenience of reference only and shall in no way modify or restrict any of the terms and provisions hereof. 18.05 No Association, Trust, Joint Venture or Partnership; Tax Matters. Notwithstanding any provision of this Agreement, the Parties do not intend to create hereby any association, trust, joint venture or partnership under the law of Virginia, although the Parties acknowledge that the ownership and operation of the North Anna Facilities may constitute a partnership for tax purposes. If it should appear that one or more changes to this Agreement would be required in order to avoid the creation or terminate the existence of any such entity, the Parties agree to negotiate promptly and in good faith with respect to such changes. Virginia Power and Old Dominion hereby agree that they will both elect to exclude the arrangement created by this Agreement from the application of Subchapter K of the Internal Revenue Code of 1954, as amended, and execute all documents required by either Party to effect that result. 18.06 Successors and Assigns. This Agreement shall be binding upon, and shall inure to the benefit of Virginia Power and Old Dominion, and their respective successors and assigns, provided that no succession to or assignment of any rights or obligations created hereunder, other than an assignment or transfer to the U.S. Government or any agency thereof, the National Rural Utilities Cooperative Finance Corporation, or any other domestic financing institution solely as security for loans or advances, shall take place without the prior written consent of the other Party. 18.07 Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 18.08 Severability. In the event any of the terms, covenants or conditions of this Agreement or amendments thereof or the application of any such term, covenant or condition or amendment thereof shall be held invalid as to a Party or circumstance by any court or governmental agency having jurisdiction, all of the other terms, covenants and conditions of this Agreement and amendments thereof shall not be affected thereby and shall remain in full force and effect. 18.09 Applicable Law. This Agreement is made under and shall be governed by the laws of the Commonwealth of Virginia. 18.10 No Waiver. The failure of either Party to enforce at any time any of the provisions of this Agreement or to require at any time performance by the other Party of any of the provisions hereof, shall in no way be construed to be a waiver of such provisions, nor in any way to affect the validity of this Agreement or any part hereof or the right of such Party thereafter to enforce each and every such provision. 18.11 Computation of Time. In computing any period of time prescribed or allowed under this Agreement, the day on which the act or event occurs after which the designated period of time begins to run shall not be included. The last day of the period so computed shall be included if it is a business day; if it is not a business day, the period shall run until the end of the next day which is a business day. 18.12 Survivorship of Obligations. The termination of this Agreement shall not discharge either Party hereto from any obligation it owes to the other Party under this Agreement by reason of any transaction, loss, cost, damage, expense or liability which shall occur or arise (or the circumstances, events or basis of which shall occur or arise) prior to such termination. It is the intent of the Parties hereby that any such obligation owed (whether the same shall be known or unknown at the termination of this Agreement or whether the circumstances, events, or basis of the same shall be known or unknown at the termination of this Agreement) shall survive the termination of this Agreement. 18.13 Executive Committee. An Executive Committee, consisting of the Chief Executive Officer and the Chief Operating Officer of Virginia Power, or their designees, and the President of Old Dominion, or his designee, shall meet from time to time for the purpose of resolving disputes arising from the activities of the North Anna Operating Committee and the Planning and Administration Committee established pursuant to Sections 2.01 and 3.01, respectively, of this Agreement and for the purpose of resolving disputes arising under the Purchase, Construction and Ownership Agreement pursuant to the procedures established by Section 20.03 of the Purchase, Construction and Ownership Agreement. 18.14 Entire Agreement. This Agreement, the Purchase, Construction and Ownership Agreement and the Nuclear Fuel Agreement together with appendices and exhibits incorporated by reference, shall constitute the entire understanding between the Parties hereto, pertaining to the subject matter contained herein. Neither Party hereto has relied, nor will rely, upon any oral or written representation or oral or written information made or given to such Party by the other Party hereto or any representative of or anyone on the behalf of the other Party hereto. 18.15 Non-Exclusive Agreement. Subject to the limitations in this Agreement, Virginia Power and Old Dominion shall have the right at all times to hereunder. 18.16 Relationship of the Parties. The duties, obligations, and liabilities of the Parties herein are intended to be several and not joint or collective. The Parties shall be individually responsible for their own obligations as provided herein. Neither of the Parties shall have the right or power to bind the other Party except as expressly provided in this Agreement. 18.17 Singular and Plural. Throughout this Agreement, whenever any word in the singular number is used, it should include the plural unless the context otherwise requires; and whenever the plural number is used, it shall include the singular, unless the context otherwise requires. 18.18 Equal Opportunity. During the performance of those parts of this Agreement relating to the construction by Virginia Power of any additions, betterments, improvements or replacements to the North Anna Facilities, Old Dominion and Virginia Power agree as follows: (a) The parties will not discriminate against any employee or applicant for employment because of race, color, religion, sex, age or national origin. The Parties will take affirmative action to ensure that applicants are employed, and that employees are treated during employment without regard to their race, color, religion, sex, or national origin. Such action shall include, but not be limited to, the following: employment, upgrading, demotion or transfer; recruitment or recruitmen advertising; layoff or termination; rates of pay or other forms of compensation; and selection for training, including apprenticeship. The Parties agree to post in conspicuous places, available to employees and applicants for employment, notices to be provided setting forth the provisions of this Equal Opportunity Clause. (b) The Parties will, in all solicitations or advertisements for employees placed by or on behalf of either party, state that all qualified applicants will receive consideration for employment without regard to race, color, sex, or national origin. (c) The Parties will send to each labor union or representative of workers with which it has a collective bargaining agreement or other contract or understanding, a notice to be provided advising the said labor union or workers' representatives of the Parties commitments under this Section, and shall post copies of the notice in conspicuous places available to employees and applicants for employment. (d) The Parties will comply with all provisions of Executive Order 11246, dated September 24, 1965, and of the rules, regulations and relevant order of the Secretary of Labor. (e) The Parties will furnish all information and reports required by Executive Order 11246, dated September 24, 1965, and by rules, regulations and relevant orders of the Secretary of Labor, or pursuant thereto, and will permit access to their books, records and accounts by the administering agency and the Secretary of Labor for purposes of investigation to ascertain compliance with such rules, regulations and orders. (f) In the event of either Party's noncompliance with the nondiscrimination clauses of this Agreement or with any of the said rules, regulations or orders, the Parties may be declared ineligible for further Government procedures authorized in Executive Order 11246, dated September 24, 1965, and such other sanctions may be imposed and remedies invoked as provided in said Executive Order or by rule, regulation or order of the Secretary of Labor, or as otherwise provided by law. (g) The Parties agree that, unless exempted by the rules, regulations or orders of the Secretary of Labor issued pursuant to Section 204 of Executive Order 11246, dated September 24, 1965, all subcontracts and purchase orders will cite that such contract or purchase orders are subject to Executive Order 11246 and such provisions will be binding upon each subcontractor or vendor. The Parties will take such action with respect to any subcontract or purchase order as the administering agency may direct as a means of enforcing such provisions, including sanctions for noncompliance; provided, however, that in the event either Party becomes involved in, or is threatened with, litigation with a subcontractor or vendor as a result of such direction by the administering agency, that Party may request the United States to enter into such litigation to protect the interests of the United States. 18.19 Good Faith. The Parties hereto expressly agree that every obligation undertaken in this Agreement will be performed in good faith. 18.20 Merger of Documents. All understandings and agreements, written or oral, among the Parties prior to the Effective Date, with respect to the matters herein contained, including the Interconnection and Operating Agreement, have been superseded in all respects by this Agreement, and all such understandings and agreements prior to the Effective Date are null and void and of no effect whatsoever. 18.21 Environment. The provisions of Section 20.17 of the Purchase, Construction and Ownership Agreement are incorporated herein by reference and shall apply as if set forth herein in full. 18.22 Kick-backs. The provisions of Section 20.18 of the Purchase, Construction and Ownership Agreement are incorporated herein by reference and shall apply as if set forth herein in full. 18.23 Nonsegregated Facilities. The provisions of Section 20.19 of the Purchase, Construction and Ownership Agreement are incorporated herein by reference and shall apply as if set forth herein in full. 18.24 Historic Places. The provisions of Section 20.21 of the Purchase, Construction and Ownership Agreement are incorporated herein by reference and shall apply as if set forth herein in full. 18.25 Public Officials Not to Benefit. The provisions of Section 20.22 of the Purchase, Construction and Ownership Agreement are incorporated herein by reference and shall apply as if set forth herein in full. 18.26 Flood Insurance Act. The provision of Section 20.23 of the Purchase, Construction and Ownership Agreement are incorporated herein by reference and shall apply as if set forth herein in full. 18.27 Safety. The provisions of Section 20.24 of the Purchase, Construction and Ownership Agreement are incorporated herein by reference and shall apply as if set forth herein in full. 18.28 Buy American. The provisions of Section 20.25 of the Purchase, Construction and Ownership Agreement are incorporated herein by reference and shall apply as if set forth herein in full. 18.29 Regulatory Changes. Nothing contained in this Agreement shall be construed as preventing either Party from pursuing its interests in independent system operators, pools, poolcos, transmission arrangements and pricing, ancillary services, or other issues that may be debated before regulatory or other bodies. ARTICLE XIX Amendment This Agreement may not be amended, modified, or terminated, nor may any obligation hereunder be waived orally. Any amendment shall be in writing, and shall be signed by the Chief Executive Officer or the President of Virginia Power or the person either of them may designate in writing and by the President of Old Dominion, or the person he may designate in writing, and must be approved by the Board of Directors of Old Dominion and Virginia Power subject to any required regulatory approval including the approval of RUS, as needed. IN WITNESS WHEREOF, the Parties have caused this amended and restated Agreement to be executed by their duly authorized officers as of the day and year first above written. VIRGINIA ELECTRIC AND POWER COMPANY By _________________________________________ Dr. James T. Rhodes President and Chief Executive Officer OLD DOMINION ELECTRIC COOPERATIVE By _________________________________________ R. W. Watkins President & Chief Executive Officer STATE OF VIRGINIA: COUNTY OF HENRICO to wit: The foregoing instrument was acknowledged before me this _____ day of __________, 1997, by Dr. James T. Rhodes, President and Chief Executive Officer of Virginia Electric and Power Company, a Virginia corporation, on behalf of the corporation and by R.W. Watkins, President and Chief Executive Officer of Old Dominion Electric Cooperative, a Virginia cooperative, on behalf of the cooperative. --------------------------- Notary Public My Commission expires: Virginia Electric and Power Company Secretary's Certificate I, J. Kennerly Davis, Jr., do hereby certify that I am the Secretary/Treasurer of Virginia Electric and Power Company (the "Company"), and that, as such, I am authorized to execute this certificate on behalf of the Company. I do hereby further certify that Dr. James T. Rhodes was duly elected or appointed, qualified and acting as President and Chief Executive Officer of the Company at the time of signing and delivery of the attached Amended and Restated Interconnection and Operating Agreement an was duly authorized to execute such Agreement on behalf of the Company, and that the signature appearing in such Agreement is his genuine signature. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the Company this ________ day of _______________, 1997. ----------------------------- J. Kennerly Davis, Jr. Secretary/Treasurer STATE OF VIRGINIA: CITY OF RICHMOND to wit: The foregoing instrument was acknowledged before me this _____ day of __________, 1997, by J. Kennerly Davis, Jr., Secretary and Treasurer, of Virginia Electric and Power Company, a Virginia corporation, on behalf of the corporation. --------------------------- Notary Public My Commission expires: Old Dominion Electric Cooperative Secretary's Certificate I, Cecil E. Viverette, Jr., do hereby certify that I am the Secretary/Treasurer of Old Dominion Electric Cooperative (the "Cooperative"), and that, as such, I am authorized to execute this certificate on behalf of the Cooperative. I do hereby further certify that R. W. Watkins was duly elected or appointed, qualified and acting as President and Chief Executive Officer of the Cooperative at the time of signing and delivery of the attached Amended and Restated Interconnection and Operating Agreement and was duly authorized to execute such Agreement on behalf of the Cooperative, and that the signature appearing in such Agreement is his genuine signature. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the Cooperative this ________ day of _______________, 1997. ----------------------------- Cecil E. Viverette, Jr. Secretary/Treasurer STATE OF VIRGINIA: COUNTY OF ___________________ to wit: The foregoing instrument was acknowledged before me this _____ day of __________, 1997, by Cecil E. Viverette, Secretary and Treasurer of Old Dominion Electric Cooperative, a Virginia cooperative, on behalf of the cooperative. --------------------------- Notary Public My Commission expires: Appendix A Page 1 of 3 APPENDIX A COMMON FACILITIES All property of Virginia Power in the following accounts on Virginia Power's books of account that is within the definition of Common Facilities as well as the Construction Work in Progress and the Completed Construction Not Classified related thereto: FERC ACCOUNT DESCRIPTION 320 Land and Land Rights 321 Structures & Improvements Clearing Water System Storm Sewers Sanitary Sewers Fire Protection Fuel Oil Storage RR Track Yard Yard Lighting Boat Dock Rifle Range Gun Towers Medical Classroom Condensate Fill Pump Station Auxiliary Building Turbine Building Turbine Outage Building Office Building Screenwell Structure Vacuum Priming Pump House Fuel Building Fuel Oil Pump House Yard Crane Water Treatment Building Service Building Weather Towers FERC ACCOUNT DESCRIPTION Meteorological Towers Security Building Security Control Center Dam Reservoirs Spillways Dikes Service Water Pump House Decontamination Building Waste Disposal Building Roadways Walkways Parking Lots 322 Reactor Plant Equipment Boron Recovery System Moving Platform Spent Fuel Pit Fuel Building Cranes Decontamination Cranes Fuel Receiving Equipment Spent Fuel Racks Reactor Cavity Purification Radioactive Waste Treatment and Disposal System Liquid Waste Solidification System Waste Disposal Evaporator Radioactive Gaseous Waste Radioactive Solid Waste Decontamination System Raw Water Supply System Condensate Storage Tank Auxiliary Boiler System 323 Turbo-Generator Equipment Service Water Pump House Equipment Bearing Cooling Water Tower Turbine Room Crane 324 Accessory Electric Equipment Screenwell Area Transformers and Equipment Reserve Station Transformer Bearing Cooling Tower Switch Boards 325 Miscellaneous Power Plant Equipment Compressed Air Systems Miscellaneous Shop Equipment Machine Shop Equipment Laboratory Testing Equipment Office Furniture and Equipment Other General Station Equipment Weather Station Equipment Marine Equipment Kitchen Equipment Fire Protection Equipment Plant Communications Telephone System Security Equipment Radiation Monitoring Equipment Gasoline Storage Equipment 352 Transmission Structures and Improvements 353 Transmission Station Equipment 390 Structures and Improvements Visitors Information Center 391 Office Furniture and Equipment 392 Transportation Equipment COMPLETED CONSTRUCTION NOT CLASSIFIED PROJECT NO. DESCRIPTION CONSTRUCTION WORK IN PROGRESS PROJECT NO. DESCRIPTION Appendix B Page 1 of 6 APPENDIX B MAJOR SPARE PARTS B.01 Description of Major Spare Parts. Those major items, each costing more than $100,000, as follows: Quantity Item Serial Number 1 Motor Charging Pump 17528LN01 1 Motor Charging Pump 17528LN02 1 RCP Motor S/N 3S-81P355 3S-81P355 1 Low Head Safety INJ Pump Motor 17538LN01 1 2B LP Rotor TN12763 15 2B LP Rotor TN12763 2 LP Rotor Discs-Spare 23A3932 2 LP Rotor Discs Spare 23A3932 2 LP Rotor Discs Spare 23A3932 10 LP Rotor Blades Spare 23A3932 4 LP Rotor Discs Spare 23A3932 1 LP Rotor Shaft Spare 23A3932 4 LP Rotor Blades Spare 23A3932 2 Spare Blade Rows 1A Rotor 23A3932 10 2B LP Rotor Turbine Disc TN12763 Major Spare Parts shall also include any other major items that the Parties agree (i) to keep in inventory and (ii) to designate as Major Spare Parts for possible use in replacing similar items in units located not only at the North Anna Nuclear Power Station but also at other power stations. Such designation shall state the units that the Major Spare Part is designated to serve. B.02 Old Dominion's Percentage Ownership Interest in Major Spare Parts. (a) Except as otherwise modified by the operation of Sections 15.03, 16.01 or 16.02 of the Purchase, Construction and Ownership Agreement, Old Dominion shall own its Old Dominion's Percentage Ownership Interest in any Major Spare Part until such Major Spare Part is used in a unit other than the Units. Upon use in any such unit, Virginia Power shall purchase such Major Spare Part from Old Dominion in accordance with B.04 hereof. (b) Virginia Power agrees to pay carrying charges, if any, with respect to each Major Spare Part equal to (i) Old Dominion's Percentage Ownership Interest, less (ii) the sum of Old Dominion's Percentage Ownership Interest in any Unit that the Major Spare Part serves, divided by the total number of units served by the Major Spare Part. (c) It is the intention of the Parties that the formula be reapplied at any time that the number of units served by any Major Spare Part or Old Dominion's Percentage Ownership Interest changes for any reason. In any case where ownership interest of the Parties are adjusted, the provisions of Section 16.04 of the Purchase, Construction and Ownership Agreement shall apply and appropriate payment shall be made pursuant to Section B.04 hereof. B.03 Ownership Responsibilities - Major Spare Parts. Virginia Power may make use of any Major Spare Part in any of the units at the North Anna Nuclear Power Station or other power stations for which such parts have been designated to serve in accordance with Section B.01 hereof and in accordance with the following conditions: A. If at any time a unit at the North Anna Nuclear Power Station or other power stations has need of a Major Spare Part to replace any part of an equivalent item that has been damaged, such Major Spare Part may be used in such unit; provided that another unit (for which the part has been designated in accordance with Section B.01 hereof) located at either station had not been damaged earlier and made prior claim to use such Major Spare Part. B. When a Major Spare Part is used in any unit, Virginia Power and Old Dominion shall have an obligation either to (i) repair such damaged item or (ii) to acquire a new item in place of the damaged item, as expeditiously as possible, and to return it to the original location of the Major Spare Part that was used. Payment therefor will be in accordance with Section B.04 hereof. Any time that any Major Spare Part is used in any unit other than the Units, Virginia Power shall be obliged to make payment to Old Dominion. The adjustment of ownership interest at the time a Major Spare Part is used shall conform, in all respects, to the provisions of Section 16.04 of the Purchase, Construction and Ownership Agreement. B.04 Cost Responsibilities - Major Spare Parts. Cost and payment responsibilities of the Parties for the Major Spare Parts shall be determined in accordance with the following: A. Subject to the provisions of Section B.04 (D) hereof, the responsibility of the Parties for any New Investment or costs for any Major Spare Part will be shared in proportion to the Parties then current ownership interest in that Major Spare Part. B. Virginia Power shall pay carrying charges on the interest stated in Section B.02(b), based upon the same principles under which carrying charges are paid pursuant to this Appendix B. excluding cancellation costs, taxes payable at closing and deferred taxes set forth in Exhibit N of the Purchase Agreement and the 15 percent mark-up reflected therein, while reflecting Old Dominion's actual cost of capital used to finance such Major Spare Parts, rather than 11%. C. Upon the use of any Major Spare Part in a non-North Anna unit, Virginia Power shall pay Old Dominion the amount necessary so that Old Dominion's net investment as reflected on Old Dominion's books in that Major Spare Part is $0. Upon the use of any Major Spare Part in a Unit, Virginia Power will cease paying carrying charges pursuant to Section B.02(b) on that Major Spare Part until a replacement Major Spare Part is acquired. The provisions of Section 16.04 of the Purchase, Construction and Ownership Agreement shall apply to any adjustment under that Section. D. The parties shall pay for any replacement Major Spare Part, subject to the next sentence, in proportion to their respective ownership interests in the unit in which the Major Spare Part was used, but the investment attributed to the replacement Major Spare Part when such part is designated as a Major Spare Part shall be equal to the dollar amount initially invested in the Major Spare Part that was used in the Unit needing that part. Accordingly, when the repaired or replacement part is designated a Major Spare Part, a payment shall be made to the appropriate Party so that the then resulting investment of the Parties in the Major Spare Part shall be equal to the investment of the Parties in the Major Spare Part that was used in the Unit needing that part. E. Upon any adjustment in Old Dominion's Percentage Ownership Interest in any Major Spare Part pursuant to Section B.02(c), payment shall be made to the Party whose ownership interest decreased, so that the percentage investment (including all cost components comprising New Investment, undepreciated) of each Party shall be equal to that Party's percentage ownership interest in the respective Major Spare Part. B.05 Hypothetical Illustration. Hypothetical Illustration of Cost Responsibility Associated with Ownership, Use and Replacement of Major Spare Parts Pursuant to Exhibit C 1. Major Spare Part - Net Investment $10,000,000 2. Ownership Responsibility Virginia Power 88.4% $ 8,840,000 Old Dominion 11.6% $ 1,160,000 Case (1) Major Spare Part Utilized at the Surry Nuclear Power Station - Replacement Costs More 1. Payment to Old Dominion at the time Major Spare Part is taken from its storage location $ 1,160,000 2. Cost of replacement (FOB) paid by Virginia Power (100%) $20,000,000 3. Payment by Old Dominion at the time Major Spare Part is replaced in its original location $ 1,160,000 4. Net Investment in the Major Spare Part for computation of cost responsibility when such part is next utilized $ 10,000,000 Case (2) Major Spare Part Utilized at the North Anna Nuclear Power Station - Replacement Costs More 1. No payment at the time Major Spare Part is taken from its storage location $ 2. Cost of replacement (FOB) paid by: Virginia Power (88.4% x $20,000,000) $17,680,000 Old Dominion (11.6% x $20,000,000) $ 2,320,000 3. Net Investment in the Major Spare Part for computation of cost responsibility when such part is next utilized $10,000,000 Case (3) Major Spare Part Utilized at the Surry Nuclear Power Station - Replacement Costs Less 1. Payment to Old Dominion at the time Major Spare Part is taken from its storage location $ 1,160,000 2. Cost of replacement (FOB) paid by Virginia Power (100%) $ 5,000,000 3. Payment by Old Dominion at the time Major Spare Part is replaced in its original location $ 1,160,000 4. Net Investment in the Major Spare Part for computation of cost responsibility when such part is next utilized $10,000,000 Case (4) Major Spare Part Utilized at the North Anna Nuclear Power Station - Replacement Costs Less 1. No payment at the time Major Spare Part is taken from its storage location $ 2. Cost of replacement (FOB) paid by: Virginia Power (88.4% x $5,000,000) $ 4,420,000 Old Dominion (11.6% x $5,000,000) $ 580,000 3. Net Investment in the Major Spare Part for computation of cost responsibility when such part is next utilized $10,000,000 Appendix C Page 1 of 1 APPENDIX C NORTH ANNA UNIT 1 All property of Virginia Power appearing in the following accounts on Virginia Power's books of account that is defined as North Anna Unit 1 in this Agreement as well as the Construction Work in Progress and the Completed Construction Not Classified related thereto: FERC ACCOUNT DESCRIPTION ------- ----------- 321 Structures and Improvements 322 Reactor Plant Equipment 323 Turbogenerator Units 324 Accessory Electric Equipment 325 Miscellaneous Power Plant Equipment Appendix D Page 1 of 1 APPENDIX D NORTH ANNA UNIT 2 All property of Virginia Power appearing in the following accounts on Virginia Power's books of account that is defined as North Anna Unit 2 in this Agreement as well as the Construction Work in Progress and the Completed Construction Not Classified related thereto: FERC ACCOUNT DESCRIPTION ------- ----------- 321 Structures and Improvements 322 Reactor Plant Equipment 323 Turbogenerator Units 324 Accessory Electric Equipment 325 Miscellaneous Power Plant Equipment Appendix E Page 1 of 1 APPENDIX E OLD DOMINION MEMBERS BARC Electric Cooperative Millboro, VA Community Electric Cooperative Windsor, VA Mecklenburg Electric Cooperative Chase City, VA Northern Neck Electric Cooperative Warsaw, VA Northern Virginia Electric Cooperative Manassas, VA Prince George Electric Cooperative Waverly, VA Rappahannock Electric Cooperative Fredericksburg, VA Shenandoah Valley Electric Cooperative Mt. Crawford, VA Southside Electric Cooperative Crewe, VA Appendix F Page 1 of 3 APPENDIX F SUPPORT FACILITIES F.01 Definition of Support Facilities. At the Effective Date, the following shall be the Support Facilities: ELECTRIC PLANT IN SERVICE FERC ACCOUNT DESCRIPTION - ------- ----------- 353 Transmission Station Equipment Telemetering Equipment COMPLETED CONSTRUCTION NOT CLASSIFIED PROJECT NO. DESCRIPTION - ----------- ----------- 99-0182 Surry Nuclear Training Simulator 99-0313 Personnel Radiation Monitoring Exposure System 99-2291 Nuclear Station Emergency Plan Total Completed Construction Not Classified CONSTRUCTION WORK IN PROGRESS PROJECT NO. DESCRIPTION - ----------- ----------- Thereafter, Support Facilities shall mean all those North Anna Facilities, wherever situated, including, but not limited to, both real and personal property, exclusive of Nuclear Fuel, Operating Inventory and Major Spare Parts, which are purchased, leased or otherwise obtained for the construction, operation and maintenance of one or more Unit(s) located at the North Anna Nuclear Power Station and one or more nuclear Unit(s) located at Virginia Power Appendix F Page 2 of 3 Surry Nuclear Power Station or at such other location as Virginia Power may have an interest in any nuclear facility and are listed in the following accounts in accordance with the Uniform System of Accounts: Plant In Service CCNC Acct. 101 Acct. 106 321 - Structures and Improvements 325 - Miscellaneous Power Plant Equipment 353 - Transmission Station Equipment 397 - Communication Equipment Construction Work in Progress F.02 Old Dominion's Percentage Ownership Interest in Support Facilities. (a) Except as otherwise modified by the operation of Sections 15.03, 16.01 or 16.02 of the Purchase, Construction and Ownership Agreement, Old Dominion's Percentage Ownership Interest in any Support Facility shall be an undivided ownership interest determined in accordance with the following formula: Sum of Old Dominion Percentage Ownership Interests SFOI = in all Units that the Support Facility serves _____________________________________________ Number of units served by Support Facility (b) It is the intention of the Parties that the formula be reapplied at any time that the number of units served by any Support Facility changes for any reason. In any case where ownership interest of the Parties are adjusted, the provisions of Section 16.04 of the Purchase, Construction and Operating Agreement, shall apply and appropriate payment shall be made pursuant to Section F.03 hereof. F.03 Investment and Cost Responsibilities of the Parties for Support Facilities. The investment and cost responsibilities of the Parties for any Support Facility will be shared in Appendix F Page 3 of 3 proportion to the Parties' then current ownership interest in that Support Facility. Upon any adjustment in Old Dominion's Percentage Ownership Interest in any Support Facility, payment shall be to the Party whose ownership decreased, so that the percentage investment (including all cost components comprising New Investment, undepreciated) of each Party shall be equal to that Party's percentage ownership interest in the respective Support Facility. Appendix G Page 1 of 12 APPENDIX G CHARGES FOR PURCHASES BY OLD DOMINION Charges for Old Dominion's purchases of demand and energy from Virginia Power shall be calculated according to the following provisions, subject to approval of these terms, conditions and charges by FERC: I. Monthly Supplemental Demand Charge A. The Monthly Supplemental Demand Charge, as set forth below, shall be applicable to all Old Dominion Monthly Billing Demand as determined for each calendar month in accordance with Section 8.01(a)(i) and Appendix H, Section III. of this Agreement: For Calendar Year 1998 - $8.28413/kW-month For Calendar Year 1999 - $6.82413/kW-month For Calendar Year 2000 - $6.63413/kW-month For Calendar Year 2001 - $6.08413/kW-month For Calendar Year 2002 - $5.51413/kW-month B. The Monthly Supplemental Demand Charge applicable to any Old Dominion Monthly Billing Demand supplied by Virginia Power pursuant to Section 8.01(a)(ii) and (iv) shall be as determined pursuant to Section 8.02 (b) (ii) of this Agreement. C. The above Monthly Supplemental Demand Charges are exclusive of transmission service and ancillary services charges which shall be paid pursuant to the Transmission Service Agreement. II. Peaking Capacity Charge A. The Peaking Capacity Charge, as set forth below, shall be applicable to all Peaking Capacity supplied by Virginia Power as determined for each calendar month in accordance with Section 8.03(a) and Appendix M, Section I. of this Agreement: For the Period January 1, 1998 Through December 31, 1999 - $4.66413/kW- month For the Period January 1, 2000 Through December 31, 2003 - $1.93413/kW-month B. The above Peaking Capacity Charges are exclusive of transmission service and ancillary services charges which shall be paid pursuant to the Transmission Service Agreement. Appendix G Page 2 of 12 III. Monthly Supplemental Energy Charge A. For the period January 1, 1998 through December 31, 2000, the Monthly Supplemental Energy Charge, as set forth below, shall be applicable to all Old Dominion Monthly Billing Energy as determined for each calendar month in accordance with Section 8.01(d) and Appendix H, Section VI. of this Agreement: $0.02195/kWh for all On-peak kWh $0.01985/kWh for all Off-peak kWh B. Effective January 1, 2001, and pursuant to Section 8.02(a)(ii) of this Agreement, the Monthly Supplemental Energy Charge shall be determined annually based on the projected energy costs of Virginia Power's combined cycle and peaking units included in the production cost model used by Virginia Power to develop its annual corporate budget, subject to an annual true-up on fuel costs (including handling and analysis ("H&A")), in accordance with the provisions stated below. The projected energy costs shall include fuel, H&A, and variable operating and maintenance (O&M) expenses. The Monthly Supplemental Energy Charge determined in this section shall be applicable to all Old Dominion Monthly Billing Energy supplied by Virginia Power. The Monthly Supplemental Energy Charge will be determined annually based on a forecast of Old Dominion projected hourly loads excluding Old Dominion Monthly Delivered SEPA Capacity, adjusted for losses, then excluding Old Dominion Monthly North Anna Capacity, Old Dominion Monthly Accredited Firm Capacity, Old Dominion Monthly Accredited Non-Firm Capacity, Excluded Supplemental Capacity, Peaking Capacity, and Excluded Peaking Capacity. The remaining hourly values will be sorted in descending order. This shall be referred to as Old Dominion's supplemental "Load Duration Curve." The area under the Load Duration Curve shall be equal to Old Dominion's total projected supplemental energy requirements for the year used in the formula below. The formula below is based on the sum of the cost of energy from peaking units and combined cycle units as if the supplemental demand requirements of Old Dominion were purchased from Virginia Power as two thirds peaking capacity and one third combined cycle capacity. Therefore, the Monthly Supplemental Energy Charge shall be calculated as follows: Re = [ Pe\e\ x Pe\c\ ] + [ Ce\e\ x Ce\c\ ] + VOM\S\ ----- ----- Te\e\ Te\e\ Appendix G Page 3 of 12 hT Tee = (SIGMA) Old Dominion Monthly h=0 Supplemental Demand hx Pee = (SIGMA) Old Dominion Monthly h=0 Supplemental Demand -1/3D
Cee = Te\e\ - Pe\e\ Where: Re = Projected Monthly Supplemental Energy Charge Te\e\ = Total estimated annual Old Dominion Monthly Supplemental Energy Pe\e\ = Estimated annual Old Dominion Monthly Supplemental Energy related to peaking capacity Ce\e\ = Estimated annual Old Dominion Monthly Supplemental Energy related to combined cycle capacity Pe\c\ = Weighted average projected fuel cost (including H&A) for designated peaking units on a $/kWh basis Ce\c\ = Weighted average projected fuel cost (including H&A) for designated combined cycle units on a $/kWh basis n VOM\s\ = [Pe\e\ x [(SIGMA) [[projected year's peaking units' Te\e\ Sdpu=1 total O&M cost - projected year's peaking units' fuel and H&A cost] n x 0.35] / (SIGMA) projected year's Sdpu=1 peaking units' energy]] + a [Ce\e\ x [(SIGMA) [[projected year's combined Te\e\ dccu=1 cycle units' total O&M cost - projected year's combined cycle units' fuel and H&A cost] a x 0.35] / (SIGMA) projected year's combined dccu=1 cycle units energy]] Appendix G Page 4 of 12 Sdpu = designated peaking units index (for this Section III. B.) n = total number of peaking units dccu = designated combined cycle units index a = total number of combined cycle units D = Maximum Old Dominion Monthly Supplemental Demand for the year hT = The total number of hours during the year hx = That hour where the supplemental demand equals 1/3 D h = The hourly index The attached Exhibit A to this Appendix G is an illustration of the variables Pe\e\, Ce\e\ and Te\e\ for a sample year. Pursuant to Section 8.02(a)(ii), the Monthly Supplemental Energy Charge shall be subject to an annual true-up on fuel costs (including H&A) based on the following formula. Virginia Power's twelve month ending report entitled "Virginia Power - Fuels Consumed Within Power Stations" for each respective year shall be used to determine the "Weighted average actual fuel costs for the designated peaking units" and the "Weighted average actual fuel costs for the designated combined cycle units". FR\e\ = [Pe\e\ x Pe\c\] + [Ce\e\ x Ce\c\] ----- ----- Te\e\ Te\e\ Where: FR\e\ = Projected Monthly Supplemental Energy Charge, less O&M FR\a\ = [Pe\e\ x Pa\c\] + [Ce\e\ x Ca\c\] ----- ----- Te\e\ Te\e\ Where: FRa = Actual Monthly Supplemental Energy Charge, less O&M Pa\c\ = Weighted average actual fuel cost (including H&A) for designated peaking units on a $/kWh basis Ca\c\ = Weighted average actual fuel cost (including H&A) for designated combined cycle units on a $/kWh basis The amount of refund or credit due to the respective Party shall be determined as follows: Appendix G Page 5 of 12 SECD = Ta\e\ x (FRe - FRa) Where: SECD = Amount of Monthly Supplemental Energy Charge adjustment Ta\e\ = Actual annual Old Dominion Monthly Billing Energy IV. Monthly Reserve Energy Charge A. For the period January 1, 1998 through December 31, 2001, the Monthly Reserve Energy Charge shall be the Monthly Supplemental Energy Charge stated in III.A. above and shall be applicable to all Old Dominion Monthly Reserve Energy as determined for each calendar month in accordance with Section 8.05(b) and Appendix H, Section IV. of this Agreement. B. Effective January 1, 2002, and pursuant to Section 8.05(b) of this Agreement, the Monthly Reserve Energy Charge shall be determined annually based on the projected energy costs of designated Virginia Power peaking units operating at the time and included in the production cost model used by Virginia Power to develop its annual corporate budget, subject to an annual true-up on fuel costs (including H&A), in accordance with the provisions stated below. The projected energy costs shall include fuel, H&A, and variable O&M expenses. The Monthly Reserve Energy Charge determined in this section shall be applicable to all Old Dominion Monthly Reserve Energy supplied by Virginia Power. REC\e\ = RECRe + VOMr Where: RECR\e\= Projected Monthly Reserve Energy Charge rate based on projected fuel cost (including H&A) for designated peaking units on a $/kWh basis REC\e\ = Projected Monthly Reserve Energy Charge r VOMr = (SIGMA) [[projected year's peaking units' total Rdpu = 1 O&M cost - projected year's peaking units' fuel and H&A cost] r x 0.35] /(SIGMA) Projected Year's Peaking Units' Energy Rdpu Rdpu = designated peaking units index (for this Section IV. B.) r = total number of peaking units For the Monthly Reserve Energy Charge annual true-up, Virginia Power's twelve month ending report entitled "Virginia Power - Fuels Consumed Within Power Stations" for each respective year shall be used to determine the actual Appendix G Page 6 of 12 fuel costs of the designated Virginia Power peaking units. The amount of refund or credit due to the respective Party shall be determined as follows: RECD = RE\a\ x (RECRe - FRECa) Where: RECD = Amount of Monthly Reserve Energy Charge adjustment RE\a\ = Actual annual Old Dominion Monthly Reserve Energy FRECa = Monthly Reserve Energy Charge rate based on actual fuel cost (including H&A) for designated peaking units on a $/kWh basis V. Monthly Peaking Energy Charge A. For the period January 1, 1998 through December 31, 1999, the Monthly Peaking Energy Charge shall be the Monthly Supplemental Energy Charge stated in III. A. above and applicable to all Peaking Energy supplied by Virginia Power as determined for each calendar month in accordance with Section 8.03(b) and Appendix M, Section II, of this Agreement. B. Effective January 1, 2000, and pursuant to Section 8.03(d) of this Agreement, the Monthly Peaking Energy Charge shall be determined annually based on the projected energy costs of designated Virginia Power peaking units operating at the time and included in the production cost model used by Virginia Power to develop its annual corporate budget, subject to an annual true-up on fuel costs (including H&A), in accordance with the provisions stated below. The projected energy costs shall include fuel, H&A, and variable O&M expenses. The Monthly Peaking Energy Charge determined in this section shall be applicable to all monthly Peaking Energy supplied by Virginia Power. PEC\e\ = PECR\e\ + VOM\p\ Where: PECR\e\ = Projected Monthly Peaking Energy Charge rate based on projected fuel cost (including H&A) for designated peaking units on a $/kWh basis PEC\e\ = Projected Peaking Energy Charge p VOM\p\ = (SIGMA) [[projected year's peaking units' total O&M Pdpu=1 cost - projected year's peaking units' fuel and H&A cost] p x 0.35] / (SIGMA) projected year's peaking units' Pdpu=1 energy Appendix G Page 7 of 12 Pdpu = designated peaking units indexes (for this Section V.B.) p= total number of peaking units For the Monthly Peaking Energy Charge annual true-up, Virginia Power's twelve month ending report entitled "Virginia Power - Fuels Consumed Within Power Stations" for each respective year will be used to determine the actual fuel costs (including H&A) of the designated Virginia Power peaking units. The amount of refund or credit due to the respective Party shall be determined as follows: PECD = PE x (PECRe - FPECa) Where: PECD = Amount of Peaking Energy Charge adjustment PE = Actual Peaking Energy FPECa = Monthly Peaking Energy Charge rate based on actual fuel cost (including H&A) for designated peaking units on a $/kWh basis VI. Annual Fuel Adjustment Factor A. The Annual Fuel Adjustment Factor shall be applicable as follows: 1. To all Old Dominion Monthly Billing Energy for the period January 1, 1998 through December 31, 2000. 2. To all Old Dominion Monthly Reserve Energy for the period January 1, 1998 through December 31, 2001. 3. To all Monthly Peaking Energy for the period January 1, 1998 through December 31, 1999. B. For the above periods, Old Dominion Monthly Billing Energy, Peaking Energy and Old Dominion Monthly Reserve Energy (on-peak and off-peak kilowatt-hours, respectively) shall be multiplied by the annual time-differentiated on-peak and off-peak fuel adjustment factors which shall be equal to : 1. The sum of: (a) the estimated current-period fuel adjustment factor, and (b) the prior-period deferral adjustment factor, multiplied by 2. 1.04978 to determine the annual on-peak fuel adjustment factor and 0.94922 to determine the annual off-peak fuel adjustment factor. Appendix G Page 8 of 12 C. The estimated current-period fuel adjustment factor to become effective with the April billing month of each year shall be based on the estimated fuel expenses allocable to Old Dominion's estimated supplemental and peaking energy through the year 1999 and supplemental energy through the year 2000 for the 12-month period beginning in April of each year, and shall be calculated by the fuel adjustment factor formula shown below rounded to the nearest thousandth of a cent. D. The prior-period deferral adjustment factor to become effective with the April billing month of each year shall be based on the difference between the total fuel expenses (using the criteria outlined in (1) through (3) of Paragraph VI.H. below) allocable to Old Dominion and the total fuel recoveries by Old Dominion for the 12 months prior to April of each year, divided by Old Dominion's estimated supplemental and peaking energy through the year 1999 and supplemental energy through the year 2000 for the 12-month period beginning with April of each year (6 months where a semi-annual change is made pursuant to Paragraph F. below). The prior-period deferral adjustment factor will be adjusted for taxes. E. The intent of the annual fuel adjustment factor is to recover all fuel expenses allocable to Old Dominion. To the extent the amount recovered from Old Dominion through the annual fuel adjustment factor and the fuel component of the base rate exceeds the cost of fuel allocable to Old Dominion for the same time period, this over-recovery shall be a credit in the calculation of the prior-period deferral adjustment factor for the 12-month period beginning with the next April. To the extent the amount recovered from Old Dominion through the annual fuel adjustment factor and the fuel component of the base rate is less than the cost of fuel allocable to Old Dominion for the same time period, this under-recovery shall be a charge in the calculation of the prior-period deferral adjustment factor for the 12-month period beginning with the next April. F. The annual fuel adjustment factor shall be reviewed on a semi-annual basis to determine if any change is required. The current and prior period portions of the fuel adjustment factor will be reviewed individually, and a change to one or both may be made. The adjustment may be deferred until the end of the 12-month period, provided the net difference between the Company's actual and estimated under-recovery at the end of the 12-month period is no greater than seven and one-half per centum of actual and estimated fuel expenses or the net difference between the actual and estimated over-recovery at the end of the 12-month period is no greater than five per centum of actual and estimated fuel expenses. G. Fuel Adjustment Factor Formula: F = [ E - B] (T) - S Where: Appendix G Page 9 of 12 F = Estimated annual fuel adjustment factor in dollars per kilowatthour. E = Estimated total system fuel expenses as defined in Paragraph VI.H. below allocated to Old Dominion. The energy allocation factor for Old Dominion shall be the ratio of: (a) Old Dominion supplemental and peaking energy through the year 1999 and supplemental energy through the year 2000 for the 12-month period beginning with April of each year divided by; (b) the total Company system energy excluding energy generated from North Anna Units 1 and 2, for the 12-month period beginning with April of each year. S = Estimated Old Dominion supplemental and peaking energy through the year 1999 and supplemental energy through the year 2000 at the generation level for the 12-month period beginning with April of each year. B = The current base cost of fuel = $0.01386. T = Adjustment for state and local taxes measured by gross receipts determined separately for resale customers in Virginia: 100% divided by (100% minus applicable Gross Receipts Tax rate). H. The estimated system fuel expenses allocable to Old Dominion for the 12-month period beginning with April of each year shall be determined as follows: 1. Fossil and nuclear fuel consumed in the Utility's wholly owned plants, and the Utility's share of fossil and nuclear fuel consumed in jointly owned or leased plants excluding nuclear fuel consumed in North Anna Units 1 and 2. The cost of fossil fuel shall include no items other than those listed in Account 151 of the Commission's Uniform System of Accounts for Public Utilities and Licensees. The cost of nuclear fuel shall be that as shown in Account 518, excluding nuclear fuel consumed in North Anna Units 1 and 2, except that if Account 518 also contains any expense for fossil fuel, or another utility's share of jointly owned nuclear fuel, it shall be deducted from this account. Plus 2. The following purchased power costs: (a) The fuel cost component of any purchased power transaction. or Appendix G Page 10 of 12 (b) The total energy charges associated with economic purchases if the energy charges are less than the Company's total avoided variable costs during the purchase period. or (c) The total expense associated with purchased power of less than twelve months duration if the total cost of the purchase is less than the Company's total avoided variable costs and if the purpose of the purchase was solely to displace higher cost generation. Purchases made to solely displace higher cost generation exclude reliability purchases. A purchase shall be deemed for reliability where the Company's system reserve criterion is not met. Such criterion is as follows: Operating Reserve (consisting of largest generating unit plus regulating margin plus load forecast margin) Minus 75% of Emergency Contract Capacity Equals Spinning Reserve Requirement (d) Energy receipts that do not involve money payments such as diversity energy and pay-back of storage energy are not defined as purchased or interchanged power relative to the fuel clause. Minus 3. (a) The cost of fossil and nuclear fuel recovered through inter-system sales including the fuel costs related to economy energy sales and other energy sold on an economic dispatch basis. (Energy deliveries that do not involve billing transactions such as diversity energy and pay-back of storage energy are not defined as sales relative to the fuel factor.), and; (b) The fuel costs recovered through redispatch charges pursuant to the Open Access Transmission Tariff. I. Virginia Power will determine the balance of any under-recovery or over-recovery of fuel expense allocated to Old Dominion under this Section VI. for Old Dominion Monthly Billing Energy as of January 1, 2001. These amounts will be recovered through twelve equal monthly payments in 2001. Appendix G Page 11 of 12 For calendar year 2001, the Annual Fuel Adjustment Factor applicable to Old Dominion Monthly Reserve Energy shall be calculated based on the estimated annual system fuel expense and sales (MWh), less North Anna fuel expense and sales (MWh). Following calendar year 2001, Virginia Power shall determine the annual system average fuel rate based on actual fuel costs, exclusive of North Anna fuel expense and sales, for 2001. The difference between the estimated and the actual annual system fuel rates shall be multiplied by the Old Dominion Monthly Reserve Energy for 2001 to determine the over-recovery or under-recovery for fuel expense for Old Dominion Monthly Reserve Energy for the year 2001. Any over-recovered fuel expense will be refunded to Old Dominion within sixty (60) days as a credit to the monthly Charges For Purchases By Old Dominion. Any under-recovered fuel expense will be charged to Old Dominion within sixty (60) days as an addition to the monthly Charges For Purchases By Old Dominion. Effective January 1, 2002, this Annual Fuel Adjustment Factor will no longer be applicable to any Old Dominion Monthly Billing Energy, Peaking Energy or Old Dominion Monthly Reserve Energy. VII. Monthly Charges for Purchases by Old Dominion The Monthly Charges for Purchases by Old Dominion shall be the sum of Paragraphs I., II.,III.,IV.,V. and VI. [GRAPH] Supplemental Hourly Load Duration Curve *CUSTOMER PLEASE DEFINE GRAPH* Appendix H Page 1 of 3 APPENDIX H DETERMINATION OF PURCHASE AMOUNTS BY OLD DOMINION I. Old Dominion Monthly Supplemental Demand (a) Old Dominion Monthly Delivered Demand (combined Old Dominion hourly demand measured at the Interconnection Points for the clock hour during which the Combined System Monthly Peak Demand occurs), Less (b) Old Dominion Monthly Delivered SEPA Capacity. The resulting difference multiplied by (c) the factor of 100 divided by 100 minus multiplied the Combined System Loss Percentage (to reflect demand at the generation level), (Equal to Old Dominion Monthly Demand) Less (d) Old Dominion Monthly North Anna Capacity, Less (e) Old Dominion Monthly Accredited Firm Capacity (other than capacity specifically accounted for in Sections I. or III. of this Appendix H), Less (f) Old Dominion Monthly Accredited Non-firm Capacity (other than capacity specifically accounted for in Sections I. or III. of this Appendix H), Less (g) Peaking Capacity, Less (h) Excluded Peaking Capacity. II. Old Dominion Monthly Maximum Diversified Demand (a) The combined Old Dominion Members monthly maximum coincident hourly demand measured at the Interconnection Points during the On-Peak hours. III. Old Dominion Monthly Billing Demand (a) Old Dominion Monthly Supplemental Demand Less (b) Excluded Supplemental Capacity Appendix H Page 2 of 3 Plus (c) The kW, if any, by which the most recent 12 month average Old Dominion Monthly Maximum Diversified Demand exceeds 110% of the most recent 12-month average Old Dominion Monthly Delivered Demand with such excess multiplied by the factor of 100 divided by 100 minus the Combined System Loss Percentage. IV. Old Dominion Monthly Reserve Energy (a) Old Dominion Monthly North Anna Energy that would have been produced for the month were the Old Dominion Monthly North Anna Capacity fully available all month, Plus (b) Old Dominion Monthly Accredited Non-firm Energy that would have been produced for the month were the Old Dominion Monthly Accredited Non-firm Capacity fully available all month, Less (c) Old Dominion Monthly Accredited Non-firm Energy that could have been produced but was not produced for economic dispatch reasons, Less (d) Old Dominion Monthly North Anna Energy, Less (e) Old Dominion Monthly Accredited Non-Firm Energy, Less (f) Displacement Reserve Energy. V. Old Dominion Monthly Supplemental Energy (a) Old Dominion Monthly Delivered Energy, Less (b) Old Dominion Monthly Delivered SEPA Energy, with the resulting difference multiplied by (c) the factor of 100 divided by 100 minus the Combined System Transmission Loss Percentage (to reflect energy at the generation level), (equal to Old Dominion Monthly Energy) Less (d) Old Dominion Monthly North Anna Energy, Less (e) Old Dominion Monthly Accredited Firm Energy (other than energy specifically accounted for in Sections IV., V. or VI. of this Appendix H), Appendix H Page 3 of 3 Less (f) Old Dominion Monthly Accredited Non-Firm Energy, less Clover Economy Sales to Virginia Power (other than energy specifically accounted for in Sections IV., V. or VI. of this Appendix H), Less (g) Old Dominion Monthly Reserve Energy, Less (h) Displacement Reserve Energy Less (i) Energy associated with Clover Economy Purchases from Virginia Power, Less (j) Peaking Energy, Less (k) Displacement Peaking Energy, Less (l) Excluded Peaking Energy. VI. Old Dominion Monthly Billing Energy (a) Old Dominion Monthly Supplemental Energy, Less (b) Excluded Supplemental Energy, Less (c) Displacement Supplemental Energy. Appendix I Page 1 of 1 APPENDIX I CHARGES FOR RESERVE CAPACITY Charges for Old Dominion's purchases of demand and energy from Virginia Power shall be calculated according to the following provisions, subject to approval of these terms, conditions and charges by FERC: The Reserve Capacity Charge shall be determined in accordance with Section 8.05 of this Agreement. The Reserve Capacity Charge shall be as set forth below: Old Dominion Reserve Capacity - North Anna (a) ________kW Old Dominion Reserve Capacity - Clover (a) ________kW Reserve Capacity Charge per kW: For the Calendar Year 1998 - $6.97743/kW-month For the Calendar Year 1999 - $6.48667/kW-month For the Calendar Year 2000 - $5.97645/kW-month For the Calendar Year 2001 - $5.40973/kW-month For the year 2002 and beyond, the Reserve Capacity Charge shall be determined pursuant to Section 8.05 (a) of this Agreement based on designated Virginia Power-owned peaking units. The above Reserve Capacity Charges are exclusive of ancillary service charges which shall be paid pursuant to the Transmission Service Agreement. [Note(a): Old Dominion Reserve Capacity will be adjusted annually, effective January 1, to reflect adjustments to the System Reserve Margin, and from time to time to reflect the current rated capability of the generator units.] Appendix J Page 1 of 7 APPENDIX J FACILITIES CHARGES I. APPLICABILITY This Appendix J covering the supply of Excess Facilities Service is applicable to Old Dominion in the territory served by Virginia Power. II. AVAILABILITY Whenever Old Dominion requests Virginia Power to supply electricity in a manner which will require facilities in excess of Normal Service Facilities as defined in Paragraph IV. hereof, and Virginia Power finds it practicable, such facilities will be provided in accordance with Paragraphs III. and V. hereof. III. MONTHLY RATE 1. 1.73% of the estimated installed cost of all distribution equipment and facilities (rated below 69 kV) required in addition to Normal Service Facilities. 2. 1.44% of the estimated installed cost of all transmission equipment and facilities (rated 69 kV and above) required in addition to Normal Service Facilities. IV. DETERMINATION OF NORMAL SERVICE FACILITIES Virginia Power's Normal Service Facilities at an Interconnection Point with Old Dominion shall be those Virginia Power is committed to provide for service under this Agreement, as it may be amended from time to time, and agreed to by the Planning and Administration Committee. V. EXCESS FACILITIES SERVICE Excess Facilities Service supplied shall be subject to the provisions of this Agreement except as modified by the following: 1. Virginia Power's facilities will be installed in a place and manner satisfactory to Virginia Power; and, upon request by Virginia Power, Old Dominion will furnish the property on which any excess facilities may be located. 2. Virginia Power may change facilities at its convenience so long as equivalent service is rendered and the charge to Old Dominion is unaffected. In Paragraphs 3., 4., and 5. below, a change in facilities shall mean one for which an increase or decrease in the Monthly Charge for Excess Facilities Service becomes appropriate. Appendix J Page 2 of 7 3. If within ten years from the initial connection of Excess Facilities Service at any Interconnection Point or from the last change made in Virginia Power facilities at that point (1) Old Dominion wishes to discontinue Excess Facilities Service; or (2) Old Dominion ceases to take electric service from Virginia Power at that point; or (3) Virginia Power determines that, in accordance with good engineering and operating practice, service to Old Dominion at such Interconnection Point requires a further change in Virginia Power facilities or in their classification as Normal or Excess Facilities, other than a change provided for in Paragraph 4. below, Old Dominion will: (a) Agree to the new Monthly Excess Facilities Charge; or (b) Request that the Excess Facilities be removed and, in such event, Old Dominion will reimburse Virginia Power for the costs specified in Paragraph 5. below. 4. If the Excess Facilities serving an Interconnection Point are changed by Virginia Power within five years from the initial connection or from the last change made in Virginia Power facilities at that Interconnection Point, not as a direct result of a change in Old Dominion's load or request by Old Dominion, Old Dominion will: (a) Agree to such change by Virginia Power before the change is made, if service is still wanted by Old Dominion, provided that: (1) if the change causes an increase in the Monthly Charge for Excess Facilities, the increase will be effective only after the end of said five years, or (2) if the change causes a decrease in the Monthly Charge for Excess Facilities, the decrease will be effective from the date Virginia Power changes its facilities; or (b) Request Virginia Power to remove the Excess Facilities at no cost to Old Dominion at the time Virginia Power changes its facilities. 5. If facilities are removed or rearranged under Paragraph 3. above, Old Dominion will reimburse Virginia Power as follows: (a) When rights-of-way for such service are utilized for a period of less than 10 years, Old Dominion will pay Virginia Power the total cost of acquiring all rights-of-way which are abandoned within twelve months after any aforesaid event, plus (b) The original installed cost (for line facilities, being the year's average Appendix J Page 3 of 7 installed cost on units of property installed throughout Virginia Power's system in each calendar year) - plus - the estimated removal cost - less - salvage on all Virginia Power facilities installed to provide such service and removed as a result of any such event, and if applicable, (c) The original installed cost (for line facilities, being the year's average installed cost on units of property installed throughout Virginia Power's system in each calendar year) to rearrange and/or relocate such facilities to serve such Interconnection Point -plus- the estimated cost to return such facilities to their condition prior to serving such Interconnection Point if such facilities are changed as a result of any such event, less (d) A credit of 1/120th of such reimbursement for each full month Virginia Power facilities at such Interconnection Point were utilized to serve Old Dominion, or its predecessor, except that no credit will apply if such facilities were utilized for a period less than three years. 6. If at any time all or any part of the Excess Facilities become Normal Service Facilities, the Monthly Charge for Excess Facilities Service will cease or will be adjusted to reflect such change. VI. EXISTING EXCESS FACILITIES SERVICE The Old Dominion Members have certain existing Excess Facilities Service for which Old Dominion will pay Virginia Power the Monthly Rate as provided in Paragraph III. of this Appendix J. These Excess Facilities Services are listed on Pages 4 through 7 of this Appendix J. VII. CHANGES IN MONTHLY RATE Virginia Power shall have the right to unilaterally file with FERC for a change in rates contained in this Appendix J under Section 205 of the Federal Power Act and pursuant to the Commission's Rules and Regulations promulgated thereunder. In addition, nothing contained herein shall limit or modify in any respect Old Dominion's legal rights to oppose, in whole or in part, Virginia Power's filing for a change in the rates contained in this Appendix J or to complain of these rates pursuant to Section 206 of the Federal Power Act. Appendix J Page 4 of 7 Type of Excess Cooperative and Delivery Point Facilities - ------------------------------ ---------- B-A-R-C Electric Cooperative Bustleburg Delivery Point Data Pulse Callaghan Delivery Point Data Pulse Cornwall Delivery Point Data Pulse Effinger Delivery Point Data Pulse Fairfield Delivery Point Data Pulse Fordwick Delivery Point Data Pulse Goshen Delivery Point Data Pulse Lexington Delivery Point Data Pulse Mecklenburg Electric Cooperative Barnes Junction Delivery Point Data Pulse Beechwood Delivery Point Data Pulse Belfield Delivery Point Data Pulse Black Branch Delivery Point Data Pulse Boydton Delivery Point Data Pulse Brink Delivery Point Data Pulse Clarksville Delivery Point Data Pulse Climax Delivery Point Data Pulse Crystal Hill 2 Delivery Point Data Pulse Emporia Delivery Point Data Pulse Freeman Delivery Point Data Pulse Gasburg Delivery Point Data Pulse Gretna Delivery Point Data Pulse Grit Delivery Point Data Pulse Hickory Grove Data Pulse Huber Delivery Point Data Pulse Hurt Delivery Point Data Pulse Jones Store Delivery Point Data Pulse Kerr Delivery Point Data Pulse Mt. Airy Delivery Point Data Pulse Northview Delivery Point Data Pulse Omega Delivery Point Data Pulse Shockoe Delivery Point Data Pulse Appendix J Page 5 of 7 Type of Excess Cooperative and Delivery Point Facilities - ------------------------------ ---------- Northern Neck Cooperative Garner Delivery Point Data Pulse Oak Grove Delivery Point Data Pulse Office Hall Delivery Point Data Pulse Passapatanzy Delivery Point Data Pulse Sanders Data Pulse Northern Virginia Electric Coop Arcola Delivery Point Data Pulse Bethel Delivery Point Data Pulse Cardinal Totalized Metering Catharpin Delivery Point Data Pulse Country Club Delivery Point Data Pulse Cub Run 2 Delivery Point Data Pulse Godwin Delivery Point Alternate Circuits Herndon Delivery Point Data Pulse Hillsboro Delivery Point Data Pulse Independent Hill Data Pulse Johnson 3 Delivery Point Data Pulse Lindendale Delivery Point Data Pulse Middleton Delivery Point Data Pulse Minnieville Delivery Point Data Pulse Moore Delivery Point Data Pulse Smoketown Delivery Point Data Pulse Sowego 2 Delivery Point Data Pulse Wellington Delivery Point Data Pulse Prince George Electric Cooperative Bakers Pond Delivery Point Data Pulse Garysville Delivery Point Data Pulse Prince George Delivery Point Data Pulse Wakefield Delivery Point Data Pulse Waverly Delivery Point Data Pulse Waverly 2 Delivery Point Data Pulse Appendix J Page 6 of 7 Type of Excess Cooperative and Delivery Point Facilities - ------------------------------ ---------- Rappahannock Electric Coop Bear Island Delivery Point Data Pulse Brandy Delivery Point Data Pulse Clancie Delivery Point Data Pulse Cuckoo Delivery Point Data Pulse Culpeper #1 Delivery Point Data Pulse Decapolis Delivery Point Data Pulse Greenwood Delivery Point Data Pulse Goldmine Delivery Point Data Pulse Kings Dominion Delivery Point Data Pulse Locust Grove Data Pulse Millers Tavern Delivery Point Data Pulse Mitchell Delivery Point Data Pulse North Doswell Delivery Point Data Pulse Oak Shade Delivery Point Data Pulse Orchid Delivery Point Data Pulse Orleans Delivery Point Data Pulse Paytes Delivery Point Data Pulse Proffit Delivery Point Data Pulse Slabtown Delivery Point Data Pulse St. Johns Church 3 Delivery Point Data Pulse Unionville Delivery Point Data Pulse Warrenton Delivery Point Data Pulse Wilderness Delivery point Data Pulse Shenandoah Valley Electric Coop Barterbrook Delivery Point Data Pulse Brands Delivery Point Data Pulse Cold Springs Delivery Point Data Pulse Columbia Furnace Delivery Point Data Pulse Crimora Delivery Point Data Pulse Dayton Delivery Point Data Pulse Gardner Springs Delivery Point Data Pulse Mt. Jackson Delivery Point Data Pulse North River Delivery Point Data Pulse Timberville Delivery Point Data Pulse Trimbles Mill Delivery Point Data Pulse Woodstock Delivery Point Data Pulse Appendix J Page 7 of 7 Type of Excess Cooperative and Delivery Point Facilities - ------------------------------ ---------- Southside Electric Cooperative Altavista Delivery Point Data Pulse Amelia Delivery Point Data Pulse Center Star Delivery Point Data Pulse Cherry Hill Delivery Point Data Pulse Danieltown Delivery Point Data Pulse Drakes Branch Delivery Point Data Pulse Evergreen Delivery Point Data Pulse Fort Pickett Delivery Point Data Pulse Gary Delivery Point Data Pulse Gladys Delivery Point Data Pulse Hooper Delivery Point Data Pulse Madisonville Delivery Point Data Pulse Martins Delivery Point Data Pulse Moran Delivery Point Data Pulse Nutbush Delivery Point Data Pulse Pointon Delivery Point Data Pulse Powhatan 2 Delivery Point Data Pulse Reams 2 Delivery Point Data Pulse Redhouse Delivery Point Data Pulse Stoddert Delivery Point Data Pulse Victoria Delivery Point Data Pulse Appendix K Page 1 of 2 APPENDIX K VIRGINIA ELECTRIC AND POWER COMPANY MONTHLY STATEMENT TO OLD DOMINION MONTH OF 19 (1) Total Operation and Maintenance Charges (A) (2) New Investment including Nuclear Fuel (3) Supplemental Demand Charges (Appendix G) (4) Supplemental Energy Charges (Appendix G) (5) Reserve Energy Charges (Appendix G) (6) Reserve Capacity Charges (Appendix I) (7) Transmission Service Charges (8) Distribution Service Charges (9) Rappahannock Wheeling Charge Credit (10) Peaking Capacity Charges (Appendix G) (11) Peaking Energy Charges (Appendix G) (12) Cancellation Costs (ending December 1998) (13) Facilities Charges (Appendix J) (14) Clover Transmission Facilities Charge - 230 kV (15) Clover Transmission Facilities Charge - 500 kV (16) Economy Transactions (17) Other (Specify) TOTAL $ _______________ Appendix K Page 2 of 2 (A) Summary of Total Operation and Maintenance Charges from Appendix L:
ESTIMATE ADJUSTMENT (Month) (Year) (Month) (Year) TOTAL -------------- -------------- North Anna Nuclear Station, Nuclear Production Operation and Maintenance Expenses $ $ $ Other Nuclear Production Operation and Maintenance Expenses Administrative and General Expenses North Anna Switchyard and Operation and Maintenance Expenses Interest Revision ________ TOTAL $ ________
Appendix L Page 1 of 9 APPENDIX L VIRGINIA POWER NORTH ANNA NUCLEAR STATION NUCLEAR PRODUCTION OPERATION AND MAINTENANCE EXPENSES MONTH OF 19 (Month) Budget I. BILLING FORMAT
FERC ODEC's ACCOUNT (Excludes Nuclear Fuel) Total Share(A) - --------------------------------- ----- -------- Operation (1) 517 Supervision and Engineering $ $ (2) 519 Coolants and Water (3) 520 Steam Expenses (4) 523 Electric Expenses (5) 524 Miscellaneous Nuclear Power Expenses (6) 525 Rents (7) 928 Reg. Comm. - NRC -------- -------- (8) Total Operation ________ ________ Maintenance (9) 528 Supervision and Engineering (10) 529 Structures (12) 530 Reactor Plant Equip. (13) 531 Electric Plant ________ ________ (14) Total Maintenance ________ ________ (15) Payroll Base Payroll Add - On (C) Budget (16) 926 Pensions (17) 926 Benefits (18) 408.1 Taxes (19) 920 Success Share (20) 926 OPEB ________ ________ (21) TotalPayroll Add - On ________ ________ (22) Total North Anna Direct O&M and Payroll Add - On $ $ ________ ________
See Footnotes of Appendix L, Page 9 of 9 Appendix L Page 2 of 9 VIRGINIA POWER OTHER NUCLEAR PRODUCTION OPERATION AND MAINTENANCE EXPENSES MONTH OF 19 (Month) Budget
Va. Power FERC Nuclear ODEC's ACCOUNT (Excludes Nuclear Fuel) Support Share(B) - ------------------------------- ------- -------- Operation (1) 517 Supervision and Engineering $ $ (2) 519 Coolants and Water (3) 520 Steam Expenses (4) 523 Electric Expenses (5) 524 Miscellaneous Nuclear Power Expenses (6) 525 Rents (7) 556 System nuclear control and load dispatching (based on ratio of nuclear capacity to total Va. Power owned capacity) ________ ________ (8) Total Operation ________ ________ Maintenance (9) 528 Supervision and Engineering (10) 529 Structures (11) 530 Reactor Plant Equipment (12) 531 Electric Plant (13) 532 Miscellaneous Nuclear Plant ________ ________ (14) Total Maintenance ________ ________ (15) Payroll Base Payroll Add - On (C) Budget (16) 926 Pensions (17) 926 Benefits (18) 408.1 Taxes (19) 920 Success Share (20) 926 OPEB -------- -------- (21) Total Payroll Add-On ________ ________ (22) Total Nuclear Production Support and Payroll Add-On $ $ -------- --------
See Footnotes of Appendix L, Page 9 of 9 Appendix L Page 3 of 9 VIRGINIA POWER ADMINISTRATIVE AND GENERAL EXPENSES MONTH OF 19 Fixed Monthly A&G Fee for administrative and general services as described in Section 11.01(a), (b) and (c) $100,000.00 See Footnotes of Appendix L, Page 9 of 9 Appendix L Page 4 of 9 VIRGINIA POWER NORTH ANNA NUCLEAR STATION NUCLEAR PRODUCTION OPERATION AND MAINTENANCE EXPENSES MONTH OF 19 ADJUSTMENT - ACTUAL vs. BUDGET
Va. Power Va. Power ODEC's ODEC's FERC (Month, Yr) (Month, Yr) Share of Share of ACCOUNT (Excludes Nuclear Fuel) Actual Budget Actual (A) Budget (A) Adjustment - ------- ----------------------- ------ ------ ---------- ---------- ---------- Operation (1) 517 Supervision and Engineering $ $ $ $ $ (2) 519 Coolants and Water (3) 520 Steam Expenses (4) 523 Electric Expenses (5) 524 Misc. Nuclear Power Expenses (6) 525 Rents (7) 928 Reg. Comm. - NRC _______ __________ _________ _______ _______ (8) Total Operation _______ __________ _________ _______ _______ Maintenance (9) 528 Supervision and Engineering (10) 529 Structures (11) 530 Reactor Plant Equip. (12) 531 Electric Plant (13) 532 Miscellaneous Nuclear Plant _______ __________ _________ _______ _______ (14) Total Maintenance _______ __________ _________ _______ _______ (15) Payroll Base Payroll Add - On (C) Actual Budget (16) 926 Pensions (17) 926 Benefits (18) 408.1 Taxes (19) 920 Success Share (20) 926 OPEB _______ __________ _________ _______ _______ (21) Total Payroll Add-On _______ __________ _________ _______ _______ (22) Total North Anna Direct O&M and Payroll Add-On $ $ $ $ $ _______ __________ _________ _______ _______
See Footnotes of Appendix L, Page 9 of 9 Appendix L Page 5 of 9 VIRGINIA POWER OTHER NUCLEAR PRODUCTION OPERATION AND MAINTENANCE EXPENSES MONTH OF 19 ADJUSTMENT - ACTUAL vs. BUDGET
Va. Power Va. Power ODEC's ODEC's FERC (Month, Yr) (Month, Yr) Share of Share of ACCOUNT (Excludes Nuclear Fuel) Actual Budget Actual (B) Budget (B) Adjustment - ------- ----------------------- ------ ------ ---------- ---------- ---------- Operation (1) 517 Supervision and Eng. $ $ $ $ $ (2) 519 Coolants and Water (3) 520 Steam Expenses (4) 523 Electric Expenses (5) 524 Misc. Nuclear Pwr. Exp. (6) 525 Rents (7) 556 System Nuclear Control and Load Dispatching (Based on ratio of nuclear capacity to total Va. Power owned capacity) _______ __________ _________ _______ _______ (8) Total Operation _______ __________ _________ _______ _______ Maintenance (9) 528 Supervision and Engineering (10) 529 Structures (11) 530 Reactor Plant Equipment (12) 531 Electric Plant (13) 532 Misc. Nuclear Plant _______ __________ _________ _______ _______ (14) Total Maintenance _______ __________ _________ _______ _______ (15) Payroll Base Payroll Add - On (C) Actual Budget (16) 926 Pensions (17) 926 Benefits (18) 408.1 Taxes (19) 920 Success Share (20) 926 OPEB_________ _______ __________ _________ _______ _______ (21) Total Payroll Add-On _______ __________ _________ _______ _______ (22) Total Nuclear Production Support and payroll add-on $ $ $ $ $ _______ __________ _________ _______ _______
See Footnotes of Appendix L, Page 9 of 9 Appendix L Page 6 of 9 VIRGINIA POWER NORTH ANNA SWITCHYARD OPERATION AND MAINTENANCE EXPENSES MONTH OF 19
FERC ACCOUNT (Month, Year) ODEC's - ------- Actual Share (D) -------------- --------- Operation (1) 560 Supervision and Engineering (2) 562 Station Expenses (3) 563 Overhead Line Expenses (4) 566 Miscellaneous Trans. Expenses (5) 567 Rents ______________ ____________ (6) Total Operation ______________ ____________ Maintenance (7) 568 Supervision and Engineering (8) 569 Structures (9) 570 Station Equipment (10) 571 Overhead lines (11) 573 Miscellaneous Trans. Plant ______________ ____________ (12) Total Maintenance ______________ ____________ (13) Payroll Base Payroll Add-On Actual (14) 926 Pensions (15) 926 Benefits (16) 408.1 Taxes (17) 920 Success Share (18) 926 OPEB ______________ ____________ (19) Total Payroll Add-On ______________ ____________ (20) Total O&M and Payroll Add-On $ $ ______________ ____________
See Footnotes of Appendix L, Page 9 of 9 Appendix L Page 7 of 9 VIRGINIA POWER INTEREST RATE CALCULATION FOR BILLINGS TO OLD DOMINION For the period (Month, Day, Year) through (Month, Day, Year) the per annum interest rate equal to the weighted cost of short-term financing was _______%. This was based on the prime rate at Chase Manhattan Bank. The rate was calculated as follows: Time Period Days Interest Rate Factor - ----------- ---- ------------- ------ ---- ---------- ------ Total ____ __________ ______ Interest Rate (Factor)/Days = _____% NORTH ANNA True-Up Amount x Interest Rate x Proration = Interest Amount -------------- ------------- --------- ---------------
Operation and Maintenance New Investment See Footnotes of Appendix L, Page 9 of 9 Appendix L Page 8 of 9 VIRGINIA POWER ADMINISTRATIVE AND GENERAL EXPENSES MONTH OF 19 ACTUAL II. A&G INFORMATION FORMAT
FERC ACCOUNT - ------- Virginia Operation Power --------- -------- (1) 920 Administrative and General Salaries $ (2) 921 Office Supplies and Expense (3) 922 Administrative Expense and Transferred Credit (4) 923 Outside Services (5) 924 Property Insurance (6) 925 Injuries and Damages (7) 927 Franchise Requirement (8) 928 Regulatory Commission Expenses (9) 929 Duplicate Charges - Credit (10) 930.1 Misc. - Gen. Advertising Expenses 930.2 Misc. General Expense (11) 931 Rents _______ (12) Total Operation _______ Maintenance (13) 935 Maintenance of Gen. Plant _______ (14) Payroll Base _______ Payroll Add-On (C) Actual (15) 926 Pensions (16) 926 Benefits (17) 408.1 Taxes (18) 920 Success Share (19) 926 OPEB ------- (20) Total Payroll Add - On _______ (21) Total A&G and Payroll Add-On $ _______
See Footnotes of Appendix L, Page 9 of 9 Appendix L Page 9 of 9 FOOTNOTES (A) Costs of the North Anna Power Station will be allocated to Old Dominion based on its ownership percentage. Costs will be determined in accordance with Section 11.01 of the I&O Agreement. (B) Costs of the nuclear support function will be allocated to Old Dominion based on the ratio of Old Dominion's entitlement to nuclear capacity, to total nuclear capacity in commercial operation. (C) Old Dominion will pay its pro rata share of employee pensions and benefits which are charged to administrative and general expenses, based on the ratio of pension and benefit cost to total payroll. The aforementioned ratio will be applied to salaries and wages included in the various operation and maintenance expense accounts. Also, Old Dominion will pay its pro rata share of payroll taxes based on the ratio of payroll taxes to total payroll. (D) Costs of the North Anna switchyard will be allocated to Old Dominion based on Old Dominion's sixty percent (60%) ownership allocation of certain switchyard facilities times Old Dominion's ownership percentage. Appendix M Page 1 of 3 APPENDIX M PEAKING CAPACITY AND ENERGY I. Peaking Capacity Peaking Capacity shall be calculated in accordance with Section 8.03(a) and (e) and the following PC(y) = MODMDD(y-1) x 0.04 + PC(y-1) Where y is equal to the year's index, PC(y) = Peaking Capacity in year y PC(y-1) = Peaking Capacity in year prior to year y MODMDD (y-1) = Maximum Old Dominion Monthly Delivered Demand in year prior to year y This equation begins with year (y) = 1996 II. Peaking Energy Peaking Energy will be determined based upon a forecast of Old Dominion projected hourly delivered loads excluding SEPA and adjusted for losses. These loads will be sorted in descending order and shall be referred to as the Old Dominion "Load Duration Curve." The Peaking Energy shall be calculated based upon the following equation: hp PCe = (SIGMA) ODMD - P + P\c\ h = 0 Where, PC\e\ = Peaking Energy ODMD = Old Dominion Monthly Demand for each hour P = The maximum 60 minute Old Dominion Monthly Demand for the year PC = Peaking Capacity for the year Appendix M Page 2 of 3 h = The hourly index hT = The total number of hours during the year. hp = That hour where ODMD equals the maximum 60 minute Old Dominion Monthly Demand for the year less the Peaking Capacity for the year. An illustration of the peaking energy for a sample year follows. Appendix O Page 3 of 3 OLD DOMINION LOAD DURATION CURVE ANNUAL BASIS [GRAPH APPEARS HERE - PLOT POINTS NEEDED] Specifications for Service for Network Integration Transmission Service to Old Dominion Electric Cooperative The Specifications for the provision of Network Integration Transmission Service by Virginia Electric and Power Company to Old Dominion Electric Cooperative are as follows: VIRGINIA POWER UNITS:
Dependable Capacity Dependable Capacity Generation Resource Resource Location Summer MW Winter MW ------------------- ----------------- -------- --------- Nuclear: North Anna 1 Mineral VA 893 893 North Anna 2 Mineral VA 897 897 Surry 1 Surry VA 801 801 Surry 2 Surry VA 801 801 Coal: Bremo 3 Bremo Bluff VA 71 74 Bremo 4 Bremo Bluff VA 156 160 Chesapeake 1 Chesapeake VA 111 111 Chesapeake 2 Chesapeake VA 111 111 Chesapeake 3 Chesapeake VA 156 162 Chesapeake 4 Chesapeake VA 217 221 Chesterfield 3 Chester VA 100 105 Chesterfield 4 Chester VA 166 171 Chesterfield 5 Chester VA 326 333 Chesterfield 6 Chester VA 658 671 Clover 1 Clover VA 441 441 Clover 2 Clover VA 441 441 Mt. Storm 1 Mt. Storm WV 533 545
-2-
Dependable Capacity Dependable Capacity Generation Resource Resource Location Summer MW Winter MW ------------------- ----------------- ---------- --------- Mt. Storm 2 Mt. Storm WV 533 545 Mt. Storm 3 Mt. Storm WV 521 536 Possum Pt. 3 Dumfries VA 101 105 Possum Pt. 4 Dumfries VA 221 221 Yorktown 1 Yorktown VA 159 163 Yorktown 2 Yorktown VA 167 172 North Branch (R/S) Bayard WV 74 77 Heavy Oil: Possum Pt. 1 Dumfries VA 74 74 Possum Pt. 2 Dumfries VA 69 71 Possum Pt. 5 Dumfries VA 786 801 Yorktown 3 Yorktown VA 818 820 Hydro: Conventional 324 324 Bath County Warm Springs VA 1,260 1,260 Combustion Turbine: Bellemeade (R/S) 230 250 Chesterfield 7 Chester VA 197 232 Chesterfield 8 Chester VA 200 235
-3- NON-UTILITY GENERATORS:
Dependable Capacity Dependable Capacity Contract Generation Resource Resource Location Summer kW Winter kW Expiration ------------------- ----------------- --------- --------- ---------- Stone Container Hopewell VA 38,362 38,362 10/25/2004 Westvaco Convington VA 55,000 55,000 06/17/2001 Merck & Company Elkton VA 1,901 1,901 06/13/2003 Chapman Dam Woodstock VA 72 72 10/16/2004 Coiners Mill Dooms VA 10 10 12/29/2013 Chesapeake West Point VA 35,000 35,000 11/09/2000 Norfolk Naval Shipyard Portsmouth VA 0 0 04/26/2003 Emporia Hydro Emporia VA 1,100 1,100 03/20/2006 Park 500 Hopewell VA 10,000 10,000 12/30/2003 Columbia Mills Buena Vista VA 259 259 02/06/2015 Alexandria MSW Alexandria VA 19,500 01/28/2023 Cogentrix - Hopewell Hopewell VA 88,500 88,500 01/09/2008 Scott Energy Amelia VA 2,500 2,500 12/28/2015 Cogentrix - Portsmouth Portsmouth VA 11,500 115,000 06/08/2008 Union Camp Franklin VA 14,000 14,000 08/26/2006 Banister Halifax VA 100 100 09/27/2008 Harvell Petersburg VA 100 100 06/29/2012 Lakeview Hydro Colonial Heights VA 100 100 12/21/2008 Richmond Power Enterprises Richmond VA 230,256 250,000 03/12/2016 Hopewell Cogen, LP Hopewell VA 335,200 398,690 07/30/2015 Doswell #1 Doswell VA 302,500 363,000 05/09/2017 Doswell #2 Doswell VA 302,500 363,000 05/02/2017 Ogden-Martin Fairfax Fairfax VA 57,000 57,000 05/24/2015 Rivanna Water & Sewer Charlottesville VA 100 100 04/28/1998 Battersea Dam Ettrick VA 100 100 12/31/2015 Weyerhaeuser Plymouth NC 0 0 07/26/1997 Fries Hydro Fries VA 2,400 2,400 05/19/1999 LG&E-Westmoreland Altavista Altavista VA 62,700 62,700 02/21/2017 LG&E-Westmoreland Hopewell Hopewell VA 62,700 62,700 06/30/2017
-4-
Dependable Capacity Dependable Capacity Contract Generation Resource Resource Location Summer kW Winter kW Expiration ------------------- ----------------- --------- --------- ---------- LG&E-Westmoreland Southhampton Southampton VA 62,700 62,700 03/06/2017 Brasfield Dam Petersburg VA 2,500 2,500 10/11/2013 Schoolfield Dam Danville VA 3,000 3,000 11/30/2015 Roanoke Valley Project Halifax Co. NC 165,000 167,200 05/28/2019 Cogentrix - Rocky Mount Rocky Mount NC 115,500 115,500 10/14/2015 Cogentrix of Richmond - Unit 1 Richmond VA 115,500 115,500 07/31/2017 Cogentrix of Richmond - Unit 2 Richmond VA 93,500 93,024 07/31/2017 Commonwealth Atlantic LP Chesapeake VA 312,004 375,001 06/04/2017 Gordonsville Energy L.P. I Louisa Co. VA 108,702 143,902 05/31/2024 Gordonsville Energy L.P. II Louisa Co. VA 108,702 143,902 05/31/2024 Mecklenburg Clarksville VA 132,000 132,000 11/05/2017 Multitrade of Pittsylvania Co., LP Pittsylvania Co. VA 75,312 79,500 06/14/2019 Panda-Rosemary Roanoke Rapids NC 165,000 198,000 12/26/2015 Boydton Plank Road Dinwiddie Co. VA 3,000 3,000 12/29/2017 Wythe Park Power #2 Petersburg VA 3,000 3,000 12/31/2004 Wythe Park Power #3 Richmond VA 3,000 3,000 07/28/2006 Core-Chesterfield Chesterfield Co. VA 3,000 3,000 06/12/1997 Dale Chesterfield Co. VA 3,000 3,000 03/28/1998 I-95 Landfill Lorton VA 3,000 3,000 12/31/2011 Roanoke Valley II Halifax Co. NC 44,000 45,100 05/31/2020 SEI Birchwood King George Co. VA 217,800 222,200 11/14/2021 WE GEN Inc. Halifax Co. VA 2,900 2,900 06/28/2022 Baker Cogeneration Richmond VA 3,000 3,000 02/08/2022 Suffolk Landfill #1 Suffolk VA 3,000 3,000 11/03/2014 Handcraft Richmond VA 3,000 3,000 02/23/2022 Wiccacon Hertford Co. NC 5,000 5,000 12/30/2009 I-95 Phase II Lorton VA 3,000 3,000 02/09/2013 Johnston Willis Chesterfield Co. VA 3,000 3,000 03/15/2022 William Byrd Henrico Co. VA 3,000 3,000 12/01/2022 Carver Heights Chesterfield Co. VA 1,500 1,500 12/30/2008
-5-
Dependable Capacity Dependable Capacity Contract Generation Resource Resource Location Summer kW Winter kW Expiration ------------------- -------------------- --------- --------- ---------- Richmond Electric Generation Henrico Co. VA 2,900 2,900 08/26/2013 Kirk Lumber Suffolk VA 0 0 08/05/1997 Lanier Road Goochland Co. VA 3,000 3,000 12/30/2022 Lewiston NUG Lewiston NC 5,000 5,000 12/30/2013 Woodville NUG Woodville NC 5,000 5,000 12/30/2013 Robersonville NUG Robersonville NC 5,000 5,000 12/30/2013
-6- PURCHASES:
Dependable Capacity Dependable Capacity Contract Generation Resource Resources Location Summer KW Winter KW Expiration ------------------- --------------------- --------- --------- ---------- AEP/Rockport Spencer County IN 455 455 12/31/1999 AEP System Capacity 45 45 12/31/1999 Hoosier/Merom Bloomington ID 400 400 12/31/1999
-7- POINTS OF DELIVERY B-A-R-C EC
Name/Description Delivered Voltage (kV) 1996 Summer NCP (kW) 1996-97 Winter NCP (kW) - ---------------- ---------------------- -------------------- ----------------------- BUSTLEBURG 115.0 3,007 4,956 CALLAGHAN 46.0 9,075 15,251 GOSHEN 46.0 8,963 12,522 LEXINGTON 12.5 1,363 1,733 CORNWALL 46.0 2,376 3,069 FORDWICK 23.0 1,932 2,572 FAIRFIELD 23.0 1,195 1,890 EFFINGER 115.0 N/A 3,370 COMMUNITY EC BLACK CREEK 13.2 1,847 2,335 COURTLAND 13.2 2,397 3,027 HANDSOM 115.0 1,978 3,043 HOLLAND 115.0 5,023 6,661 LUMMIS 12.5 2,413 2,954 PAGAN 13.2 6,143 8,058 SADLERS 12.5 2,417 2,789 WINDSOR 115.0 6,528 7,469 HARRELLS 13.2 1,387 1,459 NOTTOWAY 34.5 2,835 2,520 MECKLENBURG EC BEECHWOOD 115.0 9,206 11,309 BLACK BRANCH 69.0 4,113 3,993 BRINKS 115.0 2,063 4,673 CLARKSVILLE 115.0 3,701 3,763
-8-
Name/Description Delivered Voltage (kV) 1996 Summer NCP (kW) 1996-97 Winter NCP (kW) - ---------------- ---------------------- --------------------- ------------------------ MECKLENBURG EC (continued) CLIMAX 69.0 4,770 4,907 EMPORIA 115.0 2,000 1,823 FREEMAN 115.0 4,934 4,522 GASBURG 69.0 7,272 7,930 GRETNA 69.0 5,566 5,897 GRIT 115.0 2,927 2,818 HICKORY GROVE 115.0 4,267 5,054 JONES STONE 69.0 3,358 3,422 MT. AIRY 69.0 2,789 2,837 NORTHVIEW 115.0 2,265 2,126 OMEGA 115.0 6,077 6,374 BOYDTON 115.0 3,461 3,307 BARNES JUNCTION 115.0 3,547 3,792 SHOCKOE 69.0 3,811 3,250 KERR 115.0 1,656 1,310 MECKGEN 115.0 3,456 3,514 MECKGEN 2 115.0 922 634 CRYSTAL HILL 2 115.0 7,910 8,842 BELFIELD 115.0 7,868 8,876 HURT #1 115.0 N/A N/A HURT #2 115.0 N/A N/A HUBER 115.0 7,248 7,344 NORTHERN NECK EC CROSS HILL 12.5 883 1,275 FOLLY 34.5 3,283 4,802 GARNER 115.0 12,877 16,590 OAK GROVE 34.5 8,669 8,316
-9-
Name/Description Delivered Voltage (kV) 1996 Summer NCP (kW) 1996-97 Winter NCP (kW) - ---------------- ---------------------- ----------- -------- ------------------------ NORTHERN NECK EC (continued) OFFICE HALL 13.2 3,038 4,500 PASSAPATANZY 13.2 3,314 4,289 SANDERS 230.0 10,234 14,966 NORTHERN VIRGINIA EC INDEPENDENT HILL 115.0 15,391 22,281 ARCOLA 115.0 4,162 4,824 BETHEL 115.0 13,571 9,222 CATHARPIN 115.0 5,126 5,789 COUNTRY CLUB 115.0 16,358 22,886 HARRISION 115.0 78,480 109,440 HERNDON 34.5 4,200 3,850 HILLSBORO 34.5 5,683 8,379 LINDENDALE 115.0 22,598 22,560 MIDDLETON 13.2 1,646 2,649 MINNIEVILLE 115.0 7,963 8,400 MOORE 34.5 8,749 15,210 MT. WEATHER 34.5 2,948 3,133 SMOKETOWN 115.0 25,998 18,619 WELLINGTON 115.0 8,010 9,048 GODWIN 115.0 950 317 SOWEGO 2 115.0 14,962 25,848 CARDINAL 115.0 17,271 23,613 CUB RUN 2 230.0 33,670 31,416 INDEPENDENT HILL 2 115.0 4,946 7,482 CEDAR GROVE 115.0 9,573 13,630 GAINESVILLE 2 115.0 79,315 80,179 JOHNSON 3 230.0 17,069 12,835
-10-
Name/Description Delivered Voltage (kV) 1996 Summer NCP (kW) 1996-97 Winter NCP (kW) - ---------------- ----------------------- --------------------- ----------------------- NORTHERN VIRGINIA EC (continued) JOHNSON 4 230.0 16,710 14,090 CLARKS GAP 34.5 3,276 5,733 GODWIN #2 (REC) 115.0 2,920 2,746 PRINCE GEORGE EC BEECHLAND 34.5 2,779 3,934 PRINCE GEORGE 13.2 5,388 7,209 SPRING GROVE 13.2 2,147 2,143 WAKEFIELD 13.2 1,933 2,601 WILKERSONS CORNER 13.2 594 824 BACONS CASTLE 13.2 932 1,432 BOOKER 13.2 511 582 ROWANTA 13.2 1,231 1,382 GARYSVILLE 13.2 3,980 4,389 BAKERS POND 115.0 13,430 17,645 WAVERLY #2 115.0 3,648 3,871 RAPPAHANNOCK EC BEAR ISLAND FIRM 230.0 98,112 100,170 BRANDY 115.0 2,952 3,250 CUCKOO 13.2 4,315 5,626 CULPEPER NO.1 13.2 13,209 14,285 CULPEPER NO.2 12.5 2,324 4,599 DECAPOLIS 34.5 4,975 6,070 GOLDMINE 13.2 5,698 8,813 GREENWOOD 115.0 49,040 81,216 KINGS DOMIINION 115.0 24,192 27,360
-11-
Name/Description - ---------------- Delivered Voltage (kV) 1996 Summer NCP (kW) 1996-97 Winter NCP (kW) ----------------------- --------------------- ---------------------- RAPPAHANNOCK EC (continued) LOCUST GROVE 115.0 18,266 26,777 MILLERS TAVERN 34.5 2,593 3,388 NORTH DOSWELL 115.0 8,554 8,026 OAK SHADE 34.5 4,774 7,099 ORANGE 12.5 1,690 1,970 ORCHID 13.2 3,655 5,999 ORLEANS 34.5 4,200 6,174 PAYTES 34.5 14,386 15,042 SLABTOWN 115.0 11,846 12,653 ST. JOHNS CHURCH #1 115.0 37,557 49,099 UNIONVILLE 13.2 2,998 3,568 WARRENTON 34.5 4,356 5,353 WHITE SHOP 13.2 1,150 1,813 WILDERNESS 12.5 11,128 23,597 WOODPECKER 115.0 2,323 2,338 NORTH ANNA 115.0 N/A N/A FOUR RIVERS 230.0 2,400 3,200 FOUR RIVERS 2 230.0 3,000 2,400 ELK RUN 115.0 934 947 CLANCIE 34.5 746 1,044 PROFFIT 230.0 20,880 31,104 MITCHELL 115.0 3,128 3,115
-12-
Name/Description Delivered Voltage (kV) 1996 Summer NCP (kW) 1996-97 Winter NCP (kW) - ---------------- ----------------------- --------------------- ---------------------- SHENANDOAH VALLEY EC BRANDS 115.0 9,274 12,624 COLD SPRING 23.0 2,525 2,671 CRIMORA 23.0 4,748 7,304 DAYTON 115.0 16,534 18,134 GARDNER SPRINGS 23.0 3,586 4,545 MT. JACKSON 34.5 5,385 6,439 NORTH RIVER 115.0 8,996 7,181 TIMBERVILLE 115.0 23,846 25,229 TRIMBLES MILL 115.0 6,086 8,534 COLUMBIA FURNACE 23.0 2,442 3,198 WOODSTOCK 34.5 3,291 4,392 ELKTON (COORS) 115.0 6,350 6,451 STUARTS DRAFTS 115.0 14,112 17,251 BARTERBROOK 115.0 5,731 5,347 SOUTHSIDE EC ALTAVISTA 12.5 3,422 3,614 AMELIA 34.5 7,373 10,454 FORT PICKETT 115.0 11,701 11,050 CENTER STAR 34.5 5,361 8,030 CHERRY HILL 34.5 2,541 3,049 DANIELTOWN 69.0 4,992 6,106 DRAKES BRANCH 12.5 3,186 3,701 EVERGREEN 34.5 2,345 2,880 GARY 115.0 3,168 3,395 GLADYS 69.0 4,399 5,386 HOOPER 115.0 3,845 4,651 MADISONVILLE 34.5 3,763 4,973
-13-
Name/Description Delivered Voltage (kV) 1996 Summer NCP (kW) 1996-97 Winter NCP (kW) - ---------------- ----------------------- --------------------- ---------------------- SOUTHSIDE EC (continued) MARTINS 115.0 2,634 2,666 MORAN 115.0 6,398 8,371 NUTBUSH 115.0 5,389 4,786 POINTON 34.5 2,667 2,995 REDHOUSE-NEW 115.0 9,024 11,688 STODDERT 34.5 2,506 3,043 REAMS 2 115.0 14,933 20,966 VICTORIA 115.0 2,112 5,386 POWHATAN #2 34.5 10,146 17,444
Service Agreement For Network Integration Transmission Service To Old Dominion Electric Cooperative THIS AGREEMENT is made as of this 29th day of July, 1997, by and between Virginia Electric and Power Company (hereinafter called "Transmission Provider"), and Old Dominion Electric Cooperative (hereinafter called "Transmission Customer"). In consideration of the mutual covenants and agreements herein contained, the Parties hereto agree as follows: 1. Transmission Provider agrees to furnish, and Transmission Customer agrees to take and pay for, Network Integration Transmission Service pursuant to Transmission Provider's FERC Transmission Tariff Volume No. 5, as modified from time to time. The terms and conditions of the Tariff are incorporated herein and made a part hereof. Nothing contained herein shall be construed as affecting in any way Transmission Provider's right to unilaterally make application to the Federal Energy Regulatory Commission, or other regulatory agency having jurisdiction, for any change in the Tariff or this Service Agreement under Section 205 of the Federal Power Act, or other applicable statute, and any rules and regulations promulgated thereunder; or Transmission Customer's rights under the Federal Power Act and rules and regulations promulgated thereunder. -2- 2. The specifications of service shall be agreed to from time to time by Transmission Provider and Transmission Customer. Changes in the specifications do not require amendment of the Service Agreement that is filed with the FERC unless the changes in specifications result in changes in the charges to Transmission Customer for Network Integration Transmission Service or related Ancillary Services. 3. The charge for Network Integration Transmission Service over Transmission Provider's Transmission System to Transmission Customer shall be the rate set out in Schedule 9 of the Tariff, applied to the difference between Transmission Customer's Network Load and any SEPA capacity for which the Transmission Provider receives payment for transmission service pursuant to another contract. In addition, Transmission Customer shall pay a proportional share of Redispatch Costs based on the ratio of its Network Load to the sum of all Network Loads and Transmission Provider's Native Load. In the event that Transmission Customer requests service from Network Resources or to delivery points that are not listed in the specifications for service commencing January 1, 1998, and Transmission Provider must construct additional transmission facilities or redispatch generation in order to provide such service, Transmission Provider may seek to amend this Service Agreement to provide for Transmission Customer to pay for such transmission service on an incremental basis pursuant to the policies of the Commission. Any fuel costs that Transmission Customer pays as a result of -3- redispatch charges pursuant to this section that would otherwise be included in fuel adjustment clause charges under the Interconnection and Operating Agreement Between Virginia Electric and Power Company and Old Dominion Electric Cooperative ("the I&O Agreement") will be excluded from Transmission Customer's fuel adjustment clause charges under that Agreement. 4. The charge for Distribution Service to Transmission Customer's Distribution-level points of delivery is $.8193/kW month, multiplied by Transmission Customer's maximum hourly demand coincident at all delivery points served at distribution voltages, less capacity supplied to such delivery points by SEPA, at production level. The charge for Distribution Service includes the cost of delivery point meters provided by Transmission Provider for service to Transmission Customer. The loss factor for such Distribution Service is 0.6924%. 5. Transmission Customer's arrangements for Ancillary Services are as follows: Scheduling, System Control and Dispatch Service: For the period January 1, 1998 through December 31, 2001, the rate shall be $.01133/kW month, applied to the difference between Transmission Customer's Network Load and any SEPA capacity for which Transmission Provider receives payment for this service pursuant to another contract. Beginning January 1, 2002, Schedule 1 of the Tariff, as modified from time to time, shall apply. Reactive Supply and Voltage Control from Generation Sources Service: For the period January 1, 1998 through December 31, 2001, the rate shall be -4- $.11000/kW month, applied to the difference between Transmission Customer's Network Load and any SEPA capacity for which Transmission Provider receives payment for this service pursuant to another contract, less Transmission Customer's ownership entitlement in the North Anna and Clover generating stations, for which Transmission Customer self-supplies this service. Beginning January 1, 2002, Schedule 2 of the Tariff, as modified from time to time, shall apply. Regulation and Frequency Response Service: For the period January 1, 1998 through December 31, 2001, Transmission Customer shall purchase this service from Transmission Provider at a rate of $6.72/kW month applied to .71% of the difference between Transmission Customer's Network Load and any SEPA capacity for which Transmission Provider receives payment for this service pursuant to another contract. Beginning January 1, 2002, Schedule 3 of the Tariff, as modified from time to time, shall apply. Energy Imbalance Service: For the period in which the dispatch of all of Transmission Customer's Network Resources is controlled by Transmission Provider, there is no charge for energy imbalance service because those Network Resources are automatically dispatched to meet Transmission Customer's entire Network Load. Schedule 4, as modified from time to time, shall apply to any Network Load served by Excluded Supplemental Capacity or Excluded Peaking Capacity under the I&O Agreement. -5- Operating Reserve -- Spinning Reserve Service: For the period January 1, 1998 through December 31, 2001, Transmission Customer shall purchase this service from Transmission Provider at a rate of $8.59000/kW month, applied to 1.26% of difference between Transmission Customer's Network Load and any SEPA capacity for which Transmission Provider receives payment for this service pursuant to another contract. Beginning January 1, 2002, Schedule 5 of the Tariff, as modified from time to time, shall apply. Operating Reserve -- Supplemental Reserve Service: For the period January 1, 1998 through December 31, 2001, Transmission Customer shall purchase this service from Transmission Provider at a rate of $5.55000/kW month, applied to 1.26% of the difference between Transmission Customer's Network Load and any SEPA capacity for which Transmission Provider receives payment for this service pursuant to another contract. Beginning January 1, 2002, Schedule 6 of the Tariff, as modified from time to time, shall apply. 6. Transmission Customer shall maintain a minimum power factor of 97.3% (lagging) at transmission-level delivery points and 99.0% (lagging) at distribution level delivery points. Power factors shall be determined based on the sums of the kW and rkva, respectively, for all of Transmission Customer's transmission level or distribution level delivery points within each of Transmission Provider's districts. If Transmission Customer fails to maintain these power factors Transmission Provider shall charge Transmission Customer for its historical -6- reactive requirements at embedded cost rates and for its reactive requirements in excess of historical levels on an incremental basis. 7. Transmission Customer may not assign the Service Agreement to any other entity; provided that Transmission Customer may assign or transfer its rights under this Agreement to the U.S. Government or any agency thereof, the National Rural Utilities Cooperative Finance Corporation, or any other financing institution solely as security for loans or advances without the prior written consent of Transmission Provider. 8. This Service Agreement is subject to any present and future state and federal laws, regulations, orders or other duly promulgated requirements. 9. This Service Agreement shall become effective on January 1, 1998 and shall have an initial term of four years. After the initial term, this Service Agreement shall continue in effect until terminated by Transmission Provider or Transmission Customer; provided that the terminating Party must provide not less than one year's written notice of termination. -7- IN WITNESS HEREOF, the Parties have caused this Service Agreement to be executed by their respective authorized officials. VIRGINIA ELECTRIC AND POWER COMPANY By: /s/J.T. Rhodes -------------- Name: Dr. James T. Rhodes Title: President and Chief Executive Officer Date: July 29, 1997 OLD DOMINION ELECTRIC COOPERATIVE By: /s/R.W. Watkins --------------- Name: R. W. Watkins Title: President and Chief Executive Officer Date: July 29, 1997 Network Operating Agreement Between Virginia Electric and Power Company and Old Dominion Electric Cooperative Preamble Virginia Electric and Power Company ("Transmission Provider") and Old Dominion Electric Cooperative ("Transmission Customer") agree that the provisions of this Network Operating Agreement ("Network Operating Agreement") and the Service Agreement govern Transmission Provider's provision of Network Integration Transmission Service to Transmission Customer in accordance with Part III of the Open Access Transmission Tariff ("Tariff"), as it may be amended from time to time. Unless specified herein, capitalized terms shall refer to terms defined in the Tariff. 1. Control Area Requirements 1. Control Area Requirements Transmission Provider shall be the Control Area Operator for the Network Loads of Transmission Customer. Transmission Provider and Transmission Customer shall plan, construct, operate, and maintain their facilities and systems in accordance with Good Utility Practice, which shall include, but not be limited to, all applicable guidelines of NERC and SERC, as they may be modified from time to time, and any generally accepted practices in the region that are consistently adhered to by Transmission Provider. -2- 2. Redispatch Procedures (a) If Transmission Provider determines that redispatching resources (including reductions in off-system purchases and sales) to relieve an existing or potential transmission constraint is the most effective way to ensure the reliable operation of the Transmission System, Transmission Provider will redispatch Transmission Provider's and Transmission Customer's resources on a least-cost basis, without regard to the ownership of such resources. Transmission Provider will apprise Transmission Customer of its redispatch practices and procedures, as they may be modified from time to time. (b) Transmission Customer shall submit to Transmission Provider verifiable cost data for any Network Resources that Transmission Provider does not dispatch, which estimate the cost to Transmission Customer of changing the generation output of each of its Network Resources. This cost data will be used, along with similar data for Transmission Provider's resources, as the basis for least-cost redispatch. Transmission Provider's bulk power operations personnel will keep this data confidential, and will not disclose it to Transmission Provider's marketing personnel. If Transmission Customer experiences changes to the costs for such Network Resources, Transmission Customer will submit those changes to Transmission Provider's system operation center. Transmission Provider will implement least-cost redispatch consistent with its current practices and procedures for its own -3- resources and its contract obligations with respect to any purchased resources. Transmission Customer shall respond within ten (l0) minutes to requests from Transmission Provider's system operation center for redispatch of such Network Resources that Transmission Provider does not dispatch. (c) In addition to the rights that Transmission Customer may have pursuant to other contracts with Transmission Provider, Transmission Customer may audit, at its own expense, redispatch events (such as the cause or necessity of the redispatch) during normal business hours following reasonable notice to Transmission Provider. Either Transmission Customer or Transmission Provider may request an audit of the other Party's cost data. Any audit of cost data shall be performed by an independent agent at the requesting Party's cost. Such independent agent shall be required to keep all cost data confidential and not disclose such information to Transmission Customer's marketing personnel or Transmission Provider's marketing personnel. (d) Once redispatch has been implemented, Transmission Provider shall book in a separate account the redispatch costs incurred by Transmission Provider and Transmission Customer based on the submitted cost data. 3. Metering (a) Unless otherwise agreed, Transmission Provider shall be responsible for the purchase, installation, operation, maintenance, repair and replacement of all -4- metering equipment necessary to enable Transmission Provider to provide Network Integration Transmission Service. Transmission Customer shall reimburse Transmission Provider for the cost of such meters through monthly charges as provided in the Service Agreement. If Transmission Customer obtains energy from any generator that is not owned or controlled by Transmission Provider, Transmission Customer must either provide a non- dynamic schedule between Control Areas or ensure that there is sufficient metering to measure the amount of energy provided to Transmission Provider's Control Area by that generator. All metering equipment shall conform to Good Utility Practice and the standards and practices of Transmission Provider's Control Area. If Transmission Customer is responsible for metering, then, prior to its installation, Transmission Provider shall approve the type of metering equipment to ensure conformance with such standards or practices, and such approval shall not be unreasonably withheld. (b) Electric capacity and energy received by Transmission Provider from Transmission Customer shall be measured by meters installed at Transmission Customer's Network Resources if such Network Resources are electronically located within Transmission Provider's Control Area. When measurement is made at any location other than a Point of Receipt, suitable adjustment for losses between the point of measurement and the -5- Point of Receipt shall be agreed upon in writing between the parties hereto and will be applied to all measurements so made. Metered receipts used in billing and accounting hereunder shall in all cases include adjustments for such losses. (c) Electric capacity and energy delivered to Transmission Customer's Network Load by Transmission Provider shall be measured by meters installed at the Point(s) of Delivery to such Network Loads. When measurement is made at any location other than Point(s) of Delivery, suitable adjustment for losses between the point of measurement and the Point(s) of Delivery will be agreed upon in writing between the parties hereto and will be applied to all measurements so made. Metering equipment shall normally be installed on Transmission Customer's side of the delivery point. Metered receipts used in billing and accounting hereunder shall in all cases include adjustments for such losses. (d) Meters at Transmission Customer's Network Resources and Network Loads shall be tested at least once every year. At the request of either Party, a special test of any meter will be performed. All costs of such a test will be paid by the Party requesting the test, unless metering inaccuracy as defined in paragraph 3(e) is discovered, in which case costs will be borne by the Party that owns the meter. Representatives of both parties shall be afforded an opportunity to be present at all routine or special tests. All meters will -6- be sealed and seals will be broken only by the owning Party and only when meters are to be tested or adjusted. (e) In the event any metering equipment used to measure capacity and energy is found to be inaccurate by more than one (l) percent or is inoperable, the meter will be promptly replaced, repaired or readjusted by the owner of the meter. Adjustments made for metering inaccuracy or other meter malfunctions will be made for the period the inaccuracy or malfunction is known, or for a mutually agreed upon period, if not known. If agreement on the period of adjustment cannot be reached, a period of three months from the date of discovery of the inaccuracy or malfunction shall be utilized. (f) Either Party shall have the right to install check metering at any Point(s) of Receipt or Delivery, as herein provided without charge by the Party owning the metering equipment for the purpose of checking the meters installed by the other Party. (g) Each Party shall read any meters owned by it, except as may be mutually agreed, and shall furnish to the other Party all meter readings and other information required for operations and for billing purposes. Such information shall remain available to the other Party for three (3) years. -7- 4. Operating Data and Equipment Requirements (a) Supervisory Control and Data Acquisition (SCADA) telemetry to Transmission Provider is required for: (i) Transmission Customer's aggregate Network Load; (ii) each Network Resource that is designated by Transmission Customer after the date of this Agreement; and (iii) each transmission-voltage delivery point that is established after the date of this Agreement for which such telemetry is determined by the Network Operating Committee to be necessary to support the reliability of the transmission system. Transmission Provider shall establish the requirements for SCADA telemetry, the data to be received at its system operations center and the protocol for communications between Transmission Provider and Transmission Customer based on Good Utility Practice and the reliability and security of the system. Transmission Provider shall coordinate its decisions concerning SCADA telemetry, data and communications protocols with Transmission Customer to the extent it can reasonably do so. (b) Transmission Customer shall be responsible for the purchase, installation, operation, repair and replacement of SCADA telemetry equipment and protection equipment and any related equipment and hardware that is required by this Agreement. Transmission Customer also shall be responsible for implementing any modifications to the SCADA software -8- and communications protocols necessary to communicate effectively with Transmission Provider. 5. Operating Requirements (a) Transmission Customer shall operate its generating resources inside Transmission Provider's Control Area (other than resources operated by Transmission Provider) in a manner consistent with that of Transmission Provider, following voltage schedules, free governor response, meeting power factor requirements at the points of interconnection with Transmission Provider's system, and other such criteria required by NERC and SERC and consistently adhered to by Transmission Provider. (b) Transmission Customer shall develop a load curtailment plan that provides for voltage reductions, voluntary load curtailments, manual load shedding and automatic load shedding that is comparable to the load curtailment plan that Transmission Provider has for its Native Load Customers. Transmission Provider and Transmission Customer shall work together to ensure the integrity of the interconnected systems, with Transmission Provider charged with the responsibility of initiating and coordinating any load curtailments and the subsequent restoration of these loads. Should Transmission Customer willfully fail, in the absence of good cause, to reduce voltage or shed load as required by Transmission Provider, it shall pay a charge equal to $25.77/kW-month (as amended from time to time) -9- multiplied by the amount of load that Transmission Customer fails to curtail. Insofar as practicable, Transmission Provider and Transmission Customer shall protect, operate, and maintain their respective systems so as to avoid or minimize the likelihood of disturbances which might cause impairment of service on the system(s) of the other. (c) In the event a temporary voltage reduction is required because of any condition, Transmission Provider will notify Transmission Customer as far in advance as practicable of its plan to reduce voltage and the period for which such voltage reduction is believed to be required and Transmission Customer will, upon such notification, effect a similar true voltage reduction on its system during the same period. Transmission Customer will be notified immediately when a voltage reduction is planned to be terminated. (d) Transmission Customer shall maintain the capability to manually shed its Network Load that is comparable to the capability of Transmission Provider to manually shed the loads of its Native Load Customers. When manual load shedding is necessary, Transmission Provider shall notify Transmission Customer of the required action and Transmission Customer shall comply within ten (10) minutes. Transmission Provider shall require, on a non- discriminatory basis, manual load shedding for Transmission -10- Customer's Network Load unless otherwise required by circumstances beyond the control of the Transmission Provider or Transmission Customer. (e) Prior to the date on which Transmission Customer serves any portion of its Network Load using Excluded Supplemental Capacity or Excluded Peaking Capacity under the I&O Agreement, the Parties shall agree on load shedding capabilities and procedures for that portion of Transmission Customer's Network Load. (f) Transmission Customer shall provide, operate and maintain in service automatic high-speed digital underfrequency load shedding equipment that has the capability, together with equipment installed by Transmission Provider, to disconnect Transmission Customer's Network Load in a manner that is comparable to Transmission Provider's automatic load shedding capability for its Native Load. Such automatic load shedding capability shall be established at frequency set points of 59.3 Hertz, 59.0 Hertz, and 58.5 Hertz, with no intentional time delay. The requirement to maintain automatic load shedding capability shall be phased in as agreed upon by Transmission Provider and Transmission Customer and shall be fully implemented by not later than January 1, 2002. (g) In the event Transmission Provider modifies the load shedding system, Transmission Customer shall, at its expense, make corresponding changes to its equipment and the setting of such equipment, as required. - 11 - (h) Transmission Customer shall test and inspect its load shedding equipment not less than thirty (30) days prior to the occurrence of an event that requires modification of its load shedding capability as set out in this Article and thereafter shall conduct additional tests in accordance with Good Utility Practice. Transmission Provider may request other tests of the load shedding equipment upon reasonable notice. Transmission Customer shall provide Transmission Provider written reports of all load shedding tests. 6. Operational Information Transmission Customer shall provide data needed for the safe and reliable operation of Transmission Customer's and Transmission Provider's Control Areas and to implement the provisions of the Tariff. Transmission Provider shall treat this information as confidential and shall not divulge it to its marketing personnel. (a) Transmission Customer shall provide by September 1st of each year Transmission Customer's Network Resource availability forecast (e.g., all planned resource outages, including off-line and on-line dates) for the following year for all Network Resources that are not dispatched by Transmission Provider. Such forecast shall be made in accordance with Good Utility Practice. Transmission Customer shall inform Transmission Provider, in a timely manner, of any changes to Transmission Customer's Network Resource availability forecast. In the event that Transmission -12- Provider determines that such forecast cannot be accommodated due to a transmission constraint on its Transmission System, and such constraint may jeopardize the security of the Transmission System or adversely affect the economic operation of either Transmission Provider or a Firm Point-to-Point or Network Integration Transmission Customer, the provisions of Section 32 of the Tariff shall be implemented. (b) Transmission Customer shall provide, at least 36 hours in advance of every calendar day, Transmission Customer's best forecast of any planned outages of Transmission Customer's non-radial transmission facilities and outages of Network Resources other than those dispatched by Transmission Provider and other operating information that the Network Operating Committee deems appropriate. In the event that such planned outages cannot be accommodated due to a transmission constraint on Transmission Provider's Transmission System, the provisions of Section 33 of the Tariff shall be implemented. 7. Network Planning In order for Transmission Provider to plan, on an ongoing basis, to meet Transmission Customer's requirements for Network Integration Transmission Service, Transmission Customer shall provide, by September 1st of each year, updated information (current year and 10-year projection) for Network Loads and Network Resources that are not dispatched by Transmission Provider, as well as any other -13- information reasonably necessary to plan for Network Integration Service. This type of information is consistent with Transmission Provider's information requirements for planning to serve its Native Load Customers. The data will be provided in a format consistent with that used by Transmission Provider. 8. Delivery Points 8.1 Delivery Points. Transmission Provider and Transmission Customer, during the term of this Agreement, shall remain interconnected. Unless otherwise mutually agreed upon, Transmission Customer or its Members shall own, operate and maintain all facilities, except interconnection metering, on Transmission Customer's side of the delivery points and these facilities shall be operated and maintained in accordance with Good Utility Practice. Unless otherwise mutually agreed upon, Transmission Provider shall own, operate and maintain all facilities on Transmission Provider's side of the delivery points and all interconnection metering no matter where located. These facilities shall be operated and maintained in accordance with Good Utility Practice. 8.2 Existing Delivery points. The Network Operating Committee shall from time to time modify the specifications to the Service Agreement to reflect the delivery points in service. All existing delivery points are defined as those points where electric power and energy are transferred as of the effective date of this Agreement from Transmission Provider's system to facilities owned by Transmission Customer or one of its members. -14- 8.3 Modifications to Delivery Points. Where modifications are suggested for delivery points the Network Operating Committee shall review the suggested modifications, allocate the costs of the changes between the Parties and, if necessary, establish a new point in the physical arrangement as the delivery point. If the change is mutually agreed upon or if the change is reasonably required for the giving or receiving of adequate service hereunder, the change will be made with each Party bearing its own costs. Otherwise, the Party requesting the change shall be fully responsible for the change and shall pay all costs incurred as the result of such change. Where a delivery point is discontinued, the costs of removal shall be paid for by the Party initiating the discontinuance. 8.4 Future Delivery Points. The Network Operating Committee shall coordinate planning of future delivery points through the following procedure: Transmission Customer shall determine its needs for future delivery points and shall give Transmission Provider as much advance notice of its needs as practicable. The Network Operating Committee shall review Transmission Customer's plans for reasonableness and consistency with Good Utility Practice. Transmission Provider may propose appropriate modifications to Transmission Customer's plans; however, Transmission Provider will not require unreasonable modifications to Transmission Customer's plans. It is the intent of the Parties that the number, capacity, and location of future delivery points will result from a planning process using Good Utility Practice and neither Party shall request changes or additions which would not be in accordance with this concept. -15- In establishing all future delivery points Transmission Customer shall construct and bear the costs of those facilities necessary to effect interconnection at the point where Transmission Provider facilities exist or will exist at the time of the need for the interconnection. Future delivery points will be established at 115 kV or higher, except in those cases where the Network Operating Committee, consistent with Good Utility Practice, determines that service at lower voltage levels is appropriate and Transmission Provider shall not unreasonably withhold service at such lower voltage levels. The delivery point will be defined and established by the Network Operating Committee so that Transmission Provider will, except as noted below, provide and bear the costs of those facilities on the supply side of the delivery point including the necessary switching and protective equipment, and Transmission Customer will provide and bear the costs of those facilities on the load side of the delivery point including the necessary isolation switching devices and protective equipment, transformers and lines. When the need for the future delivery point described by Transmission Customer could, through Good Utility Practice, be satisfied through the modification and/or upgrading of Transmission Customer's existing facilities, but Transmission Customer still desires the future delivery point and Transmission Provider agrees to supply it, Transmission Customer shall bear the cost of whatever facilities may be required, including those facilities on the supply side of the delivery point. The Parties interpret the Tariff as not requiring System Impact Studies or Facilities Studies for new delivery points that result from normal load growth. If the Commission -16- requires Transmission Provider to charge itself for studies in conjunction with new delivery points needed to accommodate Transmission Provider's normal load growth, Transmission Customer shall pay for studies in comparable circumstances in conjunction with its own requests for new delivery points. 8.5 Characteristics of Electricity. Except as provided in Section 8.4, Transmission Provider will furnish at future delivery points three phase, 60 Hertz alternating current electricity at 115 kV or higher or at the nominal voltage level determined to be appropriate by the Network Operating Committee. Transmission Provider will continue to furnish at all existing delivery points three phase, 60 Hertz alternating current electricity at Transmission Provider's nominal voltage now being furnished as listed in Specifications to the Service Agreement. Transmission Provider shall operate its system so that Transmission Customer's voltage at each delivery point is within the range Transmission Provider would maintain for its own purpose. 8.6 Access at Delivery Points. Transmission Customer and Transmission Provider will have the right of access at all delivery points and at all remote delivery point metering locations at reasonable times for the purposes of reading meters or installing, maintaining, changing or removing any property they own or for any other proper purpose. The handling of tape cartridges associated with tape metering at delivery points will be done only by the owner of the tape meters. 8.7 Notification of System Changes. Transmission Customer shall notify Transmission Provider in advance, and Transmission Provider shall notify Transmission -17- Customer in advance, of any changes to be made in their respective systems which will affect the proper coordination of protective devices on the two systems. Transmission Customer and Transmission Provider shall each be responsible for selection, installation, adjustment and setting, and maintenance of their own control and protective equipment. In no case shall operation of this equipment by either Transmission Provider or Transmission Customer place a burden upon or cause avoidable interruptions to the other's system. 9. Transfer of Power and Energy Through Other Systems In accord with regional practices, NERC requirements and the requirements of the Tariff, to the extent Transmission Provider and Transmission Customer's use of the Transmission System impacts other electric systems, Transmission Provider and Transmission Customer shall take actions to relieve constraints on third party systems as deemed necessary to the reliability and security of the third party system or the region. 10. Notice Any notice or request made to or by either Party regarding this Network Operating Agreement shall be made to the representative of the other Party as follows:
Virginia Electric and Power Company Old Dominion Electric Cooperative Manager Power Supply Dispatch Supervisor Virginia Electric and Power Company Old Dominion Electric Cooperative 5000 Dominion Boulevard 4201 Dominion Boulevard Glen Allen, Virginia 23060 Glen Allen, Virginia 23060
-18- 1 1. Amendment Nothing contained herein shall be construed as affecting in any way Transmission Provider's right to unilaterally make application to the Federal Energy Regulatory Commission, or other regulatory agency having jurisdiction, for any change in this Network Operating Agreement and the Tariff under Section 205 of the Federal Power Act, or other applicable statute, and any rules and regulations promulgated thereunder; or Transmission Customer's right under the Federal Power Act and rules and regulations promulgated thereunder. 12. Incorporation The Tariff and Service Agreement are incorporated herein and made a part hereof. 13. Term The term of this Network Operating Agreement shall be concurrent with the term of the Service Agreement between the Parties. 14. Network Operating Committee The Network Operating Committee shall be responsible for the coordination of the operating criteria established by this Network Operating Agreement including (i) operation and maintenance of equipment necessary for integrating Transmission Customer within Transmission Provider's Transmission System (including, but not limited to, remote terminal units, metering, communications and relaying equipment), (ii) transfer of data between Transmission Provider and Transmission Customer (including, but not limited to, operational characteristics of Network Resources not dispatched by -19- Transmission Provider, generation schedules for units outside Transmission Provider's Control Area, interchange schedules, unit output for redispatch required under Section 33 of the Tariff and voltage schedules), (iii) exchange of data on forecasted loads and resources necessary for long-term planning, (iv) coordination and implementation of modifications to delivery points and coordination of and planning for future delivery points in accordance with Good Utility Practice, and (v) resolution of any other technical and operational issues necessary for implementation of this Network Operating Agreement. Each member of the Network Operating Committee shall be fully authorized to act on behalf of its Party with respect to all matters contemplated in the Network Operating Agreement but will not be authorized to amend the Agreement. Transmission Provider's representative to the Network Operating Committee is the Manager Power Supply. Transmission Customer's representative to the Network Operating Committee is the Vice President Engineering and Operations. -20- IN WITNESS WHEREOF, the Parties have caused this Network Operating Agreement to be executed by their respective authorized officials. VIRGINIA ELECTRIC AND POWER COMPANY: By: /s/J.T. Rhodes -------------- Name: Dr. James T. Rhodes Title: President and Chief Executive Officer Date: July 29, 1997 OLD DOMINION ELECTRIC COOPERATIVE: By: /s/R. W. Watkins ---------------- Name: R. W. Watkins Title: President and Chief Executive Officer Date: July 29, 1997 EX-10 3 EXHIBIT 10.14 Exhibit 10.14 DOMINION RESOURCES, INC. EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN As Amended and Restated September 1, 1996 DOMINION RESOURCES, INC. EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN Purpose The Board of Directors of Virginia Electric and Power Company determined that adoption of the Executive Supplemental Retirement Plan would assist it in attracting and retaining those employees whose judgment, abilities and experience will contribute to its continued progress. On May 19, 1983, Virginia Electric and Power Company became a wholly-owned subsidiary of Dominion Resources, Inc. The Plan was amended to reflect the reorganization of Virginia Electric and Power Company and the Plan was adopted by Dominion Resources, Inc. The Plan was amended further, effective as of October 21, 1983, to require sixty (60) months of service to be eligible for retirement benefits and to assure Participants who have attained age fifty-five (55) and who have sixty (60) months of service with the Company, or who die or become Totally and Permanently Disabled, of their benefits, so long as they remain elected officers at the time of their separation from service. The Plan was amended further, effective as of September 1, 1996, to add a vesting schedule for Participants under age 55, to change the form and timing of benefit payments, and to coordinate payments with changes in the Funding Plan. Article I Definitions As defined herein, the following phrases or terms shall have the indicated meanings: 1.1. "Administrative Benefit Committee" means the Administrative Benefit Committee appointed to manage and administer the Plan in accordance with the provisions of Article X hereof. 1.2. "Affiliate" means any entity that is (i) a member of a controlled group of corporations as defined in Section 1563(a) of the Internal Revenue Code of 1986, as amended (the "Code"), determined without regard to Code Sections 1563(a)(4) and 1563(e)(3)(c), of which Dominion Resources, Inc. is a member according to Code Section 414(b); (ii) an unincorporated trade or business that is under common control with Dominion Resources, Inc., as determined according to Code Section 414(c); or (iii) a member of an affiliated service group of which Dominion Resources, Inc. is a member according to Code Section 414(m). 1.3. "Beneficiary" means the person, persons, entity, entities or the estate of a Participant which, in accordance with the provisions of Article V, is entitled to receive benefits, if any, upon the Participant's death. 1.4. "Cash Incentive Plan" means the Dominion Resources, Inc. Cash Incentive Plan as in effect from time to time and any successor thereto. 1.5. "Change in Control" means the occurrence of any of the following events: (i) any person, including a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934 becomes the owner or beneficial owner of Dominion Resources, Inc. securities having 20% or more of the combined voting power of the then outstanding Dominion Resources, Inc. securities that may be cast for the election of Dominion Resources, Inc.'s directors (other than as a result of an issuance of securities initiated by Dominion Resources, Inc., or open market purchases approved by Dominion Resources, Inc.'s Board of Directors, as long as the majority of Dominion Resources, Inc.'s Board of Directors approving the purchases is also the majority at the time the purchases are made); (ii) as the direct or indirect result of, or in connection with, a cash tender or exchange offer, a merger or other business combination, a sale of assets, a contested election, or any combination of theses transactions, the persons who were directors of Dominion Resources, Inc. before such transactions cease to constitute a majority of Dominion Resources, Inc.'s Board of Directors, or any successor's board, within two years of the last of such transactions; or (iii) with respect to a particular Participant, an event occurs with respect to the Company that employs that Participant such that, after the event, the employing Company is no longer an Affiliate of Dominion Resources, Inc. 1.6. "Company" means Dominion Resources, Inc., its predecessor, a subsidiary or an Affiliate. 1.7. "Control Change Date" means the date on which a Change in Control event occurs. If a Change in Control occurs on account of a series of transactions, the Control Change Date is the date of the last of such transactions. 1.8. "DRI Participant" means a Participant who is an elected officer of Dominion Resources, Inc., Dominion Capital, Inc., Dominion Energy, Inc., Dominion Lands, Inc. and any other corporation (i) in which Dominion Resources, Inc. or an Affiliate owns stock possessing at least 50 percent of the combined voting power of all classes of stock, (ii) which is not subject to regulation as a public service corporation by the State Corporation Commission of Virginia, and (iii) which is not a subsidiary of Virginia Power. 1.9. "ESRP Account" means the ESRP Account established under the Funding Plan on behalf of a Participant who also participates in the Funding Plan. 1.10 "Final Compensation", with respect to a Participant, means, as of any date, the sum of (i) the Participant's annual base salary and (ii) the Participant's Incentive Compensation Amount. For purposes of this section, all components of Final Compensation are calculated without regard to any elections by the Participant to defer any amount that otherwise would have been paid to the Participant for the relevant period. 1.11 "Funding Plan" means the Dominion Resources, Inc. Retirement Benefit Funding Plan. 1.12. "Incentive Compensation Amount" means the amount that may be paid under the Success Sharing Plan, the Cash Incentive Plan or any other incentive compensation plan designated by the appropriate O&C Committee and that the appropriate O&C Committee (at the time each year that the goals and other criteria for such plans are established), determines should be taken into account under the Plan. If a Participant participates in more than one incentive compensation plan during a year, his "Incentive Compensation Amount" is the greatest of the amounts designated by the appropriate O&C Committee under any plan for that year. 1.13. "O&C Committee" means (i) the Organization and Compensation Committee of Dominion Resources, Inc. with respect to DRI Participants and (ii) the Organization and Compensation Committee of Virginia Power with respect to Virginia Power Participants. 1.14. "Participant" means an elected officer of Dominion Resources, Inc., Virginia Power, and such other subsidiaries or Affiliates of Dominion Resources, Inc. that are designated by the Board of Directors of Dominion Resources, Inc. or the Board of Directors of Virginia Power. An individual shall remain a Participant only so long as the individual remains an elected officer of one or more of such designated entities. 1.15. "Plan" means the Dominion Resources, Inc. Executive Supplemental Retirement Plan. 1.16. "Retirement" and "Retire" mean severance from employment with the Company at or after the attainment of fifty-one (51) years of age and the completion of sixty (60) months of service with the Company. 1.17. "Success Sharing Plan" means the Success Sharing Plan of Virginia Electric and Power Company as in effect from time to time and any successor thereto. 1.18. "Totally and Permanently Disabled" means a condition, determined on the basis of medical evidence satisfactory to a physician designated by the Administrative Benefit Committee, rendering a Participant, due to bodily injury or disease, unable to perform services as follows: (i) during the first two years of such disability (measured from the commencement of such disability rather than the commencement of benefit payments) such Participant is unable to perform any and every duty pertaining to his employment with the Company; and (ii) thereafter, such Participant is unable to engage in any occupation or perform any work for compensation or profit for which he is or may become reasonably fitted by education, training or experience. In no event shall such condition be deemed to exist during any period that the Participant is not under the regular care and attendance of a legally qualified physician during any period that he engages in any occupation or performs any work for compensation or profit. 1.19 "Virginia Power" means Virginia Electric and Power Company. 1.20. "Virginia Power Participant" means a Participant who is an elected officer of Virginia Power or of any designated subsidiary of Virginia Power. Article II Participation All elected officers of Dominion Resources, Inc., Virginia Power, and such other subsidiaries and Affiliates of Dominion Resources, Inc. or Virginia Power as may be designated by the Board of Directors of Dominion Resources, Inc. or Virginia Power on, and subsequent to, January 1, 1981, will become Participants in the Plan. An individual shall remain a Participant only so long as the individual remains an elected officer of one or more of such designated entities. The appropriate Board may change its designation of any such subsidiary or Affiliate at any time. Article III Benefits Except as provided in Article IV and subject to the limitations set forth in Articles VII and VIII, the benefits of a Participant and his Beneficiary shall be as follows: 3.1. (a) If a Participant continues in the employ of the Company beyond age fifty-five (55) and after completing sixty (60) months of service, upon Retirement, he shall be entitled to an annual Retirement benefit equal to Twenty-five percent (25%) of his Final Compensation, payable in equal monthly installments for a period of one hundred twenty (120) months. (b) In the event a Participant becomes Totally and Permanently Disabled prior to Retirement, regardless of his age or months of service, he shall be entitled to receive a benefit equal to the amount described in Subsection 3.1(a). (c) If a Participant dies prior to the commencement of his Retirement benefit, regardless of his age or months of service, his Beneficiary will receive a benefit equal to the amount described in Subsection 3.1(a). If a Participant dies after Retirement or disability benefits have commenced under Subsection 3.1(a) or 3.1(b) but before he has received one hundred twenty (120) payments, the remainder of such payments will be made monthly to the Participant's Beneficiary in accordance with Article V. (d) If a Participant has completed sixty (60) months of service, upon his severance from employment with the Company at or after the attainment of fifty-one (51) years of age but before the attainment of fifty-five (55) years of age, the Participant shall be entitled to a percentage of the benefits provided under Subsection 3.1(a) in accordance with the following schedule: Age Percentage 51 20% 52 40% 53 60% 54 80% The actuarial equivalent of the benefit under this Subsection 3.1(d) shall be paid in a single lump sum payment. The actuarial equivalent shall be determined as provided in Section 3.2. Payment shall be made on the first day of the month following the severance from employment with the Company of the Participant or as soon thereafter as administratively possible. 3.2. (a) In lieu of the benefits described in Subsections 3.1(a) and 3.1(b), a Participant may elect to receive an actuarial equivalent of said benefit (i) over a period certain which is not less than ten (10) years nor greater than sixteen (16) years, or (ii) as a single lump sum payment. The actuarial equivalent of the benefit provided under Subsection 3.1(a) or 3.1(b) shall be computed using an interest rate equal to the yield of that certain nondiscount, noncall U.S. Treasury obligations which on the date benefits are to commence have a maturity date closest to the date such payments are scheduled to cease. A Participant who participates in the Funding Plan may not make an election under this Subsection unless he elects to have his Funding Plan benefit paid in the same manner as his election under this Subsection. In the event a Participant makes the election provided for in this Section and if the Participant dies prior to receiving the total actuarial equivalent of the benefits described in Subsection 3.1(a) or 3.1(b), the balance of such actuarial equivalent shall be paid monthly to the Participant's Beneficiary in accordance with Article V. (b) The Participant must make the election under Subsection 3.2(a) either (i) at least six (6) months prior to the commencement of the receipt of benefits or (ii) at least one (1) month prior to the commencement of the receipt of benefits if the election is approved by the Administrative Benefit Committee or the appropriate O&C Committee in its absolute discretion. Upon the denial of a Participant's election, the Participant shall receive the benefits provided under the Plan in the form that is otherwise payable absent the election. 3.3. A Beneficiary receiving benefits described in Section 3.1 or Section 3.2 may designate a beneficiary who will be entitled to receive the remaining benefits due the Beneficiary after his death; provided, however, that if the Beneficiary is entitled to receive any benefits under the Funding Plan, the beneficiary designated by the Beneficiary must be the same person or entity appointed by the Beneficiary under the Funding Plan. Such designation shall be in accordance with Article V of the Plan. 3.4. Payment of the benefits described in Sections 3.1 and 3.2 shall commence on the first day of the month next following the Retirement or death of the Participant, whichever is applicable; provided, however, that payment of the benefit described in Subsection 3.1(b) shall commence on the first day of the month next following the Administrative Benefit Committee's determination of the Participant's Total and Permanent Disability. Article IV Coordination of Benefits The amount payable in any month to a Participant, a Beneficiary, or the beneficiary of a Beneficiary under the Plan shall be reduced, but not below zero, by the Pre-Tax Value of the amount payable for the month in question from the Participant's ESRP Account in the Funding Plan. The Pre-Tax Value of the payments from the Participant's ESRP Account shall be the amount that, after payment of any applicable federal, state, and local income and employment taxes, would yield the amount of the payment from the ESRP Account, taking into consideration the extent to which, if any, that the payment from the ESRP Account is taxable to the Participant. The determination of the Pre- Tax Value shall be made on the basis of a policy or guidelines adopted by the appropriate O&C Committee using the maximum rates of federal, state, and local income and employment taxes that are applicable to the Participant, Beneficiary, or beneficiary of a Beneficiary. Benefits payable under the Plan shall not be reduced by any payment to a Participant under Section 6.05 of the Funding Plan. Article V Designation of Beneficiary 5.1. (a) The Beneficiary of a Participant who participates in the Funding Plan shall be the person or entity that is entitled to receive the benefit, if any, payable under the Funding Plan following the Participant's death. (b) A Participant who is not a participant in the Funding Plan may designate a Beneficiary to receive benefits due under the Plan, if any, upon the Participant's death. Designation of a Beneficiary may be made by execution of a form approved or accepted by the Administrative Benefit Committee which must be witnessed by a member of the Administrative Benefit Committee or its designee. In the absence of an effective Beneficiary designation, a Participant's surviving spouse, if any, his descendants, per stirpes, and if none, the Participant's estate, will be the Beneficiary. 5.2. A Participant may change a prior Beneficiary designation under Subsection 5.1(b) by a subsequent execution of a Beneficiary designation form. The change in Beneficiary will be effective if, and at such time as, it is witnessed by a member of the Administrative Benefit Committee or its designee. 5.3. A beneficiary designation or a change in beneficiary designation by a Beneficiary pursuant to Section 3.3 shall be governed by Sections 5.1 and 5.2 as if "Beneficiary" was substituted for "Participant" and "beneficiary" was substituted for "Beneficiary" therein. Article VI Guarantees Dominion Resources, Inc. and Virginia Power have only a contractual obligation to make payments of the benefits described in Article III. All benefits are to be satisfied solely out of the general corporate assets of Dominion Resources, Inc. or Virginia Power which shall remain subject to the claims of its creditors. No assets of Dominion Resources, Inc. or Virginia Power will be segregated or committed to the satisfaction of its obligations to any Participant or Beneficiary under this Plan. If Dominion Resources, Inc., in its sole discretion, or Virginia Power, in its sole discretion, elects to purchase life insurance on the life of a Participant in connection with the Plan, the Participant must submit to a physical examination, if required by the insurer, and otherwise cooperate in the issuance of such policy or his rights under the Plan will be forfeited. Article VII Termination of Employment 7.1. The Plan does not in any way limit the right of the Company at any time and for any reason to terminate the Participant's employment or such Participant' status as an officer of the Company. In no event shall the Plan, by its terms or by implication, constitute an employment contract of any nature whatsoever between the Company and a Participant. 7.2. A Participant who is removed or not reelected as an officer or whose employment with the Company is terminated either with or without cause, for reasons other than death, Retirement or Total and Permanent Disability shall immediately cease to be a Participant under this Plan and shall forfeit all rights under this Plan. Further, in no event shall an individual who was a Participant but is not an officer of a designated employer at the time of such individual's death, Retirement or Total and Permanent Disability, be entitled to any benefit under the Plan. A Participant on authorized leave of absence from the Company shall not be deemed to have terminated employment for the duration of such leave of absence. 7.3. Notwithstanding any contrary Plan provision, in the event the employment of a Participant who is in the employ of a Company on a Control Change Date relating to that Company is terminated (for reasons other than death, Retirement, Total and Permanent Disability, or as a result of acts of theft, embezzlement, fraud, or moral turpitude) before the end of the period commencing on the Control Change Date and ending on the earlier of the third anniversary of such date or the Participant's attainment of age fifty-five (55) and completion of sixty (60) months of service and whether or not he is an elected officer of the Company at such time, he shall be fully vested in a benefit payable at age fifty-five (55) based on his Final Compensation as of his date of termination and assuming he had attained age fifty-five(55) and completed sixty (60) months of service as of the date his employment is terminated. During this same period, a Participant who voluntarily terminates employment within sixty (60) days after (i) he does not receive salary increases, bonuses, and incentive awards comparable to the increases, bonuses and awards that he received in prior years or that other executives in comparable positions receive in the current year; or (ii) his compensation or employment-related benefits are reduced; or (iii) his status, title(s), offices, places of employment, working conditions, or management responsibilities are diminished (other than changes in reporting or management responsibilities to reflect sound practices commonly followed by enterprises comparable to the Company employing Participant or required by applicable federal or state law) or within sixty days after the last in a series of such events will be deemed to have terminated under circumstances requiring full vesting under this Section 7.3. Article VIII Termination, Amendment or Modification of Plan 8.1. Except as otherwise specifically provided, Dominion Resources, Inc. reserves the right to terminate, amend or modify this Plan, wholly or partially, at any time and from time to time as to DRI Participants. Such right to terminate, amend or modify the Plan shall be exercised for Dominion Resources, Inc. by its Board of Directors. Except as otherwise specifically provided, Virginia Power reserves the right to terminate, amend or modify this Plan, wholly or partially, at any time and from time to time as to Virginia Power Participants. Such right to terminate, amend or modify the Plan shall be exercised for Virginia Power by its Board of Directors. Notwithstanding the preceding, with respect to an affected Participant, the Plan and Section 7.3 may not be amended, modified or terminated after a Control Change Date before the end of the period specified in that section unless the affected Participant agrees to such amendment, modification or termination in writing. 8.2. Section 8.1 notwithstanding, no action to terminate the Plan shall be taken except upon written notice to each Participant to be affected thereby, which notice shall be given not less than thirty (30) days prior to such action. 8.3. Any notice which shall be or may be given under the Plan shall be in writing and shall be mailed by United States mail, postage prepared. If notice is to be given to Dominion Resources, Inc. or Virginia Power, such notice shall be addressed to their respective corporate office; addressed to the attention of the Corporate Secretary. If notice is to be given to a Participant, such notice shall be addressed to the Participant's last known address. 8.4. The rights of Dominion Resources, Inc. and Virginia Power set forth in Section 8.1 are subject to the condition that its Board of Directors shall take no action to terminate the Plan or decrease the benefit that would become payable or is payable, as the case may be, with respect to a Participant who has attained age fifty-one (51) and completed sixty (60) months of service with the Company, so long as such individual remains an elected officer of a designated employer or a Participant or Beneficiary following the date such Participant or Beneficiary commences receiving benefits described in Article III. 8.5. Except as provided in Sections 7.3, 8.1, and 8.4, upon the termination of this Plan as to Dominion Resources, Inc. by its Board of Directors, the Plan shall no longer be of any further force or effect as to DRI Participants, and neither Dominion Resources, Inc. nor any DRI Participant shall have any further obligation or right under this Plan. Except as provided in Sections 7.3, 8.1, and 8.4, upon the termination of this Plan as to Virginia Power by its Board of Directors, the Plan shall no longer be of any further force or effect as to Virginia Power Participants, and neither Virginia Power nor any Virginia Power Participant shall have any further obligation or right under this Plan. Likewise, the rights of any individual who was a Participant and who is removed or not reelected as an officer of a designated employer shall cease upon such action. Article IX Other Benefits and Agreements Except as provided in Article IV, the benefits provided for a Participant and his Beneficiary under the Plan are in addition to any other benefits available to such Participant under any other plan or program of the Company for its employees, and, except as may otherwise be expressly provided for, the Plan shall supplement and shall not supersede, modify or amend any other plan or program of the Company in which a Participant is participating. Article X Administration of the Plan 10.1. The Plan shall be administered by the Administrative Benefit Committee. Subject to the provisions of the Plan, the Administrative Benefit Committee may adopt such rules and regulations as may be necessary to carry out the purposes hereof. The Administrative Benefit Committee's interpretation and construction of any provision of the Plan shall be final and conclusive. 10.2. Dominion Resources, Inc. and Virginia Power shall indemnify and save harmless each member of the Administrative Benefit Committee and each member of its own O&C Committee against any and all expenses and liabilities arising out of his membership on such committee, excepting only expenses and liabilities arising out of his own willful misconduct. Expenses against which a member of the Administrative Benefit Committee or an O&C Committee shall be indemnified hereunder shall include without limitation, the amount of any settlement or judgment, costs, counsel fees, and related charges reasonably incurred in connection with a claim asserted, or a proceeding brought or settlement thereof. The foregoing right of indemnification shall be addition to any other rights to which any such member may be entitled. 10.3. In addition to the powers hereinabove specified, the Administrative Benefit Committee shall have the power to compute and certify the amount and kind of benefits from time to time payable to Participants and their Beneficiaries under the Plan, to authorize all disbursements for such purposes, and to determine whether a Participant is entitled to the benefit provided in Subsection 3.1(b). 10.4. To enable the Administrative Benefit Committee to perform its functions, the Company shall supply full and timely information to the Administrative Benefit Committee on all matters relating to the compensation of all Participants, their retirement, death or other cause for termination of employment, and such other pertinent facts as the Administrative Benefit Committee may require. Article XI Miscellaneous 11.1. The Plan shall be binding upon Dominion Resources, Inc., Virginia Power, their successors and assigns; subject to the powers set forth in Article VIII, and upon a Participant, his Beneficiary, and either of their assigns, heirs, executors and administrators. 11.2. To the extent not preempted by federal law, the Plan shall be governed and construed under the laws of the Commonwealth of Virginia as in effect at the time of their adoption and execution, respectively. 11.3. Masculine pronouns wherever used shall include feminine pronouns and the use of the singular shall include the plural. IN WITNESS WHEREOF, this instrument has been executed this 12th day of May, 1997. DOMINION RESOURCES, INC. By /s/LINWOOD R. ROBERTSON Linwood R. Robertson Executive Vice President and Chief Financial Officer VIRGINIA ELECTRIC AND POWER COMPANY By /s/T. J. O'NEIL T. J. O'Neil Vice President, Human Resources First Amendment to Dominion Resources, Inc. Executive Supplemental Retirement Plan RESOLVED, that the Dominion Resources, Inc. Executive Supplemental Retirement Plan (the "Plan") as amended and restated September 1, 1996 is amended, pursuant to the authority in Section 8.1 of the Plan. This Amendment is effective as of June 20, 1997 only with respect to Dominion Resources, Inc. Participants in the Plan. This Amendment is not effective with respect to Virginia Power Participants in the Plan. I. With respect to DRI Participants only, Section 3.1(d) is amended to read as follows: "(d) If a Participant has completed sixty (60) months of service with the Company, upon his severance from employment with the Company before the attainment of fifty-five (55) years of age, the Participant shall be entitled to the benefits provided under the Subsection 3.1(a) multiplied by the following fraction (not greater than one): Participant's completed months of service since becoming a Participant ---------------------------------------------------------------------- Total months from the date on which the individual became a Participant to the Participant's attainment of fifty-five (55) years of age In calculating months and months of service, partial months shall be disregarded. The actuarial equivalent of the benefit under this Subsection 3.1(d) shall be paid in a single lump sum payment. The actuarial equivalent shall be determined as provided in Section 3.2. Payment shall be made on the first day of the month following the severance from employment with the Company of the Participant or as soon thereafter as adininistratively possible." II. The second sentence of Section 3.2 (a) is amended to read as follows: "The actuarial equivalent of the benefit provided under Subsection 3.1(a) or 3.1 (1,) shall be computed using actuarial factors, including interest rates, as determined by the Administrative Benefit Committee." IN WITNESS WHEREOF, Dominion Resources, Inc. caused this First Amendment to be executed by its duly authorized officer as of the date indicated above. DOMINION RESOURCES, INC. BY: /s/ Linwood R. Robertson ---------------------------- Linwood R. Robertson Executive Vice President and Chief Financial Officer 6-20/97 ---------------------------- Date SECOND AMENDMENT TO DOMINION RESOURCES, INC. EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN RESOLVED, that the Dominion Resources, Inc. Executive Supplemental Retirement Plan (the "Plan") as amended and restated September 1, 1996 is amended, pursuant to the authority in Section 8.1 of the Plan. This Amendment is effective as of February 20, 1998. 1. Section 1.14 is amended to read as follows: "Participant" means an elected officer of Dominion Resources, Inc., Virginia Power, or a subsidiary or Affiliate of Dominion Resources, Inc. who is eligible to participate in the Plan under Article II. 2. Article II is amended to read as follows: An elected officer of Dominion Resources, Inc., Virginia Power, or a subsidiary and Affiliate of Dominion Resources, Inc. or Virginia Power will become a Participant in the Plan upon his or her designation as a Participant by the O&C Committee of Dominion Resources, Inc. or Virginia Power. An individual shall remain a Participant only so long as the individual remains an elected officer. The appropriate O&C Committee may change its designation of any individual officer as a Participant at any time. The employer of a Participant will be a designated employer under the Plan. IN WITNESS WHEREOF, Dominion Resources, Inc. caused this Second Amendment to be executed by its duly authorized officer as of the date indicated above. DOMINON RESOURCES, INC. By: /s/ Thomas F. Farrell, II Sr. ----------------------------- Thomas F. Farrell, II Sr. Vice President - Corporate March 3, 1998 ----------------------------- Date EX-10 4 EXHIBIT 10.16 Exhibit 10.16 DOMINION RESOURCES, INC. RETIREMENT BENEFIT FUNDING PLAN Effective June 29, 1990 and Amended and Restated September 1, 1996 TABLE OF CONTENTS Article Page INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . .1 ARTICLE I - DEFINITIONS. . . . . . . . . . . . . . . . . . . . .2 1.1 Account . . . . . . . . . . . . . . . . . . . . .2 1.2 Administrative Benefit Committee. . . . . . . . .2 1.3 Administrative and Investment Benefit Committee .2 1.4 Affiliate . . . . . . . . . . . . . . . . . . . .2 1.5 After-Tax Value . . . . . . . . . . . . . . . . .2 1.6 Alternate Payee . . . . . . . . . . . . . . . . .2 1.7 Beneficiary . . . . . . . . . . . . . . . . . . .2 1.8 Benefit Restoration Plan. . . . . . . . . . . . .3 1.9 Code. . . . . . . . . . . . . . . . . . . . . . .3 1.10 DRI . . . . . . . . . . . . . . . . . . . . . . .3 1.11 DRI Board . . . . . . . . . . . . . . . . . . . .3 1.12 DRI O&C Committee . . . . . . . . . . . . . . . .3 1.13 DRI Participant . . . . . . . . . . . . . . . . .3 1.14 Employer. . . . . . . . . . . . . . . . . . . . .3 1.15 ERISA . . . . . . . . . . . . . . . . . . . . . .3 1.16 ESRP. . . . . . . . . . . . . . . . . . . . . . .3 1.17 Investment Manager. . . . . . . . . . . . . . . .3 1.18 Nonregulated Subsidiary . . . . . . . . . . . . .3 1.19 Participant . . . . . . . . . . . . . . . . . . .3 1.20 Plan. . . . . . . . . . . . . . . . . . . . . . .3 1.21 Plan Year . . . . . . . . . . . . . . . . . . . .3 1.22 Qualified Domestic Relations Order. . . . . . . .3 1.23 Special Trust . . . . . . . . . . . . . . . . . .4 1.24 Trust . . . . . . . . . . . . . . . . . . . . . .4 1.25 Trustee . . . . . . . . . . . . . . . . . . . . .4 1.26 Trust Fund. . . . . . . . . . . . . . . . . . . .4 1.27 Valuation Date. . . . . . . . . . . . . . . . . .4 1.28 Virginia Power. . . . . . . . . . . . . . . . . .4 1.29 Virginia Power Board. . . . . . . . . . . . . . .4 1.30 Virginia Power O&C Committee. . . . . . . . . . .4 1.31 Virginia Power Participant. . . . . . . . . . . .4 ARTICLE II - PARTICIPATION . . . . . . . . . . . . . . . . . . .4 ARTICLE III - CONTRIBUTIONS. . . . . . . . . . . . . . . . . . .4 3.1 Employer Contributions. . . . . . . . . . . . . .4 3.2 Transfer Contributions. . . . . . . . . . . . . .5 3.3 General Provisions on Contributions . . . . . . .5 3.4 Contributions For Income Taxes. . . . . . . . . .5 ARTICLE IV - ALLOCATIONS . . . . . . . . . . . . . . . . . . . .5 4.1 Participants' Accounts. . . . . . . . . . . . . .5 4.2 Allocation of Contributions and Transfers . . . .5 4.3 Schedule of Contributions . . . . . . . . . . . .6 4.4 Other Allocations . . . . . . . . . . . . . . . .6 4.5 Subaccount Recordkeeping. . . . . . . . . . . . .6 ARTICLE V - VESTING. . . . . . . . . . . . . . . . . . . . . . .7 ARTICLE VI - DISTRIBUTIONS . . . . . . . . . . . . . . . . . . .7 6.1 Periodic Distributions. . . . . . . . . . . . . .7 6.2 Separation from Service . . . . . . . . . . . . .7 6.3 Participants in Pay Status. . . . . . . . . . . .8 6.4 Death Benefits. . . . . . . . . . . . . . . . . .9 6.5 Special Distribution. . . . . . . . . . . . . . .9 ARTICLE VII - APPOINTMENTS AND ALLOCATIONOF FIDUCIARY RESPONSIBILITY9 7.1 Sponsor, Named Fiduciary. . . . . . . . . . . . .9 7.2 Accountant. . . . . . . . . . . . . . . . . . . .9 7.3 Insurer . . . . . . . . . . . . . . . . . . . . 10 7.4 Investment Manager. . . . . . . . . . . . . . . 10 7.5 Trustee . . . . . . . . . . . . . . . . . . . . 10 7.6 Allocation of Responsibility. . . . . . . . . . 10 7.7 General . . . . . . . . . . . . . . . . . . . . 10 7.8 Fiduciary Discretion. . . . . . . . . . . . . . 11 ARTICLE VIII - COMMITTEES. . . . . . . . . . . . . . . . . . . 11 8.1 General . . . . . . . . . . . . . . . . . . . . 11 8.2 Duties. . . . . . . . . . . . . . . . . . . . . 12 8.3 Agents. . . . . . . . . . . . . . . . . . . . . 12 ARTICLE IX - ADMINISTRATIVE OF THE PLAN. . . . . . . . . . . . 12 9.1 Duties of Participants and Beneficiaries. . . . 12 9.2 General . . . . . . . . . . . . . . . . . . . . 12 9.3 Disclosure. . . . . . . . . . . . . . . . . . . 13 9.4 Annual Accountings. . . . . . . . . . . . . . . 13 9.5 Expenses - Compensation . . . . . . . . . . . . 13 9.6 Directions to Trustee, Insurers and Investment Managers . . . . . . . . . . . . . . 14 9.7 Claims Procedure. . . . . . . . . . . . . . . . 14 ARTICLE X - OBLIGATIONS OF EMPLOYER. . . . . . . . . . . . . . 15 10.1 No Contract or Inducement . . . . . . . . . . . 15 10.2 No right to Employment. . . . . . . . . . . . . 15 10.3 Obligation for Benefits . . . . . . . . . . . . 15 ARTICLE XI - AMENDMENT AND TERMINATION OF PLAN . . . . . . . . 15 11.1 Amendment of the Plan . . . . . . . . . . . . . 15 11.2 Termination of the Plan . . . . . . . . . . . . 16 ARTICLE XII - GENERAL PROVISIONS . . . . . . . . . . . . . . . 16 12.1 Interpretation. . . . . . . . . . . . . . . . . 16 12.2 Merger, Consolidation and Transfers of Assets or Liabilities . . . . . . . . . . . . . 16 12.3 Limitation on Assignment. . . . . . . . . . . . 16 12.4 Discharge of Liability. . . . . . . . . . . . . 17 12.5 Payments to Minors and Incompetents . . . . . . 17 12.6 Unclaimed Benefits. . . . . . . . . . . . . . . 17 12.7 Headings and Subheadings. . . . . . . . . . . . 17 12.8 Use of Masculine and Feminine, Singular and Plural . . . . . . . . . . . . . . 17 12.9 Governing Law . . . . . . . . . . . . . . . . . 17 12.10 Errors and Omissions . . . . . . . . . . . 17 EXECUTION. . . . . . . . . . . . . . . . . . . . . . . . . . . 18 INTRODUCTION Dominion Resources, Inc., Virginia Electric and Power Company, the Affiliates, and the Nonregulated Subsidiaries have made various benefit promises and commitments to certain of their current and former elected officers. The Board of Directors of Dominion Resources, Inc. and the Board of Directors of Virginia Electric and Power Company determined that the adoption of the Dominion Resources, Inc. Retirement Benefit Funding Plan, which is designed to permit the funding of certain benefits promised to Participants, would assist them in attracting and retaining those employees whose judgment, abilities, and experience will contribute to the continued success of Dominion Resources, Inc. and Virginia Electric and Power Company. The Plan is intended to be an employee pension benefit plan within the meaning of Section 3(2) of ERISA. The Plan and Trust shall be administered and interpreted in accordance with these intentions. Due to changes in the Federal income tax laws and for other reasons, Dominion Resources, Inc. and Virginia Electric and Power Company have determined to cease contributions to the Plan to provide additional benefits to Participants and to cease making new Participants in the Plan effective in 1996. The Plan and Trust shall be administered and interpreted in accordance with all current tax laws and regulations until all funds have been paid from the Plan in accordance with its terms. ARTICLE I - DEFINITIONS 1.1 Account means the separate account that is established for each Participant. A Participant's Account is comprised of three subaccounts: the ESRP Account, the Benefit Restoration Account and the Credited Service Account. 1.2 Administrative Benefit Committee means the committee comprised of the individuals appointed by the Administrative and Investment Benefit Committee in accordance with Section 8.1. 1.3 Administrative and Investment Benefit Committee means the committee comprised of the individuals appointed by the DRI Board and the Virginia Power Board in accordance with Section 8.1. 1.4 Affiliate means an employer, whether or not incorporated, which with Virginia Power is treated as a single employer under Code section 414(b), 414(c), 414(m) or 414(n) as determined before the application of the provisions of Code section 414(r), excluding DRI and the Nonregulated Subsidiaries. 1.5 After-Tax Value means the amount that, after payment of any applicable federal, state, and local income and employment taxes, would yield the amount of the payment in question, taking into consideration the extent to which, if any, that the payment from the Funding Plan is taxable to the Participant. The determination of the After-Tax Value shall be made on the basis of a policy or guidelines adopted by the DRI O&C Committee with respect to DRI Participants or the Virginia Power O&C Committee with respect to Virginia Power Participants, using the maximum rates of federal, state, and local income and employment taxes that are applicable to the Participant, Beneficiary, or beneficiary of a Beneficiary. 1.6 Alternate Payee means a Participant's spouse, former spouse, child or other dependent who is recognized in a Qualified Domestic Relations Order as having, or who is assigned, a right to receive all or a portion of the benefit payable to a Participant under the Plan. 1.7 Beneficiary means an individual or entity that is entitled to receive any benefits that may be payable under the Plan on or after a Participant's death. The Participant's Beneficiary shall be determined in accordance with the following subsections. (a) The Beneficiary shall be the Participant's surviving spouse unless such spouse has consented in writing to the Participant's designation of a different Beneficiary. The surviving spouse's consent must be in writing, must acknowledge the effect of the Participant's election, and must be witnessed by a Plan representative or notary public. With the consent of the surviving spouse, the provisions in subsection (b) are effective for that Participant. The provisions of subsection (b) also shall be effective with respect to a Participant if the Administrative Benefit Committee is satisfied that the consent of the surviving spouse cannot be obtained because the Participant has no spouse, because the spouse cannot be located, or because such other circumstances are applicable regulations may provide. (b) Except as provided in subsections (a) and (c), the Beneficiary shall be the individual or entity designated by the Participant. In the absence of an effective designation and if subsections (a) and (c) are not applicable, the Beneficiary shall be the surviving spouse, if any, then the Participant's descendants, per stirpes, and if none, the Participant's estate. (c) To the extent provided in a Qualified Domestic Relations Order, the Beneficiary shall be the Alternate Payee recognized by the order as having a right to receive all or a portion of the benefits payable under the Plan on behalf of the Participant following the Participant's death. 1.8 Benefit Restoration Plan means the Dominion Resources, Inc. Retirement Benefit Restoration Plan. 1.9 Code means the Internal Revenue Code of 1986, as amended. 1.10 DRI means Dominion Resources, Inc. 1.11 DRI Board means the Board of Directors of DRI. 1.12 DRI O&C Committee means the Organization and Compensation Committee of the DRI Board. 1.13 DRI Participant means an individual who is or was an elected officer of DRI or a Nonregulated Subsidiary and who has been designated to participate in the Plan in accordance with Article II. 1.14 Employer means DRI, Virginia Power, each Affiliate that, with the approval of the Virginia Power Board, and each Nonregulated Subsidiary that, with the approval of the DRI Board, has elected to contribute to the Plan on behalf of one or more employees. 1.15 ERISA means the Employee Retirement Income Security Act of 1974, as amended. 1.16 ESRP means the Dominion Resources, Inc. Executive Supplemental Retirement Plan. 1.17 Investment Manager means a fiduciary who satisfies the requirements of ERISA section 3(38) and who is appointed by the Administrative Benefits Committee to manage, acquire, or dispose of Trust Fund assets. 1.18 Nonregulated Subsidiary means Dominion Capital, Inc., Dominion Energy, Inc., Dominion Lands, Inc. or another corporation (i) in which DRI owns stock possessing at least 50 percent of the combined voting power of all classes of stock, (ii) which is not subject to regulation as a public service corporation by the State Corporation Commission of Virginia and (iii) which is not an Affiliate. 1.19 Participant means an individual who satisfies the requirements of Article II and includes the DRI Participants and the Virginia Power Participants. 1.20 Plan means the Dominion Resources, Inc. Retirement Benefit Funding Plan. 1.21 Plan Year means the calendar year. 1.22 Qualified Domestic Relations Order means a judgment, decree, order, or approval of a property settlement that satisfies the requirements of ERISA section 206(d)(3)(B). 1.23 Special Trust means the Dominion Resources, Inc. Special Trust Agreement between DRI and Mellon Bank, N.A. and effective as of December 1, 1986. 1.24 Trust means the entity created pursuant to the agreement among DRI, Virginia Power and the Trustee relating to the Plan. 1.25 Trustee means Mellon Bank, N.A. 1.26 Trust Fund means the assets of the Plan that are held in the Trust. 1.27 Valuation Date means the last business day of each calendar quarter. 1.28 Virginia Power means Virginia Electric and Power Company. 1.29 Virginia Power Board means the Board of Directors of Virginia Power. 1.30 Virginia Power O&C Committee means the Organization and Compensation Committee of the Virginia Power Board. 1.31 Virginia Power Participant means an individual who is or was an elected officer of Virginia Power and who has been designated to participate in the Plan in accordance with Article II. ARTICLE II - PARTICIPATION An individual who is or was an elected officer of Virginia Power or an Affiliate and who is designated by the Virginia Power Board to participate in the Plan shall be a Participant. An individual who is or was an elected officer of DRI or a Nonregulated Subsidiary and who is designated by the DRI Board to participate in the Plan shall be a Participant. The Administrative Benefit Committee shall notify each individual upon his qualification to become a Participant in the Plan. Participation in the Plan ceases when a Participant's entire Account in the Plan has been distributed. No individual shall become a Participant after December 31, 1996. ARTICLE III - CONTRIBUTIONS 3.1 Employer Contributions. In each Plan Year, each Employer shall contribute to the Trust Fund the amount, if any, that the Employer determines in its discretion to be its contribution for the Plan Year. An Employer's contribution shall be made only from its current or accumulated profits, as determined on the basis of its financial statements and in accordance with its standard and customary accounting practices for financial reporting. If an Employer is prevented from making a contribution for any Plan Year because it lacks sufficient current or accumulated profits, that Employer's contribution may be made, but is not required to be made, by one or more other Employers. Notwithstanding the foregoing, all Employer contributions on behalf of Virginia Power Participants are subject to the approval of the Virginia Power Board and all contributions on behalf of DRI Participants are subject to the approval of the DRI Board. Contributions to the Trust Fund for allocation to Participants' Accounts shall cease as of December 31, 1996, except to the extent contributions are made to the Trust Fund pursuant to Section 3.4. 3.2 Transfer Contributions. In lieu of or in addition to a contribution pursuant to Section 3.1, an Employer may direct that an amount be transferred to the Trust from the Special Trust. All such transfers on behalf of Virginia Power Participants shall be subject to the approval of the Virginia Power Board and all such transfers on behalf of DRI Participants shall be subject to the approval of the DRI Board. In addition, all such transfers shall be in accordance with the terms of the Special Trust. 3.3 General Provisions on Contributions. (a) The Trustee is not required to collect Employer contributions or transfer contributions pursuant to Section 3.2 and is responsible only for assets received in its capacity as Trustee. Subject to the approval of the Virginia Power O&C Committee (with respect to Virginia Power Participants) or the DRI O&C Committee (in the case of DRI Participants), an Employer may cause each Plan Year's Employer contributions or transfers pursuant to Section 3.2 to be paid to the Trust in installments and on the dates that it selects. (b) Unless allocated as of an earlier date, any contributions made to the Plan by an Employer or transferred pursuant to Section 3.2 after the first day of a Plan Year may be held by the Trustee and invested as a segregated account, commingled with the Trust Fund, and allocated to Participants' Accounts as of the last day of the Plan Year. The Trustee shall maintain such records as may be necessary to assure that such contributions and amounts attributable to such contributions are allocated to the proper Participants' Accounts as otherwise provided by the Plan. 3.4 Contributions For Income Taxes. For each Plan Year beginning after December 31, 1996, DRI in its discretion may contribute to the Trust Fund the amount, if any, that the Trustee informs DRI is the allocable portion of any income taxes imposed on the Trust Fund with respect to Accounts of DRI Participants. For each Plan Year beginning after December 31, 1996, Virginia Power in its discretion may contribute to the Trust Fund the amount, if any, that the Trustee informs Virginia Power is the allocable portion of any income taxes imposed on the Trust Fund with respect to Accounts of Virginia Power Participants. ARTICLE IV - ALLOCATIONS 4.1 Participants' Accounts. The Administrative Benefit Committee shall cause an Account to be established and maintained in the name of each Participant. Each Participant's Account shall be comprised of up to three subaccounts: an ESRP Account, a Benefit Restoration Account, and a Credited Service Account. Each Participant's Accounts shall be credited with the Participant's share of amounts contributed or transferred to the Trust pursuant to Article III, as well as a proportionate share of the net earnings, gains, or losses of the Trust Fund and any distributions from the Account. 4.2 Allocation of Contributions and Transfers. Amounts contributed or transferred to the Trust pursuant to Article III, if any, shall be allocated among Participants' Accounts as of the date specified by the Virginia Power O&C Committee (in the case of Virginia Power Participants) or the DRI O&C Committee (in the case of DRI Participants) or, if no date is specified, the last day of the Plan Year. Amounts contributed to the Trust pursuant to Section 3.4 shall be allocated among Participants' Accounts as of the date received by the Trustee. 4.3 Schedule of Contributions. At least annually, the Administrative Benefit Committee shall furnish the Trustee a schedule showing as to each Participant the amount, if any, of contributions or transfers pursuant to Article III to be allocated to each Participant's Account. The Administrative Benefit Committee also shall provide to the Trustee a schedule showing the amount of any such contribution or transfer that is to be allocated to the ESRP Account, the Benefit Restoration Account, and the Credited Service Account of each Participant. For amounts contributed to the Trust pursuant to Section 3.4, the Administrative Benefit Committee shall furnish the Trustee a schedule showing the amount to be allocated to each Participant's Account and, within such Account, to such Participant's ESRP Account, Benefit Restoration Account and Credited Service Account. 4.4 Other Allocations. (a) As of each Valuation Date, before crediting any amounts allocated to a Participant's Account under Section 4.2, the Trustee shall revalue the net assets of the Trust Fund at their then current market value to reflect any increase or decrease in the value of the investments of the Trust Fund as of that date as compared with the total value of the Trust Fund on the last preceding Valuation Date. (b) As of each Valuation Date, after revaluing the assets of the Trust Fund as provided in subsection (a) and before crediting any amounts allocated to a Participant's Account under Section 4.2, the Trustee shall apportion among the separate Accounts of all Participants the net income or loss earned by the Trust Fund during the period following the preceding Valuation Date. Such income or loss shall be apportioned on the basis of the Account balances of the Participants as of the beginning of such Plan Year. (c) If any interim contributions or transfers have been held in a segregated account as provided in Section 3.3(b), any income attributable to such contributions shall be allocated to the appropriate Account of each Participant to whom such contributions or transfers are allocated. 4.5 Subaccount Recordkeeping. Allocations to a Participant's Account pursuant to Sections 4.2 and 4.4 shall be further allocated between each Participant's ESRP Account, Benefit Restoration Account, and Credited Service Account. The further allocation of amounts allocated pursuant to Section 4.2 shall be made on the basis of the Employer's direction, as approved by the Virginia Power O&C Committee (in the case of Virginia Power Participants) or the DRI O&C Committee (in the case of DRI Participants), and as reflected in the schedule described in Section 4.3. The further allocation of amounts allocated pursuant to Section 4.4 shall be made on the basis of the relative value of the Participant's ESRP Account, the Benefit Restoration Account, and the Credited Service Account as of the immediately preceding Valuation Date. ARTICLE V - VESTING Each Participant shall at all times have a fully vested and nonforfeitable interest in his Account. ARTICLE VI - DISTRIBUTIONS 6.1 Periodic Distributions. As soon as practicable after an amount is allocated to a Participant's Account under Section 4.2, but in any event before the April 15 of the Plan Year following the Plan Year in which the allocation was made, a distribution shall be made from the Account of each Participant as provided in the following sentences. The amount to be distributed shall be the amount that the Virginia Power O&C Committee (in the case of Virginia Power Participants) or the DRI O&C Committee (in the case of DRI Participants) determines is required by the Participant to satisfy the federal, state, and local income tax liability attributable to the allocation. The amount distributed pursuant to this Section shall be charged to the Participant's ESRP Account, Benefit Restoration Account, and Credited Service Account in proportion to the contributions or transfers allocated to such subaccounts for the Plan Year. No distribution shall be made from an Account to a Participant with respect to any amount contributed pursuant to Section 3.4 that is allocated to a Participant's Account. 6.2 Separation from Service. (a) A Participant who separates from the service of DRI, Virginia Power, any Affiliate or any Nonregulated Subsidiary after June 29, 1990, shall be entitled to the benefits that may be provided by his Account balance as of the Valuation Date coincident with or immediately preceding such date, plus any amounts that are subsequently allocated to his Account pursuant to Article IV. Benefits shall be distributed to the Participant in accordance with the following subsection (b) or (c). (b) The Participant's ESRP Account shall be paid in the same form as the Participant elects for his benefit payments under the ESRP. The amount distributable from the Participant's ESRP Account shall be the After-Tax Value of the amount required to satisfy fully the obligation of DRI and Virginia Power to the Participant under the ESRP. The Participant's Credited Service Account shall be paid in the form and at the times provided in any contractual agreement related to the Participant's years of credited service for employee benefit plan purposes. The amount distributable from the Participant's Credited Service Account shall be the After-Tax Value of the amount required to satisfy fully the obligation of DRI and Virginia Power to the Participant under any contractual agreement related to the Participant's years of credited service for employee benefit plan purposes. The Participant's Benefit Restoration Account shall be paid in the same form as provided for the Participant in the Benefit Restoration Plan. The amount distributable from the Participant's Benefit Restoration Account shall be the After-Tax Value of the amount required to satisfy fully the obligation of DRI and Virginia Power to the Participant under the Benefit Restoration Plan. (c) Distributions under Section 6.2(b) shall begin on the first day of the month next following the day that the Participant separates from the service of DRI, Virginia Power, an Affiliate, or a Nonregulated Subsidiary. The payments to the Participant shall end when the entire value of his Account has been distributed and the final payment to the Participant shall equal his remaining balance in his Account. If there is any balance in the Participant's Account when the Participant is no longer entitled to payments under the ESRP, the Benefit Restoration Plan, or any contractual agreement related to the Participant's years of credited service for employee benefit plan purposes, the remaining balance in the Participant's Account shall be paid to the Participant in a single lump sum. 6.3 Participants in Pay Status. (a) A Participant who separated from the service of DRI, Virginia Power, an Affiliate, or a Nonregulated Subsidiary on or before June 29, 1990, shall be entitled to receive his benefits as provided in the following sentences. The value of the Account of a Participant described in the preceding sentence may be segregated and, by way of example and not of limitation, may be invested in a savings account, money market fund, or other interest-bearing investment medium. The Administrative Benefit Committee shall determine the projected Trust Fund earnings allocable to the Participant's Account (based on the value of the Account as of the applicable Valuation Date) during the period beginning with the Participant's selection as a Participant and ending with the last month for which a benefit is payable to the Participant under Dominion Resources, Inc. Executive Supplemental Retirement Plan. The amount payable to the Participant each month shall be the amount that, based on the Administrative Benefit Committee's determination of projected earnings, will provide equal monthly payments to the Participant during the period described in the preceding sentence. Notwithstanding the foregoing, the amount distributable from the Participant's ESRP Account shall not be greater than the amount required to fully satisfy the obligation of Virginia Power and DRI to the Participant under the Dominion Resources, Inc. Executive Supplemental Retirement Plan and the amount distributable from the Participant's Credited Service Account shall not be greater than the amount required to fully satisfy the obligation of Virginia Power and DRI to the Participant under any contractual agreement related to the Participant's years of credited service for employee benefit plan purposes. The payments to the Participant shall end when the entire value of his Account has been distributed and the final payment to the Participant shall equal his remaining balance in his Account. The payments under this Section shall begin on the first day of the month next following the day that the Participant is selected to participate in the Plan. (b) A Participant who is receiving payments from the Plan as of January 1, 1997 shall be subject to the provisions of this Section 6.3(b). Effective January 1, 1997, the amount distributable from the Participant's ESRP Account shall be the After-Tax Value of the amount required to satisfy fully the obligation of DRI and Virginia Power to the Participant under the ESRP. Effective January 1, 1997, the amount distributable from the Participant's Credited Service Account shall be the After-Tax Value of the amount required to satisfy fully the obligation of DRI and Virginia Power to the Participant under any contractual agreement related to the Participant's years of credited service for employee benefit plan purposes. Effective January 1, 1997, the amount distributable from the Participant's Benefit Restoration Account shall be the After-Tax Value of the amount required to satisfy fully the obligation of DRI and Virginia Power to the Participant under the Benefit Restoration Plan. The payments to the Participant shall end when the entire value of his Account has been distributed and the final payment to the Participant shall equal his remaining balance in his Account. If there is any balance in the Participant's Account when the Participant is no longer entitled to payments under the ESRP, the Benefit Restoration Plan, or any contractual agreement related to the Participant's years of credited service for employee benefit plan purposes, the remaining balance in the Participant's Account shall be paid to the Participant in a single lump sum. 6.4 Death Benefits. (a) If a Participant dies after the commencement of benefit payments under Section 6.2 or 6.3 but before he has received his entire interest in his Account, the remainder of the Participant's interest in his Account shall be paid to the Participant's Beneficiary in the same manner that the Participant was receiving benefits before his death. (b) If a Participant dies before the commencement of benefit payments under Section 6.2 or 6.3, the value of his Account shall be paid to his Beneficiary in the manner described in Section 6.2(b) or 6.3, as applicable. (c) A Beneficiary who is receiving benefits under this Section may designate a beneficiary who will be entitled to receive any benefits that remain to be paid to the Beneficiary after the Beneficiary's death. Such designation shall be made in the same manner as the Participant's designation of a Beneficiary. 6.5 Special Distribution As of January 1, 1997, the Administrative Benefit Committee shall determine which Participants have Accounts that are valued at $10,000 or less. For such Participants, the Administrative Benefit Committee shall distribute the entire value of each such Participant's Account to the Participant in a single lump sum as of January 1, 1997. Any Participant who receives a distribution under this Section 6.5 shall not be entitled to any further benefits under the Plan. A distribution under this Section 6.5 shall not reduce the amount which any Participant is entitled to under the ESRP, the Benefit Restoration Plan, or any contractual agreement related to the Participant's years of credited service for employee benefit plan purposes. ARTICLE VII - APPOINTMENTS AND ALLOCATION OF FIDUCIARY RESPONSIBILITY 7.1 Sponsor, Named Fiduciary. DRI is hereby designated and appointed the sponsor and named fiduciary of the Plan as to DRI Participants and Virginia Power is hereby designated and appointed the sponsor and named fiduciary of the Plan as to Virginia Power Participants. 7.2 Accountant. To the extent required by law, the Administrative Benefit Committee shall designate as accountant for the Plan a person recognized by the Secretary of Labor as an independent qualified public accountant or a firm which maintains on its staff at least one such person. Such entity shall be engaged by the Administrative Benefit Committee to perform (to the extent required by law) in accordance with generally accepted accounting principles the examination of the financial statements and other books and records of the Plan that are necessary to enable it to form and render an opinion as to whether the financial statements and schedules required by law to be included in the annual report of the Plan are presented fairly and in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding year and to render such other opinions and perform such other services with regard to the Plan as may be necessary or desirable. 7.3 Insurer. The Administrative Benefit Committee may designate one or more insurance companies licensed to do business in Virginia to invest or insure part or all of the assets of the Plan. 7.4 Investment Manager. The Administrative Benefit Committee, acting as a named fiduciary for this purpose, may appoint an Investment Manager to manage all or a designated part of the assets of the Trust Fund. An Investment Manager shall have complete control and authority over all matters concerning the investment of assets under its direction and control, including brokerage transactions. When an Investment Manager has been appointed and has accepted its fiduciary responsibility to the Plan in writing, the Trustee shall be under no obligation to invest the portion of the Trust Fund under the control of the Investment Manager and shall not incur any liability with respect to that portion of the Trust Fund unless it shall knowingly participate in or knowingly conceal another party's breach of its fiduciary responsibilities with respect to that portion of the Trust Fund. Nothing herein, however, shall relieve the Trustee of responsibility for its acts or omissions as Trustee. 7.5 Trustee. The DRI Board and the Virginia Power Board must jointly appoint a Trustee. A Trustee may resign at any time upon 60 days' written notice to DRI and Virginia Power or such other period as may be agreed upon in writing by DRI and Virginia Power and the Trustee. The DRI Board and the Virginia Power Board may jointly act to remove a Trustee at any time upon like notice to the Trustee. In either event, the DRI Board and the Virginia Power Board may jointly appoint a successor Trustee or Trustees. Any successor Trustee shall become vested with all the estate, rights, powers, discretion and duties of a Trustee hereunder. 7.6 Allocation of Responsibility. The DRI Board and the Virginia Power Board, through this document, have delegated certain fiduciary responsibilities to the DRI O&C Committee, the Virginia Power O&C Committee, the Administrative and Investment Benefit Committee and the Administrative Benefit Committee. The DRI Board and the Virginia Power Board (or any committee to which either has delegated a function hereunder) shall have the power to further allocate fiduciary responsibilities among other fiduciaries and to designate fiduciaries and nonfiduciaries to carry out other responsibilities in order to provide for the orderly operation and administration of the Plan. Any allocation, delegation, or other assignment of duties with regard to the Plan shall continue until it is revoked, modified, or altered. To the extent allowed by law, each fiduciary's responsibility is limited to the duties allocated or assigned to the fiduciary. Fiduciaries serving under the Plan may serve in more than one fiduciary capacity. 7.7 General. A person or entity serving in a fiduciary capacity to the Plan may employ one or more persons to render advice as to his or its responsibilities hereunder. Any person employed by DRI who is serving under the Plan without compensation may, with the approval of the DRI O&C Committee, have his reasonable expenses incurred in serving hereunder reimbursed from the Trust Fund. Any person employed by Virginia Power who is serving under the Plan without compensation may, with the approval of the Virginia Power O&C Committee, have his reasonable expenses incurred in serving hereunder reimbursed from the Trust Fund. 7.8 Fiduciary Discretion. In discharging the duties assigned to it under the Plan, each fiduciary has the discretion to interpret the Plan; adopt, amend, and rescind rules and regulations pertaining to his or its duties under the Plan; and to make all other determinations necessary or advisable for the discharge of his or its duties under the Plan. Each fiduciary's discretionary authority is absolute and exclusive if exercised in a uniform and nondiscriminatory manner with respect to all similarly situated individuals. The express grant in the Plan of any specific power to a fiduciary with respect to any duty assigned to him or it under the Plan must not be construed as limiting any power or authority of the fiduciary to discharge him or its duties. ARTICLE VIII - COMMITTEES 8.1 General. One or more committees may be established to carry out various functions relating to the Plan. The committees currently constituted, how they are appointed and their specific responsibilities are as follows: (a) Virginia Power O&C Committee. The Virginia Power O&C Committee is a committee of and appointed by the Virginia Power Board. It is responsible for recommending to the Virginia Power Board: contributions or transfers pursuant to Article III on behalf of Virginia Power Participants, allocations to Virginia Power Participants' Accounts, and amendments to the Plan or the Trust as to Virginia Power Participants. The Virginia Power O&C Committee is also responsible for establishing a funding policy for the Plan with respect to Virginia Power Participants. (b) DRI O&C Committee. The DRI O&C Committee is a committee of and appointed by the DRI Board. It is responsible for recommending to the DRI Board: contributions or transfers pursuant to Article III on behalf of DRI Participants, allocations to DRI Participants' Accounts, and amendments to the Plan or the Trust as to DRI Participants. The DRI O&C Committee is also responsible for establishing a funding policy for the Plan with respect to DRI Participants. (c) Administrative and Investment Benefit Committee. The Administrative and Investment Benefit Committee is appointed by the DRI Board and the Virginia Power Board. This committee is responsible for establishing an investment policy for the Plan. This committee also appoints the Administrative Benefit Committee. (d) Administrative Benefit Committee. This committee is responsible for: selecting an accountant and Investment Managers; communicating the Plan's investment policy (established by the Administrative and Investment Benefit Committee) to the Trustee and any Investment Manager; the review of the Trust Fund's investment performance; assuring that established investment policies are carried out; supervising administration; determining benefits; and maintaining records. 8.2 Duties. Each committee shall have control of the duties set out in Section 8.1 or specifically allocated to it under Article VII or which are delegated to it by the Virginia Power Board or the DRI Board, as practicable, and shall have all necessary powers to carry out its duties. Any delegation of authority by the Virginia Power Board or the DRI Board to a committee shall be made in writing and specify the nature and scope of such delegation. In exercising its duties hereunder, each committee shall at all times act in a uniform, equitable and nondiscriminatory manner. Notwithstanding its powers granted hereunder, no committee shall have the power to modify any provision of the Plan in any way. 8.3 Agents. Each committee may engage agents to assist it in its duties, and may consult with counsel, who may be counsel for DRI or Virginia Power, with respect to the meaning or construction of this document and its obligations hereunder, or with respect to any action, proceeding, or question of law related thereto. ARTICLE IX - ADMINISTRATION OF THE PLAN 9.1 Duties of Participants and Beneficiaries. Each Participant and Beneficiary shall furnish to the Administrative Benefit Committee any information or proof requested of him and reasonably required to administer the Plan. 9.2 General. (a) The Administrative Benefit Committee, or such persons as it may designate, shall be responsible for the operation and administration of the Plan, except to the extent its duties are allocated to or assumed by other persons or entities hereunder. (b) The Administrative Benefit Committee shall establish rules and procedures to be followed by the Participants and Beneficiaries in filing applications for benefits and for furnishing and verifying proofs necessary to establish any matters required in order to establish their rights to benefits under the terms of the Plan. (c) The Administrative Benefit Committee shall supply such full and timely information on all matters relating to the Plan as (1) the Trustee, (2) the accountant, (3) any insurance company and (4) any Investment Manager may require for the effective discharge of their respective duties and responsibilities. (d) It shall be the duty of the Administrative Benefit Committee to handle the day-to-day operations of the Plan, including distributing booklets, notices and other information regarding the Plan; maintaining Beneficiary designation forms; explaining the optional form of benefit payout which may be elected by a Participant under the Plan; and communicating all other matters relating to participation and entitlement to benefits to (1) the Trustee and (2) the accountant as may be necessary to enable them to discharge their duties and responsibilities. The Administrative Benefit Committee shall carry out these duties in a uniform, equitable and nondiscriminatory manner with regard to all Participants and Beneficiaries under similar circumstances. 9.3 Disclosure. (a) The Administrative Benefit Committee shall see that descriptions of the Plan are prepared as necessary for filing with the Department of Labor and shall make available to Participants and Beneficiaries receiving benefits under the Plan a summary of the Plan at such place and at such times as may be required by federal statutes and regulations issued thereunder. (b) The Administrative Benefit Committee shall arrange for the preparation and filing of such annual reports, including financial statements of the Plan's assets and liabilities, schedules, receipts and disbursements and changes in financial position in such form, at such place and at such times as may be required by federal statutes and regulations. The Administrative Benefit Committee shall furnish annually as required by law to all Participants and Beneficiaries receiving benefits under the Plan a copy of a summary of the financial statements of the Plan's assets and liabilities and schedules of receipts and disbursements and such other material as is necessary to fairly summarize the latest annual report at such times as may be required by federal statutes and regulations. (c) The Administrative Benefit Committee shall make available copies of the Plan, copies of any contracts relating to the Plan, descriptions of the Plan, and annual reports at its principal office for examination by any Participant and any Beneficiary receiving benefits under the Plan. (d) Upon written request of any Participant or any Beneficiary receiving benefits under the Plan, the Administrative Benefit Committee shall furnish him a copy of the latest updated summary plan description, plan description, latest annual report and a copy of the Plan. The Administrative Benefit Committee may make a reasonable charge for the costs of furnishing such copies. 9.4 Annual Accountings. To the extent required by law, the Administrative Benefit Committee shall select and engage, on behalf of all Participants, an independent qualified public accountant to certify and render an opinion that the financial statements and schedules prepared in conjunction with the Plan are presented fairly and are in conformity with generally accepted accounting principles consistently applied; provided, however, that where assets are held under a contract with an insurance company or in trust by a bank supervised and subject to periodic examination by a state or federal agency and such insurance company or bank prepares statements concerning such assets and certifies that such statements are accurate and the statements are made a part of the annual report, the accountant may rely on such statements as accurate. 9.5 Expenses - Compensation. As permitted by ERISA, the reasonable expenses incurred in the administration of the Plan may be paid by the Trustee or an insurance company out of the Trust Fund. By way of example and not of limitation, the following expenses may be paid out of the Trust Fund: the compensation of the Trustee and any Investment Manager, fees for actuarial and accounting services, and financial statement preparation and benefit processing fees. Any expenses that are paid out of the Trust Fund shall be charged to the Account of each Participant in the same proportion that the value of each Account bears to the total value of the Trust Fund. To the extent that such expenses are not paid by the Trustee or an insurance company, they shall be paid by Virginia Power (to the extent that the expenses are attributable or allocable to Virginia Power Participants) and DRI (to the extent that the expenses are attributable or allocable to DRI Participants). Notwithstanding the foregoing, no employee of DRI, Virginia Power, an Affiliate, or a Nonregulated Subsidiary shall be entitled to compensation from the Trust Fund for services rendered to the Plan. 9.6 Directions to Trustee, Insurers and Investment Managers. All directions from DRI, Virginia Power or a committee to the Trustee, an insurer or an Investment Manager shall be in writing from the chief executive officer, the secretary or chairman of a committee, or such person or persons as such individuals may designate in writing. Any Trustee, insurer or Investment Manager may rely on directions from such persons and shall act in accordance therewith, unless it knows or should know that the directions constitute a breach of such person's or its own obligations under the Plan. 9.7 Claims Procedure. (a) All claims for benefits under the Plan shall be submitted to the Administrative Benefit Committee, who shall have the initial responsibility for determining the eligibility of any Participant or Beneficiary for benefits. All claims for benefits shall be made in writing and shall set forth the facts which such Participant or Beneficiary believes to be sufficient to entitle him to the benefit claimed. If a claim for benefits is denied in whole or in part, the Administrative Benefit Committee shall give the claimant written notice of the decision within 90 days of the date the claim was submitted. Such written notice shall set forth in a manner calculated to be understood by the claimant (1) the specific reason or reasons for the denial; (2) specific reference to pertinent Plan provisions on which the denial is based; (3) a description of any additional material or information necessary for the claimant to perfect the claim, along with an explanation of why such material or information is necessary; and (4) appropriate information about the steps to be taken if the claimant wishes to submit the claim for review of the denial. If special circumstances require an extension of time for processing the initial claim, a written notice of the extension and the reason therefor shall be furnished to the claimant before the end of the initial ninety-day period. In no event shall such extension exceed 90 days. (b) If the initial claim for benefits is denied in whole or in part, or if the claimant has had no response to such claim within 90 days of its submission (in which case the claim for benefits shall be deemed to be denied), the claimant or his duly authorized representative, at the claimant's sole expense, may appeal the denial to the Virginia Power O&C Committee (if the claim is related to the participation of a Virginia Power Participant) or the DRI O&C Committee (if the claim is related to the participation of a DRI Participant). Notice of the appeal must be received by the appropriate committee within 60 days of receipt of written notice of the denial of the claim or 60 days from the date such claim is deemed to be denied. In pursuing his appeal, the claimant or his duly authorized representative: (1) may request in writing that the appropriate O&C Committee review the denial; (2) may review pertinent documents; and (3) may submit issues and comments in writing. The decision on review shall be made within 60 days of receipt of the request for review, unless special circumstances require an extension of time for processing, in which case a decision shall be rendered as soon as possible, but not later than 120 days after receipt of the request for review. If such an extension of time is required, written notice of the extension shall be furnished to the claimant before the end of the original 60-day period. The decision on review shall be made in writing, shall be written in a manner calculated to be understood by the claimant, and shall include specific references to the provisions of the Plan on which the denial is based. If the decision on review is not furnished within the time specified above, the claim shall be deemed denied on review. ARTICLE X - OBLIGATIONS OF EMPLOYER 10.1 No Contract or Inducement. The Plan shall not be deemed to be a contract between DRI, Virginia Power, any Affiliate or any Nonregulated Subsidiary and any Participant or Beneficiary or to be a consideration or an inducement for the employment of any Participant. 10.2 No right to Employment. Nothing contained in the Plan shall be deemed to give any Participant the right to be retained in employment by DRI, Virginia Power, any Affiliate or any Nonregulated Subsidiary or to interfere with the right of DRI, Virginia Power, any Affiliate or any Nonregulated Subsidiary to discharge, layoff, or suspend any Participant at any time without regard to the effect which such discharge, layoff, or suspension shall have upon his rights or the rights of any Beneficiary under this Plan. 10.3 Obligation for Benefits. The Trust Fund shall be the sole source of benefits under this Plan, and each Participant and Beneficiary shall be entitled to look only to the Trust Fund for payment of benefits. None of DRI, Virginia Power, any Affiliate or any Nonregulated Subsidiary shall have any liability to make or continue from its own funds the payment of any benefit under the Plan. ARTICLE XI - AMENDMENT AND TERMINATION OF PLAN 11.1 Amendment of the Plan. Virginia Power shall have the right by action of the Virginia Power Board to modify, alter or amend the Plan in whole or in part as to Virginia Power Participants and DRI shall have the right by action of the DRI Board to modify, alter or amend the Plan in whole or in part as to DRI Participants; provided that the duties, powers and liabilities of a Trustee, insurance company or Investment Manager shall not be increased without its written consent; and provided further that any such action shall not, in any way, affect adversely the rights of Participants with respect to amounts credited to their Accounts as of the date the Plan is amended. No amendment, modification or alteration shall have the effect of revesting in DRI, Virginia Power, any Affiliate or any Nonregulated Subsidiary any part of the principal or income of the Trust Fund. Notwithstanding the above, nothing herein shall prevent the Virginia Power Board or the DRI Board from modifying or eliminating any form of benefit, subsidy, or payment option to the extent allowed by law so long as the benefit provided as a result of such amendment or alteration is an actuarial equivalent of the benefit otherwise payable to the Participant or Beneficiary determined as of the effective date of such amendment or alteration. 11.2 Termination of the Plan. While Virginia Power and DRI expect to continue the Plan indefinitely, the continuance of the Plan is not assumed as a contractual obligation. Virginia Power reserves the right to discontinue its contributions and to terminate the Plan at any time as to Virginia Power Participants by action of the Virginia Power Board. DRI reserves the right to discontinue its contributions and to terminate the Plan at any time as to DRI Participants by action of the DRI Board. In the event of a termination of the Plan, no further contributions may be made to the Plan for the participants of the party which has terminated the Plan. ARTICLE XII - GENERAL PROVISIONS 12.1 Interpretation. This Plan has been created for the exclusive purpose of providing benefits to Participants and their Beneficiaries and defraying reasonable expenses of administering the Plan. The Plan shall be interpreted in a manner consistent with applicable provisions of ERISA and as in effect from time to time. Under no circumstances shall any funds contributed or transferred to this Plan, any assets attributable to this Plan or income relating to such assets, revert to DRI, Virginia Power, any Affiliate or any Nonregulated Subsidiary, nor shall any such funds, assets or income ever be used or diverted to purposes other than the exclusive benefit of the Participants and their Beneficiaries. 12.2 Merger, Consolidation and Transfers of Assets or Liabilities. No merger or consolidation with, or transfer of assets or liabilities to this Plan or from this Plan to any other plan shall be made, unless each Participant would receive immediately after such event a benefit which is equal to or greater than the benefit he would have been entitled to receive under the Plan immediately before such event had the Plan terminated at that time. 12.3 Limitation on Assignment. Except as allowed by ERISA section 206 with respect to Qualified Domestic Relations Orders, Plan benefits may not be anticipated, assigned (either at law or in equity), alienated, or be subject to attachment, garnishment, levy, execution, or other legal or equitable process. If a Participant dies before the date that a Qualified Domestic Relations Order directs that payments begin to an Alternate Payee, the Alternate Payee shall be entitled to a payment from the Plan only if the Qualified Domestic Relations Order requires the payment of such benefits. The Administrative Benefit Committee shall establish reasonable written procedures for determining the qualified status of a domestic relations order and for administering distributions to an Alternate Payee. The Administrative Benefit Committee must promptly notify the Participant and each Alternative Payee of the receipt of a domestic relations order and of the procedures for determining its qualified status. 12.4 Discharge of Liability. Any payment to a person or entity entitled to payment under the Plan, or to the representative of such person or entity, shall be, to the extent of the payment, in full satisfaction of all claims under the Plan against the Trustee, the Administrative Benefit Committee, and the Employers. As a prerequisite to the receipt of any such payment, the Trustee, the Administrative Benefit Committee, and any Employer may require that such person execute a receipt and release in such form as shall be determined by the Trustee, the Administrative Benefit Committee, or an Employer, as the case may be. 12.5 Payments to Minors and Incompetents. If any Plan benefit is payable to a Participant or Beneficiary who is a minor or who, in the opinion of the Administrative Benefit Committee, is not legally capable of giving valid receipt and discharge for such payments, that payment may be made for the benefit of the Participant or Beneficiary to such person as the Administrative Benefit Committee, in its discretion, designates. Such payments, to the extent made, shall be deemed a complete discharge of any liability for such payment under the Plan, and the Trustee may make the payment without obligation to require bond or to see to the further application of the payments. 12.6 Unclaimed Benefits. If the Trustee cannot make payments of any amount to a Participant or Beneficiary within seven years after the amount becomes payable because the person's identity or whereabouts cannot be determined by the end of the seven year period, all amounts that would have been payable to that Participant or Beneficiary must be segregated and dealt with by the Trustee in accordance with the applicable state law pertaining to abandoned intangible personal property held in a fiduciary capacity. 12.7 Headings and Subheadings. The headings and subheadings in this Plan have been inserted for convenience of reference only and are to be ignored in any construction of the provisions hereof. 12.8 Use of Masculine and Feminine, Singular and Plural. In the construction of the Plan, the masculine shall include the feminine and the singular the plural in all cases where such meanings are indicated by the context. 12.9 Governing Law. Except as otherwise may be required by the controlling law of the United States, the Plan shall be construed, administered, and enforced in accordance with the laws of the Commonwealth of Virginia. 12.10 Errors and Omissions. It shall be the responsibility of those individuals and entities charged with the administration of the Plan to see that it is administered in accordance with its terms so long as it is not in conflict with ERISA. If an innocent error or omission is discovered in the Plan's operation or administration which is not correctable under normal administrative procedures, and the Administrative Benefit Committee determines that (i) it would cost more to correct the error than is warranted and (ii) the error did not cause an excise tax problem, then the Administrative Benefit Committee may authorize any equitable adjustment it deems necessary or desirable to correct the error or omission, including but not limited to the authorization (with the approval of the Virginia Power Board or the DRI Board, as appropriate), of additional Employer contributions designed, in a manner consistent with the goodwill intended to be engendered by the Plan, to put Participants or their Beneficiaries in the same relative position they would have been in but for such error or omission. Any contribution made pursuant to this section is an additional discretionary contribution. EXECUTION IN WITNESS WHEREOF, this instrument has been executed this 12th day of May, 1997. DOMINION RESOURCES, INC. By /s/LINWOOD R. ROBERTSON Linwood R. Robertson Executive Vice President and Chief Financial Officer VIRGINIA ELECTRIC AND POWER COMPANY By /s/T. J. O'NEIL T. J. O'Neil Vice President, Human Resources EX-10 5 EXHIBIT 10.17 Exhibit 10.17 DOMINION RESOURCES, INC. RETIREMENT BENEFIT RESTORATION PLAN As Adopted Effective January 1, 1991 and Amended and Restated September 1, 1996 DOMINION RESOURCES, INC. RETIREMENT BENEFIT RESTORATION PLAN Purpose The Board of Directors of Dominion Resources, Inc. and the Board of Directors of Virginia Electric and Power Company ("Virginia Power") determined that the adoption of the Retirement Benefit Restoration Plan will assist it in attracting and retaining those employees whose judgment, abilities and experience will contribute to its continued progress. The Plan is intended to be a plan that is unfunded and maintained primarily for the purpose of providing deferred compensation for a "select group of management or highly compensated employees" (as such phrase is used in the Employee Retirement Income Security Act of 1974). The Plan must be administered and construed in a manner that is consistent with that intent. The Plan was amended, as of September 1, 1996, to coordinate payments with changes in the Funding Plan. Article I Definitions As defined herein, the following phrases or terms shall have the indicated meanings: 1.1. "Administrative Benefit Committee" means the Administrative Benefit Committee, as appointed under the Funding Plan, which shall manage and administer the Plan in accordance with the provisions of Article X. 1.2. "Affiliate" means any entity that is (i) a member of a controlled group of corporations as defined in Section 1563(a) of the Internal Revenue Code of 1986, as amended (the "Code"), determined without regard to Code Sections 1563(a)(4) and 1563(e)(3)(C), of which Dominion Resources, Inc. is a member according to Code Section 414(b); (ii) an unincorporated trade or business that is under common control with Dominion Resources, Inc., as determined according to Code Section 414(c); or (iii) a member of an affiliated service group of which Dominion Resources, Inc. is a member according to Code Section 414(m). 1.3. "Beneficiary" means the person, persons, entity, entities or the estate of a Participant which, in accordance with the provisions of the Retirement Plan, is entitled to receive a benefit under the Retirement Plan on account of the Participant's death. If no person is entitled to receive a benefit under the Retirement Plan on account of the Participant's death, the Participant may designate another person, persons, entity, entities or his estate as Beneficiary under the Plan. 1.4. "Benefit Restoration Account" means the Benefit Restoration Account established under the Funding Plan on behalf of a Participant who also participates in the Funding Plan. 1.5. "Change in Control" means the occurrence of any of the following events: (i) any person, including a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934 becomes the owner or beneficial owner of Dominion Resources, Inc. securities having 20% or more of the combined voting power of the then outstanding Dominion Resources, Inc. securities that may be cast for the election of Dominion Resources, Inc.'s directors (other than as a result of an issuance of securities initiated by Dominion Resources, Inc., or open market purchases approved by Dominion Resources, Inc.'s Board of Directors, as long as the majority of Dominion Resources, Inc.'s Board of Directors approving the purchases is also the majority at the time the purchases are made); (ii) as the direct or indirect result of, or in connection with, a cash tender or exchange offer, a merger or other business combination, a sale of assets, a contested election, or any combination of these transactions, the persons who were directors of Dominion Resources, Inc. before such transactions cease to constitute a majority of Dominion Resources, Inc.'s Board of Directors, or any successor's board, within two years of the last of such transactions; or (iii) with respect to a particular Participant, an event occurs with respect to the Company that employs that Participant such that, after the event, the employing Company is no longer an Affiliate of the Dominion Resources, Inc. 1.6. "Code" means the Internal Revenue Code of 1986, as amended. 1.7. "Company" means Dominion Resources, Inc., its predecessor, a subsidiary or an Affiliate. 1.8. "Control Change Date" means the date on which a Change in Control event occurs. If a Change in Control occurs on account of a series of transactions, the Control Change Date is the date of the last of such transactions. 1.9. "Eligible Employee" means an individual (i) who is employed by Dominion Resources, Inc. or an Affiliate, (ii) who is a member of management or a highly compensated employee, and (iii) whose Retirement Plan benefit is reduced or limited by Code Section 401(a)(17), Code Section 415, or both. 1.10. "Funding Plan" means the Dominion Resources, Inc. Retirement Benefit Funding Plan. 1.11 "O&C Committee" means (i) the Organization and Compensation Committee of the Board of Directors of Dominion Resources, Inc. with respect to an Eligible Employee who is employed by Dominion Resources, Inc., Dominion Capital, Inc., Dominion Lands, Inc. or Dominion Energy, Inc. or any other Affiliate which is not subject to regulation as a public service corporation by the State Corporation Commission of Virginia ("DRI O&C Committee"); and (ii) the Organization and Compensation Committee of the Board of Directors of Virginia Electric and Power Company with respect to an Eligible Employee who is employed by Virginia Electric and Power Company or any of its subsidiaries ("Virginia Power O&C Committee"). 1.12. "Participant" means an Eligible Employee who is designated by the appropriate O&C Committee. A "DRI Participant" is an Eligible Employee designated by the DRI O&C Committee. A "Virginia Power Participant" is an Eligible Employee designated by the Virginia Power O&C Committee. An individual shall remain a Participant only so long as the individual remains an Eligible Employee and his designation as a Participant has not been revoked or rescinded. 1.13. "Plan" means the Dominion Resources, Inc. Retirement Benefit Restoration Plan. 1.14. "Retirement" and "Retire" mean severance from employment with the Company on or after attaining a vested or nonforfeitable interest in the portion of his Retirement Plan benefit attributable to Company contributions; except as provided in Article VI of the Plan. 1.15. "Retirement Plan" means the Dominion Resources, Inc. Retirement Plan. 1.16. "Totally and Permanently Disabled" means a condition, determined on the basis of medical evidence satisfactory to a physician designated by the Administrative Benefit Committee, rendering a Participant, due to bodily injury or disease, unable to perform services as follows: (i) during the first two years of such disability (measured from the commencement of such disability rather than the commencement of benefit payments) such Participant is unable to perform any and every duty pertaining to his employment with the Company; and (ii) thereafter, such Participant is unable to engage in any occupation or perform any work for compensation or profit for which he is or may become reasonably fitted by education, training or experience. In no event shall such condition be deemed to exist during any period that the Participant is not under the regular care and attendance of a legally qualified physician during any period that he engages in any occupation or performs any work for compensation or profit. Article II Participation An Eligible Employee who is designated to participate in the Plan by the appropriate O&C Committee shall become a Participant in the Plan as of the date specified by the appropriate O&C Committee. A Participant shall continue to participate in the Plan until such date as the appropriate O&C Committee may declare that he is no longer a Participant or until the date that he is no longer an Eligible Employee. Article III Benefits Except as provided in Article IV and subject to the limitations set forth in Articles VI and VII, the benefits of a Participant and his Beneficiary shall be as follows: 3.1. Upon Retirement a Participant shall be entitled to a monthly Retirement benefit equal to the difference between (a) and (b) below where: (a) = the monthly benefit that would have been payable to the Participant under the Retirement Plan but for the application of the limits set forth in Code Sections 401(a)(17) and 415; and (b) = the monthly benefit that the Participant is entitled to receive under the Retirement Plan. The payment of the benefit under this Section 3.1 shall begin as of the same date that the Participant's retirement benefit under the Retirement Plan is scheduled to commence. The benefit payable under this Section 3.1 also shall be determined as of the date that the Participant's retirement benefit under the Retirement Plan is scheduled to commence. Except as provided below, the benefit payable under this Section 3.1 shall be computed and paid in the same form as the Participant's retirement benefit under the Retirement Plan; provided, however, that upon the Participant's death no further benefit shall be payable under this Plan except as provided in Section 3.3. In lieu of receiving the same form of retirement benefit as under the Retirement Plan, a Participant may elect to receive an actuarial equivalent of said benefit as a single lump sum payment. The Participant must make the election at least six (6) months prior to the commencement of the receipt of benefits. The Participant must make the election of a single lump sum payment either (i) at least six (6) months prior to the commencement of the receipt of benefits or (ii) at least one (1) month prior to the commencement of the receipt of benefits if the election is approved by the Administrative Benefit Committee or the appropriate O&C Committee in its absolute discretion. Upon the denial of a Participant's election, the Participant shall receive the benefits provided under the Plan in the form that is otherwise payable absent the election. The actuarial equivalent of the benefit payable under this Section 3.1 shall be computed using the actuarial factors used for calculation of lump sum benefit payments under the Retirement Plan as of the date that the Participant's retirement benefit under the Retirement Plan is scheduled to commence. In lieu of receiving the same form of retirement benefit as under the Retirement Plan, a Participant who is not eligible to elect a survivor benefit form of payment under the Retirement Plan also may elect to receive an actuarial equivalent of said benefit in any form of survivor benefit otherwise provided under the Retirement Plan with the survivor benefit payable to the Participant's Beneficiary under the Plan. 3.2. If the Participant becomes Totally and Permanently Disabled prior to his Retirement and during his employment with the Company, he shall be entitled to receive a benefit calculated and paid in the manner set forth in Section 3.1. 3.3. (a) Upon the Participant's death if the Beneficiary is entitled to a benefit under the Retirement Plan, the Beneficiary shall be entitled to a monthly benefit under this Plan equal to the difference between (x) and (y) where: (x) = the monthly benefit that would have been payable to the Beneficiary but for the application of Code Sections 401(a) 17 and 415 in the calculation of the Participant's accrued benefit under the Retirement Plan; and (y) = the monthly benefit that the Beneficiary is entitled to receive under the Retirement Plan. The payment of the benefit under this Section 3.3(a) shall begin as of the same date that the Beneficiary's benefit under the Retirement Plan is scheduled to commence. The amount payable under this Section 3.3 also shall be determined as of the date that the Beneficiary's benefit under the Retirement Plan is scheduled to commence. The benefit payable under this Section 3.3(a) shall be computed and paid in the same form as the benefit payable to the Beneficiary under the Retirement Plan. (b) Upon the Participant's death before the commencement of benefits to the Participant, if the Beneficiary is not entitled to a benefit under the Retirement Plan, the Beneficiary shall be entitled to a monthly benefit under this Plan equal to fifty percent (50%) of the actuarial present value of the Participant's benefit payable under Section 3.1 (determined under the actuarial factors used for calculation of lump sum benefit payments under the Retirement Plan). The payment of the benefit under this Section 3.3(b) shall be made as soon as administratively possible after the Participant's death. The amount payable under this Section 3.3(b) shall be determined as of the date of the Participant's death. The benefit payable under this Section 3.3(b) shall be computed and paid in the form of a lump sum payment. (c) Upon the Participant's death after the commencement of benefits to the Participant, if the Beneficiary is not entitled to a benefit under the Retirement Plan, the Beneficiary shall be entitled to the continuation of the form of benefit elected by the Participant under Section 3.1, if the form of benefit provides for payment of a benefit after the Participant's death. The payment of the benefit under this Section 3.3(c) shall begin as of the date of the Participant's death. Article IV Coordination of Benefits The amount payable in any month to a Participant or a Beneficiary under the Plan shall be reduced, but not below zero, by the Pre-Tax Value of the amount payable for the month in question from the Participant's Benefit Restoration Account in the Funding Plan. The Pre-Tax Value of the payments from the Participant's Benefit Restoration Account shall be the amount that, after payment of any applicable federal, state, and local income and employment taxes, would yield the amount of the payment from the Benefit Restoration Account, taking into consideration the extent to which, if any, that the payment from the Benefit Restoration Account is taxable to the Participant. The determination of the Pre-Tax Value shall be made on the basis of a policy or guidelines adopted by the appropriate O&C Committee using the maximum rates of federal, state, and local income and employment taxes that are applicable to the Participant or Beneficiary. Benefits payable under the Plan shall not be reduced by any payment to a Participant under Section 6.05 of the Funding Plan. Article V Guarantees Dominion Resources, Inc. and Virginia Power have only a contractual obligation to make payments of the benefits described in Article III. All benefits are to be satisfied solely out of the general corporate assets of Dominion Resources, Inc. or Virginia Power which shall remain subject to the claims of its creditors. No assets of Dominion Resources, Inc. or Virginia Power will be segregated or committed to the satisfaction of its obligations to any Participant or Beneficiary under this Plan. If Dominion Resources, Inc., in its sole discretion, or Virginia Power, in its sole discretion, elects to purchase life insurance on the life of a Participant in connection with the Plan, the Participant must submit to a physical examination, if required by the insurer, and otherwise cooperate in the issuance of such policy or his rights under the Plan will be forfeited. Article VI Termination of Employment 6.1. The Plan does not in any way limit the right of the Company at any time and for any reason to terminate the Participant's employment or such Participant's status as an Eligible Employee. In no event shall the Plan, by its terms or by implication, constitute an employment contract of any nature whatsoever between the Company and a Participant. 6.2. A Participant who ceases to be an Eligible Employee or whose employment with the Company is terminated either with or without cause, for reasons other than death, Retirement or Total and Permanent Disability shall immediately cease to be a Participant under this Plan and shall forfeit all rights under this Plan. Further, in no event shall an individual who was a Participant but is not a Participant at the time of such individual's death, Retirement or Total and Permanent Disability, be entitled to any benefit under the Plan. A Participant on authorized leave of absence from the Company shall not be deemed to have terminated employment or lost his status as an Eligible Employee for the duration of such leave of absence. 6.3. Notwithstanding any contrary Plan provision, in the event the employment of a Participant who is in the employ of a Company on a Control Change Date relating to that Company is terminated (for reasons other than death, Retirement, Total and Permanent Disability, or as a result of acts of theft, embezzlement, fraud, or moral turpitude) before the end of the period commencing on the Control Change Date and ending on the third anniversary of such date, and whether or not he is a Participant at such time, he shall be fully vested in a benefit payable under Article III as of the date his employment is terminated. During this same period, a Participant who voluntarily terminates employment within sixty (60) days after (i) he does not receive salary increases, bonuses, and incentive awards comparable to the increases, bonuses and awards that he received in prior years or that other executives in comparable positions receive in the current year; or (ii) his compensation or employment-related benefits are reduced; or (iii) his status, title(s), or management responsibilities are diminished (other than changes in reporting or management responsibilities to reflect sound practices commonly followed by enterprises comparable to the Company employing Participant or required by applicable federal or state law) or within sixty days after the last in a series of such events will be deemed to have terminated under circumstances requiring full vesting under this Section 6.3. 6.4. A Participant who ceases to be an employee of the Company and who is subsequently reemployed by the Company shall not accrue any additional benefits on account of such later service for periods in which he is not a Participant. Article VII Termination, Amendment or Modification of Plan 7.1. Except as otherwise specifically provided, Dominion Resources, Inc. reserves the right to terminate, amend or modify this Plan, wholly or partially, at any time and from time to time as to DRI Participants. Such right to terminate, amend or modify the Plan shall be exercised for Dominion Resources, Inc. by its Board of Directors. Except as otherwise specifically provided, Virginia Power reserves the right to terminate, amend or modify this Plan, wholly or partially, at any time and from time to time as to Virginia Power Participants. Such right to terminate, amend or modify the Plan shall be exercised for Virginia Power by its Board of Directors. Notwithstanding the preceding, with respect to an affected Participant, the Plan and Section 6.3 may not be amended, modified or terminated after a Control Change Date before the end of the period specified in that section unless the affected Participant agrees to such amendment, modification or termination in writing. 7.2. Section 7.1 notwithstanding, no action to terminate the Plan shall be taken except upon written notice to each Participant to be affected thereby, which notice shall be given not less than thirty (30) days prior to such action. 7.3. Any notice which shall be or may be given under the Plan shall be in writing and shall be mailed by United States mail, postage prepaid. If notice is to be given to Dominion Resources, Inc. or Virginia Power, such notice shall be addressed to their respective corporate offices; addressed to the attention of the Corporate Secretary. If notice is to be given to a Participant, such notice shall be addressed to the Participant's last known address. 7.4. The rights of Dominion Resources, Inc. and Virginia Power set forth in Section 7.1 are subject to the condition that its Board of Directors shall take no action to terminate the Plan or decrease the benefit that would become payable or is payable, as the case may be, with respect to a Participant who has earned a vested or nonforfeitable interest in the portion of his Retirement Plan benefit attributable to Company contributions. 7.5. Except as provided in Section 6.3, 7.1, and 7.4, upon the termination of this Plan as to Dominion Resources, Inc. by its Board of Directors, the Plan shall no longer be of any further force or effect as to DRI Participants, and neither Dominion Resources, Inc. nor any DRI Participant shall have any further obligation or right under this Plan. Except as provided in Section 6.3, 7.1, and 7.4, upon the termination of this Plan as to Virginia Power by its Board of Directors, the Plan shall no longer be of any further force or effect as to Virginia Power Participants, and neither Virginia Power nor any Virginia Power Participant shall have any further obligation or right under this Plan. Likewise, the rights of any individual who was a Participant and whose designation as a Participant is revoked or rescinded by the appropriate O&C Committee shall cease upon such action. Article VIII Other Benefits and Agreements Except as provided in Article IV, the benefits provided for a Participant and his Beneficiary under the Plan are in addition to any other benefits available to such Participant under any other plan or program of the Company for its employees, and, except as may otherwise be expressly provided for, the Plan shall supplement and shall not supersede, modify or amend any other plan or program of the Company in which a Participant is participating. Article IX Restrictions on Transfer of Benefits No right or benefit under the Plan shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or charge, and any attempt to do so shall be void. No right or benefit hereunder shall in any manner be liable for or subject to the debts, contracts, liabilities, or torts of the person entitled to such benefit. If any Participant or Beneficiary under the Plan should become bankrupt or attempt to anticipate, alienate, sell, assign, pledge, encumber or charge any right to a benefit hereunder, then such right or benefit, in the discretion of the appropriate O&C Committee, shall cease and terminate, and, in such event, the appropriate O&C Committee may hold or apply the same or any part thereof for the benefit of such Participant or Beneficiary, his or her spouse, children, or other dependents, or any of them, in such manner and in such portion as the appropriate O&C Committee may deem proper. Article X Administration of the Plan 10.1. The Plan shall be administered by the Administrative Benefit Committee. Subject to the provisions of the Plan, the Administrative Benefit Committee may adopt such rules and regulations as may be necessary to carry out the purposes hereof. The Administrative Benefit Committee's interpretation and construction of any provision of the Plan shall be final and conclusive. 10.2. Dominion Resources, Inc. and Virginia Power shall indemnify and save harmless each member of the Administrative Benefit Committee and each member of its own O&C Committee against any and all expenses and liabilities arising out of his membership on such Committee, excepting only expenses and liabilities arising out of his own willful misconduct. Expenses against which a member of an O&C Committee or the Administrative Benefit Committee shall be indemnified hereunder shall include without limitation, the amount of any settlement or judgment, costs, counsel fees, and related charges reasonably incurred in connection with a claim asserted, or a proceeding brought or settlement thereof. The foregoing right of indemnification shall be in addition to any other rights to which any such member may be entitled. 10.3. In addition to the powers hereinabove specified, the Administrative Benefit Committee shall have the power to compute and certify the amount and kind of benefits from time to time payable to Participants and their Beneficiaries under the Plan, to authorize all disbursements for such purposes, and to determine whether a Participant is entitled to a benefit under Section 3.2. 10.4. To enable the Administrative Benefit Committee to perform its functions, the Company shall supply full and timely information to the Administrative Benefit Committee on all matters relating to the compensation of all Participants, their retirement, death or other cause for termination of employment, and such other pertinent facts as the appropriate O&C Committee may require. Article XI Miscellaneous 11.1. The Plan shall be binding upon Dominion Resources, Inc. and its successors and assigns and Virginia Power and its successors and assigns; subject to the powers set forth in Article VII, and upon a Participant, his Beneficiary, and either of their assigns, heirs, executors and administrators. 11.2. To the extent not preempted by federal law, the Plan shall be governed and construed under the laws of the Commonwealth of Virginia as in effect at the time of their adoption and execution, respectively. 11.3. Masculine pronouns wherever used shall include feminine pronouns and the use of the singular shall include the plural. IN WITNESS WHEREOF, this instrument has been executed this 12th day of May, 1997. DOMINION RESOURCES, INC. By /s/LINWOOD R. ROBERTSON Linwood R. Robertson Executive Vice President and Chief Financial Officer VIRGINIA ELECTRIC AND POWER COMPANY By /s/T. J. O'NEIL T. J. O'Neil Vice President, Human Resources EX-10 6 EXHIBIT 10.21 Exhibit 10.21 EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (the "Agreement") is made as of February 1, 1997, between DOMINION RESOURCES, INC. (the "Company") and Norman Askew. RECITALS: The Board of Directors of Dominion Resources, Inc. (the "Board of Directors") recognizes that outstanding management of the company is essential to advancing the best interest of the Company, its shareholders and its subsidiaries. The Board of Directors believes that it is particularly important to have stable, excellent management at the present time. The Board of Directors believes that this objective may be achieved by giving key management employees assurances of financial security for a period of time, so that they will not be distracted by personal risks and will continue to devote their full time and best efforts to the performance of their duties. The Organization and Compensation Committee of the Board of Directors (the "Committee") has recommended, and the Board of Directors has approved, entering into employment agreements with the Company's key management executives in order to achieve the foregoing objectives. The Executive is a key management executive of the Company, and is a valuable member of the Company's management team. The Company acknowledges that the Executive's contributions to the growth and success of the Company will be substantial. The Company and the Executive are entering into this Agreement to induce the Executive to become an employee of the Company and to devote his full energy to the Company's affairs. The Executive has agreed to be employed by the Company under the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the foregoing and the mutual undertakings contained in this Agreement, the parties agree as follows: 1. Employment. The Company will employ the Executive, and the Executive will continue in the employment of the Company as an executive of the Company, for the period beginning March 1, 1997 and ending November 1, 2002 (the "Term of this Agreement"), according to the terms of this Agreement. 2. Duties. The Company and the Executive agree that, during the Term of this Agreement, the Executive will serve in a senior management position with the Company. The Executive (i) will devote his knowledge, skill and best efforts on a full-time basis to performing his duties and obligations to the Company (with the exceptions of absences on the account of illness or vacation in accordance with the Company's policies and civic and charitable commitments not involving a conflict with the Company's business), and (ii) will comply with the lawful and nonarbitrary directions and orders of the Board of Directors and Chief Executive Officer of the Company with respect to the performance of his duties. 3. Effect on Other Agreements. (a) The Board of Directors recognizes that the Executive has entered or will enter into an Employment Continuity Agreement with the Company, which provides benefits under certain circumstances in the event of a change in control of the Company. Notwithstanding anything in this Agreement to the contrary, if the Executive's employment terminates for any reason after a change in control and payments are to be made to the Executive under the Executive's Employment Continuity Agreement: (i) the Executive will not receive payments under this Agreement as a result of his termination of employment for any reason, (ii) after payment of any amounts otherwise due the Executive under this Agreement, this Agreement will terminate without liability on the part of the Company, and (iii) if and to the extent that any payments made under this Agreement are considered "parachute payments" for purposes of Section 280G of the U.S. Internal Revenue Code of 1986, as amended (the "Code"), the payments will be taken into account in determining the amount to be paid to the Executive under the Employment Continuity Agreement according to the Terms of the Employment Continuity Agreement. If a change of control occurs, and the Executive is not entitled to receive payments under the Executive's Employment Continuity Agreement, this Agreement will continue in effect according to its terms. (b) Except as provided above, this Agreement sets forth the entire understanding of the parties with respect to the Executive's employment with the Company. The Executive and the Company agree that, effective as of the execution of this Agreement, any prior employment agreements between the Executive and East Midlands Electricity plc ("EME") (other than the Executive's Employment Continuity Agreement) are null and void. The term "employment agreement" as used in the preceding sentence does not include any retirement, incentive or benefit plan or program in which the Executive participates. 4. Affiliates. Employment by an Affiliate of the Company or a successor to the Company will be considered employment by the Company for purposes of this Agreement, and termination of employment with the Company means termination of employment with the Company and all its Affiliates and successors. The term "Company" as used in this Agreement will be deemed to included Affiliates and successors. For purposes of this Agreement, the term "Affiliate" means the subsidiaries of Dominion Resources, Inc. and other entities under common control with Dominion Resources, Inc. 5. Compensation and Benefits. (a) During the Term of this Agreement, while the Executive is employed by the Company, the Company will pay to the Executive the following salary and incentive awards for services rendered to the Company: (i) The Company will pay to the Executive an annual salary in an amount not less than the base salary paid by EME in effect for the Executive as of the date on which this Agreement is executed. The Board of Directors will evaluate the Executive's performance at least annually and will consider annual increases in the Executive's salary based on the Executive's performance. (ii) The Executive will be entitled to receive incentive awards if and to the extent that the Board of Directors determines that the Executive's performance merits payment of an award. The Board of Directors will make its determination consistent with the methodology used by the Company for compensating its senior management employees. (b) During the Term of this Agreement, while the Executive is employed by the Company, the Executive will be eligible to participate in a similar manner as other senior executives in the Company's Benefit Restoration Plan, Executive Supplemental Retirement Plan ("ESRP"), cash and stock incentive plans, and such other fringe benefit and employee benefit plans and programs that the Company makes available to the Executive from time to time. (c) If the Executive attains age 60 while employed by the Company, the Executive's retirement benefits under the Company's Benefit Restoration Plan will be computed based on the greater of (A) the Executive's years of credited service (determined as if the Executive was a participant in the Company's Retirement Plan and pursuant to the terms of the Retirement Plan), or (B) thirty (30) years of credited service, and will be reduced by the amount of benefits payable to the Executive under the EME Pension Plan and Amending Deed for the Pension and Death Benefits Arrangement for N B M Askew. Any benefit to be provided under this subsection (c) will be provided as a supplemental benefit under this Agreement and will not be provided from the Retirement Plan. The provisions of this subsection (c) shall survive the termination of this Agreement. (d) The Executive will be entitled to a fully vested benefit under the ESRP if the Executive attains age 58 while employed by the Company. The Executive's benefit under the ESRP will be funded in the Dominion Resources, Inc. Executive Retirement Plan Trust in equal installments so that at age 60 the Executive's benefit under the Plan is 100% funded. The provisions of this subsection (d) shall survive the termination of this Agreement. (e) A proforma payout schedule is attached as Appendix A which is based on certain assumptions that may or may not be applicable. This Appendix is attached for interpretive purposes only and is not a binding payout schedule. 6. Termination of Employment. (a) If the Company terminates the Executive's employment, other than for Cause (as defined in Section 8 below), during the Term of this Agreement, the Company will pay the Executive a lump sum payment equal to the present value of the Executive's annual base salary for the balance of the Term of this Agreement. The lump sum payment will be computed as follows: (i) For purposes of this calculation, the Executive's annual base salary for the balance of the Term of the Agreement will be calculated at the highest annual base salary rate in effect for the Executive during the three-year period preceding his termination of employment. Salary that the Executive elected to defer will be taken into account for purposes of this Agreement without regard to the deferral. (ii) The salary for any partial year in the Term of this Agreement will be a pro-rated portion of the annual amount. (iii) Present value will be computed by the Company as of the date of the Executive's termination of employment, based on a discount rate equal to the applicable, U.S. Federal short-term rate, as determined under Section 1274 (d) of the Code, compounded monthly, in effect on the date as of which the present value is determined. (iv) The lump sum payment will be paid within 30 days after the Executive's termination of employment. (b) If the Company terminates the Executive's employment, other than for Cause, during the Term of this Agreement, the Executive will be entitled to receive the following additional benefits determined as of the date of his termination of employment: (i) Any outstanding restricted stock or stock options that would become vested (that is, transferable and nonforfeitable, or excercisable) if the Executive remained an employee through the Term of this Agreement will become vested as of the date of the Executive's termination of employment (or as of the date described in the next sentence, if applicable). In addition, if the Company has agreed to award the Executive performance shares or restricted stock at the end of a performance period, subject to the Company's achievement of performance goals, and the date as of which the performance shares are to be awarded, or the restricted stock is to become vested, falls within the Term of this Agreement, the stock will be awarded and become vested at the end of the performance period if and to the extent that performance goals are met. The Executive must satisfy the tax withholding requirements described in Section 10 with respect to the performance shares and restricted stock. (ii) 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 any Company pension, medical and other benefit plan, including ESRP, in which the Executive was participating as of the date of his termination of employment. Service credited to the Executive for purposes of this subsection (ii) shall be in addition to any service credited to the Executive pursuant to Section 5 (c). The Company will 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 continuing coverage under the Company's benefit plans. (c) If the Executive voluntarily terminates employment with the Company during the Term of this Agreement under circumstances described in this subsection (c) , the Executive will be entitled to receive the benefits described in subsections (a) and (b) above as if the Company had terminated the Executive's employment other than for Cause. Subject to the provisions of this subsection (c) , these benefits will only be provided if the Executive voluntarily terminates employment after (i) the Company reduces the Executive's base salary, (ii) the Executive is not in good faith considered for incentive awards as described in Section 5 (a) (ii), (iii) the Company fails to provide benefits as required by Section 5 (b) and 5 (c), (iv) the Company relocates the Executive's place of employment to a location further than 50 miles from Nottingham, U.K. (other than in connection with a temporary assignment to the United States of no more than 3 months), or (v) the Company demotes the Executive to a position that is not a senior management position (other than on account of the Executive's disability, as defined in Section 7 below). For this purpose, a "senior management position" means the position of Chief Executive Officer or Chief Operating Officer of Dominion Resources, Inc. ("DRI"), the position of President or Chief Executive Officer of a subsidiary of DRI, or a position that reports directly to the Chief Executive Officer, Chief Operating Officer, or Senior Vice President of DRI. In order for this subsection (c) to be effective: (1) the Executive must give written notice to the Company indicating that the Executive intends to terminate employment under this subsection (c), (2) the Executive's voluntary termination under this subsection must occur within 60 days after the Executive knows or reasonably should know of an event described in clause (i), (ii), (iii), (iv) or (v) above, 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 (c) on account of the event specified in the Executive's notice. (d) The amounts under this Agreement will be paid in lieu of severance benefits under any severance plan or program maintained by the Company in which the Executive participates (subject to Section 3 above). The amounts payable under this Agreement will not be reduced by any amounts earned by the Executive from a subsequent employer or otherwise. If the Executive's employment is terminated by the Company for Cause this Agreement will immediately terminate without liability on the part of the Company. (e) If the Executive (i) voluntarily terminates employment for a reason not described in subsection (c) above or Section 7 below, and (ii) gives the Company no less than 6 months prior notice of termination in accordance with the provisions of Section 15 below, the Company will pay to the Executive an amount equal to the additional benefits the Executive would have accrued under the EME Pension Plan and the Amending Deed for the Pension and Death Benefits Arrangement for N B M Askew, had he remained a participant in such plans through the Term of the Agreement. The amount paid under this subsection (e) will be paid as a supplemental benefit under this Agreement and will not be provided from the EME Pension Plan or the Amending Deed for the Pension and Death Benefits Arrangement for N B M Askew. This amount will be paid in lieu of any other benefits payable under this Agreement, which will immediately terminate without liability on the part of the Company. 7. Disability or Death. 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 Section 6 (b) (i) 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 Section 6 (b) (i) will be provided to the personal representative of the Executive's estate. The foregoing benefits will be provided in addition to any death, disability and other benefits provided under Company benefit plans in which the Executive participates. Upon the Executive's death or disability, the provisions of Sections 1, 2, 5, and 6 of this Agreement will terminate. The term "disability" means a condition, resulting from bodily injury or disease, that renders, and for a six consecutive month period has rendered, the Executive unable to perform substantially the duties pertaining to his employment with the Company. A return to work of less than 14 consecutive days will not be considered an interruption in the Executive's six consecutive months of disability. Disability will be determined by the Company on the basis of medical evidence satisfactory to the Company. 8. Cause. For purposes of this Agreement, the term "Cause" means (i) fraud or material misappropriation with respect to the business or assets of the Company, (ii) persistent refusal or wilful failure of the Executive to perform substantially his duties or responsibilities to the Company, including any failure to comply with the directions or orders of the Board of Directors or the Chief Executive Officer of the Company with respect to the performance of his duties or responsibilities, (iii) conduct that constitutes disloyalty to the Company, and that materially harms, or has the potential to cause material harm to the Company, (iv) conviction of a felony or crime involving moral turpitude, or (v) the use of drugs or alcohol that interferes materially with the Executive's performance of his duties. 9. Post Termination. (a) The Executive undertakes to the Company that the Executive shall not during the period of 12 months from Executive's date of termination of employment be directly or indirectly interested or concerned (whether as shareholder, director, employee, partner, consultant, proprietor, agent or in any other capacity) in any business firm or company which (i) holds a public electricity supply license for the supply of electricity anywhere within the United Kingdom; or (ii) carries on anywhere within the United Kingdom any other business competing with any business carried on by the Company at the date of the Executive's termination of employment in which the Executive has been engaged or interested during the 12 months prior to the date of his termination of employment ("other relevant business") but nothing in this Section 9 shall prevent the Executive holding or being interested in listed securities not representing more than 5% in nominal amount of the issued securities of any class of any company which are listed on any recognized stock exchange anywhere in the world. (b) The Executive undertakes to the Company that the Executive shall not during the period of 12 months from the date of the Executive's termination of employment whether as principal agent or employee and whether directly or indirectly supply to any person, firm or company whom the Executive dealt with as a customer or potential customer of the Company in the last 12 months of the Executive's employment either electricity or any goods or services which are the same or substantially the same as the type of goods or services provided by any other relevant business of the Company at the date of termination of the Executive's employment whether or not the Executive has approached the customer or vice versa. (c) The Executive undertakes to the Company that the Executive shall not during the period of 12 months from the date of the Executive's termination of employment whether as principal agent or employee and whether directly or indirectly approach any person firm or company whom the Executive dealt with as a customer or potential customer of the Company in the last 12 months of the Executive's employment with the Company with an offer to supply them with electricity or any goods or services which are the same or substantially the same as the type of goods or services provided by any other relevant business of the Company at the date of termination of the Executive's employment with the Company. (d) The Executive undertakes to the Company that the Executive shall not during the period of 12 months from the date of termination of employment whether as principal agent or employer and whether directly or indirectly recruit or try to recruit any person as an employee or consultant or in some other capacity if that person was at any time during the last 12 months of the Executive's employment employed by the Company as a director or senior employee and the Executive had regular contact with such person through that person's work for the Company. (e) The Executive undertakes to the Company that the Executive shall also perform and observe the undertakings set out in Section 9 (a) to 9 (d) in relation to any Affiliates whose business or affairs the Executive has been engaged or interested in at any time during the last 12 months of the Executive's employment with the Company as if a reference to each such Affiliate was substituted for a reference to the Company in each case. This undertaking shall be construed and enforceable as a separate convenant in relation to each Affiliate and the Company shall be deemed to have the benefit of this covenant as trustee for any Affiliates. (f) It is agreed that each of the covenants contained on the part of the Executive in each of Section 9(a) to 9(c) inclusive is and shall be construed and enforceable as a separate covenant. (g) In this Section 9 references to acting directly or indirectly include (without prejudice to the generality of that expression) references to acting alone or jointly with or through any other person. (h) The Executive undertakes and covenants with the Company that he shall not at any time after the Executive's termination of employment hold himself out or permit himself to be held out as being in any way interested in or connected with the Company or any Affiliate and shall use his best endeavors to prevent himself being so held out, save that if and for so long as he remains a director or an employee of an Affiliate he may hold himself out or be held out as being so connected with that Company. 10. Indemnification. The Company will pay all reasonable fees and expenses, if any, (including, without limitation, legal fees and expenses) that are incurred by the Executive to enforce this Agreement and that result from a breach of this Agreement by the Company. In Executive's capacity as a member of the Board of Directors of East Midlands Electricity, plc, Executive is entitled to indemnification provided by the Articles of Incorporation of Dominion Resources, Inc. 11. Payment of Compensation and Taxes. All amounts payable under this Agreement (other than stock, which will be paid according to the terms of the Company's Incentive Compensation Plan) will be paid in cash, subject to income and payroll tax withholdings. No shares of stock will be issued to the Executive until the Executive has paid to the Company the amount that must be withheld for applicable income and employment taxes or the Executive has made provisions satisfactory to the Company for the payment of such taxes. 12. Administration. The Committee will be responsible for the administration and interpretation of this Agreement on behalf of the Company. If for any reason a benefit under this Agreement is not paid when due, the Executive may file a written claim with the Committee. If the claim is denied or no response is received, within 90 days after the filing (in which case the claim is deemed to be denied), the Executive may appeal the denial to the Board of Directors within 60 days of the denial. The Executive may request that the Board of Directors review the denial, the Executive may review pertinent documents, and the Executive may submit issues and comments in writing. A decision on appeal will be made within 60 days after the appeal is made, unless special circumstances require that the Board of Directors extend the period for another 60 days. If the Company defaults in an obligation under this Agreement, the Executive makes a written claim pursuant to the claims procedure described above, and the Company fails to remedy the default within the claims procedure period, then all amounts payable to the Executive under this Agreement will become immediately due and owing. 13. Assignment. The rights and obligations of the Company under this Agreement will inure to the benefit of and will be binding upon the successors and assigns of the Company. If the Company is consolidated or merged with or into another corporation, or if another entity purchases all or substantially all of the Company's assets, the surviving or acquiring corporation will succeed to the Company's rights and obligations under this Agreement. The Executive's rights under this Agreement may not be assigned or transferred in whole or in part, except that the personal representative of the Executive's estate will receive any amounts payable under this Agreement after the death of the Executive. 14. Rights Under the Agreement. The right to receive benefits under the Agreement will not give the Executive any proprietary interest in the Company or any of its assets. Benefits under the Agreement will be payable from the general assets of the Company, and there will be no required funding of amounts that may become payable under the Agreement [except to the extent required pursuant to Section 5 (d)]. The Executive will for all purposes be a general creditor of the Company. The interest of the Executive under the Agreement cannot be assigned, anticipated, sold, encumbered or pledged and will not be subject to the claims of the Executive's creditors. 15. Notice. For purposes of this Agreement, notices and all other communications must be in writing and are effective when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addresses to the Executive or his personal representative at his last known address. All notices to the Company must be directed to the attention of the Chairman of the Committee. Such other addresses may be used as either party may have furnished to the other in writing. Notices of change of address are effective only upon receipt. 16. Miscellaneous. This instrument contains the entire agreement of the parties. To the extent not governed by U.S. federal law, the parties contemplate and agree that this Agreement will be construed in accordance with the laws of the Commonwealth of Virginia, U.S.A., without reference to its conflict of laws rules. Any action to enforce the terms of this Agreement shall be brought in any court of competent jurisdiction in the Commonwealth of Virginia, and each party hereby irrevocably consents to the jurisdiction of such courts over its person and hereby waives any defense based upon improper venue, inconvenient forum or lack of jurisdiction. No provisions of this Agreement may be modified , waived or discharged unless such a waiver, modification or discharge is agreed to in writing and the writing is signed by the Executive and the Company. A waiver of any breach of our compliance with any provision or condition of this Agreement is not a waiver of similar or dissimilar provisions or conditions. The invalidity or enforceability of any provision of this Agreement will not affect the validity or enforceability of any other provision of this Agreement, which will remain in full force and effect. This Agreement may be executed in one more counterparts, all of which will be considered one and the same agreement. WITNESS the following signatures. DOMINION RESOURCES, INC. By: /s/ THOS. E. CAPPS ________________________________ Thos. E. Capps Chief Executive Officer Dated: 2/21/97 _______________ /s/ NORMAN ASKEW -------------------------------- Norman Brian Montague Askew 2-18-97 Appendix A Norman B.M. Askew Retirement Benefits at Specified Ages Under Terms of Employment Agreement
Additional Years of Service Years of Credited Service Percent Under EME ------------------------- Vested Estimated Date of Age at Pension & DRI Qualified DRI Under DRI Monthly Termination Termination Amending Deed Pension Plan BRP(1) ESRP(2) Payout(3) - - ----------- ----------- ---------------- ------------- ------ --------- --------- 11-1-97 55 1 0 0 0 (Pounds) 3,700 11-1-98 56 2 0 0 0 (Pounds) 4,400 11-1-99 57 3 0 0 0 (Pounds) 5,200 11-1-00 58 4 0 0 100% (Pounds) 14,000 11-1-01 59 5 0 0 100% (Pounds) 15,200 11-1-02 60 6 5 30 100% (Pounds) 21,300
Notes 1. Benefit Restoration Plan 2. Executive Supplemental Retirement plan 3. Estimated payout based on the following assumptions: o DOB: October 4, 1942 (age 54) o Retires November 1, 2002 (age 60) o 1997 Base Pay = (Pounds)230,000 o Exchange rate: $1.60 = (Pounds)1.00 o Target bonus = 45% x base pay o 5% salary increases each year o 1997 EME Pension = (Pounds)44,000/year; + (Pounds)9,374 for each additional year EX-10 7 EXHIBIT 10.23 Exhibit 10.23 DOMINION RESOURCES, INC. INCENTIVE COMPENSATION PLAN 1. Purpose. The purpose of this Dominion Resources, Inc. Incentive Compensation Plan is to further the long term stability and financial success of Dominion Resources, Inc., Virginia Electric and Power Company, the Affiliates, and the Dominion Companies by attracting and retaining employees through the use of cash and stock incentives. It is believed that ownership of Company Stock and the use of cash incentives will stimulate the efforts of those employees upon whose judgment and interests the Employers are and will be largely dependent for the successful conduct of its business. It is also believed that Incentive Awards granted to such employees under this Plan will strengthen their desire to remain employed with the Employers and will further the identification of those employees' interests with those of the Dominion Resources, Inc. shareholders. The Plan is intended to operate in compliance with the provisions of Securities and Exchange Commission Rule 16b-3. 2. Definitions. As used in the Plan, the following terms have the meanings indicated: (a) "Act" means the Securities Exchange Act of 1934, as amended. (b) "Affiliate" means another corporation in which Virginia Power owns stock possessing at least 50 percent of the combined voting power of all classes of stock. (c) "Applicable Withholding Taxes" means the aggregate amount of federal, state and local income and payroll taxes that an Employer is required to with- holdin connection with any Performance Grant, any lapse of restrictions on Restricted Stock, any grant of Goal-Based Stock, or any exercise of a Nonstatutory Stock Option or Stock Appreciation Right. (d) "Change of Control" means the occurrence of any of the following events: (i) any person, including a "group" as defined in Section 13(d)(3) of the Act becomes the owner or beneficial owner of DRI securities having 20% or more of the combined voting power of the then outstanding DRI securities that may be cast for the election of DRI's directors (other than as a result of an issuance of securities initiated by DRI, or open market purchases approved by the DRI Board, as long as the majority of the DRI Board approving the purchases is also the majority at the time the purchases are made); (ii) as the direct or indirect result of, or in connection with, a cash tender or exchange offer, a merger or other business combination, a sale of assets, a contested election, or any combination of these transactions, the persons who were directors of DRI before such transactions cease to constitute a majority of the DRI Board, or any successor's board, within two years of the last of such transactions; or (iii) with respect to a particular Participant, an event occurs with respect to the Employer that employs that Participant such that, after the event, the Employer is no longer a Dominion Company or an Affiliate. (e) "Code" means the Internal Revenue Code of 1986, as amended. (f) "Company Stock" means common stock of DRI. In the event of a change in the capital structure of DRI (as provided in Section 15), the shares resulting from such a change shall be deemed to be Company Stock within the meaning of the Plan. (g) "Date of Grant" means the date on which an Incentive Award is granted by the DRI Committee or Virginia Power Committee. (h) "Disability" or "Disabled" means, as to an Incentive Stock Option, a Disability within the meaning of Code section 22(e)(3). As to all other Incentive Awards, the DRI Committee for DRI Participants and the Virginia Power Committee for Virginia Power Participants shall determine whether a Disability exists and such determination shall be conclusive. (i) "Dominion Company" means Dominion Capital, Inc., Dominion Energy, Inc., or another corporation (i) in which DRI owns stock possessing at least 50 percent of the combined voting power of all classes of stock or which is in a chain of corporations with DRI in which stock possessing at least 50% of the combined voting power of all classes of stock is owned by one or more other corporations in the chain and (ii) which is not Virginia Power or an Affiliate. (j) "DRI" means Dominion Resources, Inc. (k) "DRI Board" means the Board of Directors of Dominion Resources, Inc. (l) "DRI Committee" means the Organization and Compensation Committee of the DRI Board, provided that, if any member of the Organization and Compensation Committee does not qualify as both an outside director for purposes of Code section 162(m) and a non-employee director for purposes of Rule 16b-3, the remaining members of the committee (but not less than two members) shall be constituted as a subcommittee of the Organization and Compensation Committee to act as the DRI Committee for purposes of the Plan. (m) "DRI Participant" means any employee of DRI or a Dominion Company who receives an Incentive Award under the Plan. (n) "Employer" means DRI, Virginia Power, and each Dominion Company or Affiliate that employs one or more Participants. (o) "Fair Market Value" means the closing trading price of a share of Company Stock, as reported in The Wall Street Journal, as of the last day on which Company Stock is traded preceding the Date of Grant or preceding any other date for which the value of Company Stock must be determined under the Plan. (p) "Goal-Based Stock" means Company Stock awarded when performance goals are achieved pursuant to an award as provided in Section 8. (q) "Incentive Award" means, collectively, a Performance Grant or the award of Restricted Stock, Goal-Based Stock, an Option, or a Stock Appreciation Right under the Plan. (r) "Incentive Stock Option" means an Option intended to meet the requirements of, and qualify for favorable federal income tax treatment under, Code section 422. (s) "Mature Shares" means shares of Company Stock for which the holder thereof has good title, free and clear of all liens and encumbrances and which such holder either (i) has held for at least six months or (ii) has purchased on the open market. (t) "Nonstatutory Stock Option" means an Option that does not meet the requirements of Code section 422, or, even if meeting the requirements of Code section 422, is not intended to be an Incentive Stock Option and is so designated. (u) "Option" means a right to purchase Company Stock granted under the Plan, at a price determined in accordance with the Plan. (v) "Performance Criteria" means any of the following areas of performance of DRI, Virginia Power, any Dominion Company or any Affiliate: asset growth; utility earnings; generating unit efficiency; combined net worth; debt to equity ratio; earnings per share; revenues; operating income; operating cash flow; net income, before or after taxes; return on total capital, equity, revenue or assets; nonutility generation cost exposure; power generation costs; safety measured in fatalities, lost time, injuries and vehicle accidents; environmental protection measured in reportable violations, notices of violations, and environmental agency required corrective actions or enforcement actions; or economic value added (net operating profit after tax less a charge for use of capital as determined under a methodology approved by the DRI Committee or Virginia Power Committee). (w) "Performance Goal" means an objectively determinable performance goal established by the DRI Committee or Virginia Power Committee with respect to a given Performance Grant or grant of Restricted Stock that relates to one or more Performance Criteria. (x) "Performance Grant" means an Incentive Award made pursuant to Section 6. (y) "Plan Year" means January 1 to December 31. (z) "Restricted Stock" means Company Stock awarded upon the terms and subject to the restrictions set forth in Section 7. (aa) "Rule 16b-3" means Rule 16b-3 of the Securities and Exchange Commission promulgated under the Act. A reference in the Plan to Rule 16b-3 shall include a reference to any corresponding rule (or number redesignation) of any amendments to Rule 16b-3 enacted after the effective date of the Plan's adoption. (bb) "Stock Appreciation Right" means a right to receive amounts from the Employer granted under Section 10. (cc) "Taxable Year" means the fiscal period used by DRI for reporting taxes on income under the Code. (dd) "Virginia Power" means Virginia Electric and Power Company. (ee) "Virginia Power Board" means the Board of Directors of Virginia Power. (ff) "Virginia Power Committee" means the Organization and Compensation Committee of the Virginia Power Board, provided that, if any member of the Organization and Compensation Committee does not qualify as both an outside director for purposes of Code section 162(m) and a non-employee director for purposes of Rule 16b-3, the remaining members of the committee (but not be less than two members) shall be constituted as a subcommittee of the Organization and Compensation Committee to act as the Virginia Power Committee for purposes of the Plan. (gg) "Virginia Power Participant" means any employee of Virginia Power or an Affiliate who receives an Incentive Award under the Plan. 3. General. The following types of Incentive Awards may be granted under the Plan: Performance Grants, Restricted Stock, Goal-Based Stock, Options, or Stock Appreciation Rights. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options. 4. Stock. Subject to Section 15 of the Plan, there shall be reserved for issuance under the Plan an aggregate of three million (3,000,000) shares of Company Stock, which shall be authorized, but unissued shares. Shares allocable to Options, Restricted Stock or portions thereof granted under the Plan that expire, are forfeited, or otherwise terminate unexercised may again be subjected to an Incentive Award under the Plan. The DRI Committee or Virginia Power Committee is expressly authorized to make an Incentive Award to a Participant conditioned upon the surrender for cancellation of an option granted under an existing Incentive Award. However, without prior shareholder approval, the Committees are expressly prohibited from making a new Incentive Award in the form of an Option if the exercise price of the new Option is less than the exercise price of the Option under the existing Incentive Award surrendered for cancellation. No more than two hundred thousand (200,000) shares may be allocated to the Incentive Awards, including the maximum amounts payable under a Performance Grant, that are granted to any individual Participant during any single Taxable Year. 5. Eligibility. (a) All present and future employees of DRI or a Dominion Company (whether now existing or hereafter created or acquired) whom the DRI Committee determines to have contributed or who can be expected to contribute significantly to DRI or a Dominion Company shall be eligible to receive Incentive Awards under the Plan. All present and future employees of Virginia Power or an Affiliate (whether now existing or hereafter created or acquired) whom the Virginia Power Committee determines to have contributed or who can be expected to contribute significantly to Virginia Power or an Affiliate shall be eligible to receive Incentive Awards under the Plan. The Committees shall have the power and complete discretion, as provided in Section 16, to select eligible employees to receive Incentive Awards and to determine for each employee the nature of the award and the terms and conditions of each Incentive Award. (b) The grant of an Incentive Award shall not obligate an Employer to pay an employee any particular amount of remuneration, to continue the employment of the employee after the grant or to make further grants to the employee at any time thereafter. 6. Performance Grants. (a) Each Performance Grant shall be evidenced by an agreement (a "Grant Agreement") setting forth the Performance Goals for the award, including the Performance Criteria, the target and maximum amounts payable and such other terms and conditions as are applicable to the Performance Grant. Each Performance Grant shall be granted and administered to comply with the requirements of Code section 162(m). The aggregate maximum cash amount payable under the Plan to any Participant in any Plan Year shall not exceed 0.5% of DRI's consolidated operating income, before taxes and interest, as reported on its annual financial statements for the prior Plan Year. In the event of any conflict between a Grant Agreement and the Plan, the terms of the Plan shall govern. (b) The DRI Committee shall establish the Performance Goals for Performance Grants to DRI Participants. The Virginia Power Committee shall establish the Performance Goals for Performance Grants to Virginia Power Participants. The appropriate Committee shall determine the extent to which any Performance Criteria shall be used and weighted in determining Performance Grants. The Committee may vary the Performance Criteria, Performance Goals and weightings from Participant to Participant, Performance Grant to Performance Grant and Plan Year to Plan Year. The Committee may increase, but not decrease, any Performance Goal during a Plan Year. (c) The appropriate Committee shall establish for each Performance Grant the amount of cash or Company Stock payable at specified levels of performance, based on the Performance Goal for each Performance Criteria. Any Performance Grant shall be made not later than 90 days after the start of the period for which the Performance Grant relates and shall be made prior to the completion of 25% of such period. All determinations regarding the achievement of any Performance Goals will be made by the appropriate Committee. A Committee may not increase during a Plan Year the amount of cash or Common Stock that would otherwise be payable upon achievement of the Performance Goal or Goals but may reduce or eliminate the payments as provided in a Performance Grant. (d) The actual payments to a Participant under a Performance Grant will be calculated by applying the achievement of a Performance Criteria to the Performance Goal as established in the Grant Agreement. All calculations of actual payments shall be made by the appropriate Committee and the DRI Committee shall certify in writing the extent, if any, to which the Performance Goals have been met. (e) Performance Grants will be paid in cash, Company Stock or both, at such time or times as are provided in the Grant Agreement. The appropriate Committee may provide in the Grant Agreement that the Participant may make a prior election to defer the payment under a Performance Grant subject to such terms and conditions as the Committee may determine. (f) Nothing contained in the Plan will be deemed in any way to limit or restrict any Employer or either Committee from making any award or payment to any person under any other plan, arrangement or understanding, whether now existing or hereafter in effect. (g) A Participant who receives a Performance Grant payable in Company Stock shall have no rights as a shareholder until the Company Stock is issued pursuant to the terms of the Performance Grant. The Company Stock may be issued without cash consideration. (h) A Participant's interest in a Performance Grant may not be sold, assigned, transferred, pledged, hypothecated, or otherwise encumbered. (i) Whenever payments under a Performance Grant are to be made in cash, the Employer will withhold therefrom an amount sufficient to satisfy any Applicable Withholding Taxes. Each Participant shall agree as a condition of receiving a Performance Grant payable in the form of Company Stock, to pay to the Employer, or make arrangements satisfactory to the Employer regarding the payment to the Employer of, Applicable Withholding Taxes. Until such amount has been paid or arrangements satisfactory to the Employer have been made, no stock certificate shall be issued to such Participant. As an alternative to making a cash payment to the Employer to satisfy Applicable Withholding Taxes, if the Grant Agreement so provides, the Participant may elect to (i) to deliver Mature Shares (valued at their Fair Market Value) or (ii) to have the Employer retain that number of shares of Company Stock (valued at their Fair Market Value) that would satisfy all or a specified portion of the Applicable Withholding Taxes. 7. Restricted Stock Awards. (a) The DRI Committee may make grants of Restricted Stock to DRI Participants. The Virginia Power Committee may make grants of Restricted Stock to Virginia Power Participants. Whenever a Committee deems it appropriate to grant Restricted Stock, notice shall be given to the Participant stating the number of shares of Restricted Stock granted and the terms and conditions to which the Restricted Stock is subject. This notice, when accepted in writing by the Participant shall become an Grant Agreement between the Employer and the Participant. Restricted Stock may be awarded by a Committee in its discretion without cash consideration. (b) No shares of Restricted Stock may be sold, assigned, transferred, pledged, hypothecated, or otherwise encumbered or disposed of until the restrictions on such shares as set forth in the Participant's Grant Agreement have lapsed or been removed pursuant to paragraph (d) or (e) below. (c) Upon the acceptance by a Participant of an award of Restricted Stock, such Participant shall, subject to the restrictions set forth in paragraph (b) above, have all the rights of a shareholder with respect to such shares of Restricted Stock, including, but not limited to, the right to vote such shares of Restricted Stock and the right to receive all dividends and other distributions paid thereon. Certificates representing Restricted Stock shall be held by DRI until the restrictions lapse and the Participant shall provide DRI with appropriate stock powers endorsed in blank. (d) The appropriate Committee shall establish as to each award of Restricted Stock the terms and conditions upon which the restrictions set forth in paragraph (b) above shall lapse. The terms and conditions may include the achievement of a Performance Goal which shall be governed by the provisions of Section 6 to the extent that the award is intended to comply with the requirements of Code section 162(m). Such terms and conditions may also include, without limitation, the lapsing of such restrictions as a result of the Disability, death or retirement of the Participant or the occurrence of a Change of Control. (e) Notwithstanding the provisions of paragraph (b) above, the appropriate Committee may at any time, in its sole discretion, accelerate the time at which any or all restrictions will lapse or remove any and all such restrictions, subject to the restrictions of Section 6 as to any Performance Goal if the award is intended to comply with the requirements of Code section 162(m). (f) Each Participant shall agree at the time his or her Restricted Stock is granted, and as a condition thereof, to pay to the Employer, or make arrangements satisfactory to the Employer regarding the payment to the Employer of, Applicable Withholding Taxes. Until such amount has been paid or arrangements satisfactory to the Employer have been made, no stock certificate free of a legend reflecting the restrictions set forth in paragraph (b) above shall be issued to such Participant. As an alternative to making a cash payment to the Employer to satisfy Applicable Withholding Taxes, if the grant so provides, the Participant may elect to (i) to deliver Mature Shares (valued at their Fair Market Value) or (ii) to have the Employer retain that number of shares of Company Stock (valued at their Fair Market Value) that would satisfy all or a specified portion of the Applicable Withholding Taxes. 8. Goal-Based Stock Awards. (a) The DRI Committee may make grants of Goal-Based Stock to DRI Participants. The Virginia Power Committee may make grants of Goal-Based Stock to Virginia Power Participants. Whenever a Committee deems it appropriate to grant Goal-Based Stock, notice shall be given to the Participant stating the number of shares of Goal-Based Stock granted and the terms and conditions to which the Goal-Based Stock is subject. This notice, when accepted in writing by the Participant shall become a grant agreement between the Employer and the Participant. (b) Goal-Based Stock may be issued pursuant to the Plan from time to time by a Committee when performance criteria established by the Committee have been achieved and certified by the Committee. (c) Whenever a Committee deems it appropriate, the Committee may establish a performance criteria for an award of Goal-Based Stock and notify Participants of their receipt of an award of Goal-Based Stock. More than one award of Goal-Based Stock may be established by the Committee for a Participant and the awards may operate concurrently or for varied periods of time. Goal-Based Stock will be issued only subject to the award and the Plan and consistent with meeting the goal or goals set by the Committee in the award. A Participant shall have no rights as a shareholder until the Committee has certified that the performance objectives of the Goal-Based Stock award have been met and the Goal-Based Stock is issued. Goal-Based Stock may be issued without cash consideration. (d) A Participant's interest in a Goal-Based Stock award may not be sold, assigned, transferred, pledged, hypothecated, or otherwise encumbered. (e) The appropriate Committee may at any time, in its sole discretion, remove or revise any and all performance criteria for an award of Goal-Based Stock. (f) Each Participant shall agree at the time of receiving an award of Goal- Based Stock, and as a condition thereof, to pay to the Employer, or make arrangements satisfactory to the Employer regarding the payment to the Employer of, Applicable Withholding Taxes. Until such amount has been paid or arrangements satisfactory to the Employer have been made, no stock certificate shall be issued to such Participant. As an alternative to making a cash payment to the Employer to satisfy Applicable Withholding Taxes, if the grant so provides, the Participant may elect to (i) to deliver Mature Shares (valued at their Fair Market Value) or (ii) to have the Employer retain that number of shares of Company Stock (valued at their Fair Market Value) that would satisfy all or a specified portion of the Applicable Withholding Taxes. 9. Stock Options. (a) The DRI Committee may make grants of Options to DRI Participants. The Virginia Power Committee may make grants of Options to Virginia Power Participants. Whenever a Committee deems it appropriate to grant Options, notice shall be given to the Participant stating the number of shares for which Options are granted, the Option price per share, whether the Options are Incentive Stock Options or Nonstatutory Stock Options, the extent to which Stock Appreciation Rights are granted (as provided in Section 10), and the conditions to which the grant and exercise of the Options are subject. This notice, when duly accepted in writing by the Participant, shall become a stock option agreement. (b) The exercise price of shares of Company Stock covered by an Option shall be not less than 100% of the Fair Market Value of such shares on the Date of Grant. (c) Options may be exercised in whole or in part at such times as may be specified by the Committee in the Participant's stock option agreement; provided that, the exercise provisions for Incentive Stock Options shall in all events not be more liberal than the following provisions: (i) No Incentive Stock Option may be exercised after the first to occur of (x) ten years from the Date of Grant, (y) three months following the date of the Participant's retirement or termination of employment with all Employers for reasons other than Disability or death, or (z) one year following the date of the Participant's termination of employment on account of Disability or death. (ii) An Incentive Stock Option by its terms, shall be exercisable in any calendar year only to the extent that the aggregate Fair Market Value (determined at the Date of Grant) of the Company Stock with respect to which Incentive Stock Options are exercisable for the first time during the calendar year does not exceed $100,000 (the "Limitation Amount"). Incentive Stock Options granted under the Plan and all other plans of any Employer shall be aggregated for purposes of determining whether the Limitation Amount has been exceeded. The Committee granting the Option may impose such conditions as it deems appropriate on an Incentive Stock Option to ensure that the foregoing requirement is met. If Incentive Stock Options that first become exercisable in a calendar year exceed the Limitation Amount, the excess Options will be treated as Nonstatutory Stock Options to the extent permitted by law. 10. Stock Appreciation Rights. (a) Whenever the DRI Committee deems it appropriate, Stock Appreciation Rights may be granted in connection with all or any part of an Option to a DRI Participant or in a separate Incentive Award. Whenever the Virginia Power Committee deems it appropriate, Stock Appreciation Rights may be granted in connection with all or any part of an Option to a Virginia Power Participant or in a separate Incentive Award. (b) The following provisions apply to all Stock Appreciation Rights that are granted in connection with Options: (i) Stock Appreciation Rights shall entitle the Participant, upon exercise of all or any part of the Stock Appreciation Rights, to surrender to the Employer unexercised that portion of the underlying Option relating to the same number of shares of Company Stock as is covered by the Stock Appreciation Rights (or the portion of the Stock Appreciation Rights so exercised) and to receive in exchange from the Employer an amount equal to the excess of (x) the Fair Market Value on the date of exercise of the Company Stock covered by the surrendered portion of the underlying Option over (y) the exercise price of the Company Stock covered by the surrendered portion of the underlying Option. The appropriate Committee may limit the amount that the Participant will be entitled to receive upon exercise of Stock Appreciation Rights. (ii) Upon the exercise of a Stock Appreciation Right and surrender of the related portion of the underlying Option, the Option, to the extent surrendered, shall not thereafter be exercisable. (iii) Subject to any further conditions upon exercise imposed by the Board, a Stock Appreciation Right shall be exercisable only to the extent that the related Option is exercisable and a Stock Appreciation Right shall expire no later than the date on which the related Option expires. (iv) A Stock Appreciation Right may only be exercised at a time when the Fair Market Value of the Company Stock covered by the Stock Appreciation Right exceeds the exercise price of the Company Stock covered by the underlying Option. (c) The following provisions apply to all Stock Appreciation Rights that are not granted in connection with Options: (i) Stock Appreciation Rights shall entitle the Participant, upon exercise of all or any part of the Stock Appreciation Rights, to receive in exchange from the Employer an amount equal to the excess of (x) the Fair Market Value on the date of exercise of the Company Stock covered by the surrendered Stock Appreciation Right over (y) the price of the Company Stock on the Date of Grant of the Stock Appreciation Right. The appropriate Committee may limit the amount that the Participant will be entitled to receive upon exercise of Stock Appreciation Rights. (ii) A Stock Appreciation Right may only be exercised at a time when the Fair Market Value of the Company Stock covered by the Stock Appreciation Right exceeds the Fair Market Value of the Company Stock on the Date of Grant of the Stock Appreciation Right. (d) The manner in which the Employer's obligation arising upon the exercise of a Stock Appreciation Right shall be paid shall be determined by the appropriate Committee and shall be set forth in the Incentive Award. The Incentive Award may provide for payment in Company Stock or cash, or a fixed combination of Company Stock or cash, or the appropriate Committee may reserve the right to determine the manner of payment at the time the Stock Appreciation Right is exercised. Shares of Company Stock issued upon the exercise of a Stock Appreciation Right shall be valued at their Fair Market Value on the date of exercise. 11. Method of Exercise of Options and Stock Appreciation Rights. (a) Options and Stock Appreciation Rights may be exercised by the Participant giving written notice of the exercise to the Employer, stating the number of shares the Participant has elected to purchase under the Option or the number of Stock Appreciation Rights the Participant has elected to exercise. In the case of the purchase of shares under an Option, such notice shall be effective only if accompanied by the exercise price in full in cash; provided, however, that if the terms of an Option so permit, the Participant may (i) deliver Mature Shares (valued at their Fair Market Value) in satisfaction of all or any part of the exercise price, (ii) cause to be withheld from the Option shares, shares of Company Stock (valued at their Fair Market Value) in satisfaction of all or any part of the exercise price, or (iii) deliver a properly executed exercise notice together with irrevocable instructions to a broker to deliver promptly to the Employer, from the sale or loan proceeds with respect to the sale of Company Stock or a loan secured by Company Stock, the amount necessary to pay the exercise price and, if required by the terms of the Option, Applicable Withholding Taxes. (b) DRI may place on any certificate representing Company Stock issued upon the exercise of an Option or a Stock Appreciation Right any legend deemed desirable by the DRI's counsel to comply with federal or state securities laws, and DRI may require a customary written indication of the Participant's investment intent. Until the Participant has made any required payment, including any Applicable Withholding Taxes, and has had issued a certificate for the shares of Company Stock acquired, he or she shall possess no shareholder rights with respect to the shares. (c) Each Participant shall agree as a condition of the exercise of an Option or a Stock Appreciation Right, to pay to the Employer, or make arrangements satisfactory to the Employer regarding the payment to the Employer of, Applicable Withholding Taxes. Until such amount has been paid or arrangements satisfactory to the Employer have been made, no stock certificate shall be issued upon the exercise of an Option or cash paid upon the exercise of a Stock Appreciation Right. (d) As an alternative to making a cash payment to the Employer to satisfy Applicable Withholding Taxes, if the Option or Stock Appreciation Rights agreement so provides, the Participant may elect to (i) to deliver Mature Shares (valued at their Fair Market Value) or (ii) to have the Employer retain that number of shares of Company Stock (valued at their Fair Market Value) that would satisfy all or a specified portion of the Applicable Withholding Taxes. 12. Transferability of Options and Stock Appreciation Rights. Nonstatutory Stock Options and Stock Appreciation Rights may be transferable by a Participant and exercisable by a person other than the Participant, but only to the extent specifically provided in the Incentive Award. Incentive Stock Options, by their terms, shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable, during the Participant's lifetime, only by the Participant. 13. Effective Date of the Plan. The effective date of the Plan is January 1, 1997. The Plan shall be submitted to the shareholders of the DRI for approval. Until (i) the Plan has been approved by DRI's shareholders, and (ii) the requirements of any applicable Federal or State securities laws have been met, no Restricted Stock or Goal-Based Stock shall be awarded that is not contingent on these events and no Option or Stock Appreciation Right granted shall be exercisable. 14. Termination, Modification, Change. If not sooner terminated by the DRI Board, this Plan shall terminate at the close of business on December 31, 2006. No Incentive Awards shall be made under the Plan after its termination. The DRI Board may amend or terminate the Plan with respect to DRI Participants in such respects as it shall deem advisable and the Virginia Power Board may amend or terminate the Plan with respect to Virginia Power Participants in such respects as it shall deem advisable; provided that, if and to the extent required by the Code, no change shall be made that increases the total number of shares of Company Stock reserved for issuance pursuant to Incentive Awards granted under the Plan (except pursuant to Section 15), materially modifies the requirements as to eligibility for participation in the Plan, or materially increases the benefits accruing to Participants under the Plan, unless such change is authorized by the shareholders of DRI. Notwithstanding the foregoing, the DRI Board may unilaterally amend the Plan and Incentive Awards with respect to DRI Participants as it deems appropriate to ensure compliance with Rule 16b-3 and to cause Incentive Stock Options to meet the requirements of the Code and regulations thereunder. Notwithstanding the foregoing, the Virginia Power Board may unilaterally amend the Plan and Incentive Awards with respect to Virginia Power Participants as it deems appropriate to ensure compliance with Rule 16b-3 and to cause Incentive Stock Options to meet the requirements of the Code and regulations thereunder. Except as provided in the preceding two sentences, a termination or amendment of the Plan shall not, without the consent of the Participant, adversely affect a Participant's rights under an Incentive Award previously granted to him or her. 15. Change in Capital Structure. (a) In the event of a stock dividend, stock split or combination of shares, recapitalization or merger in which DRI is the surviving corporation or other change in DRI's capital stock (including, but not limited to, the creation or issuance to shareholders generally of rights, options or warrants for the purchase of common stock or preferred stock of DRI), the number and kind of shares of stock or securities of DRI to be subject to the Plan and to Options then outstanding or to be granted thereunder, the maximum number of shares or securities which may be delivered under the Plan, the maximum number of shares or securities that can be granted to an individual Participant under Section 4, the exercise price, the terms of Incentive Awards and other relevant provisions shall be appropriately adjusted by either the Virginia Power Committee with respect to Virginia Power Participants or by the DRI Committee with respect to DRI Participants, whose determination shall be binding on all persons. If the adjustment would produce fractional shares with respect to any unexercised Option, either the Virginia Power Committee with respect to Virginia Power Participants or the DRI Committee with respect to DRI Participants may adjust appropriately the number of shares covered by the Option so as to eliminate the fractional shares. (b) If DRI is a party to a consolidation or a merger in which DRI is not the surviving corporation, a transaction that results in the acquisition of substantially all of DRI's outstanding stock by a single person or entity, or a sale or transfer of substantially all of DRI's assets, the DRI Committee may take such actions with respect to outstanding Incentive Awards as the DRI Committee deems appropriate. (c) Notwithstanding anything in the Plan to the contrary, either the Virginia Power Committee or the DRI Committee may take the foregoing actions without the consent of any Participant, and either the Virginia Power Committee or the DRI Committee's determination shall be conclusive and binding on all persons for all purposes. 16. Administration of the Plan. (a) Subject to the provisions of Section 16(b), the Plan shall be administered by the DRI Committee as to DRI Participants and by the Virginia Power Committee as to Virginia Power Participants. Any reference in the Plan to a Committee shall be deemed to refer to the DRI Committee with respect to DRI Participants and to the Virginia Power Committee with respect to Virginia Power Participants. The Committees shall have general authority to impose any limitation or condition upon an Incentive Award the Committees deem appropriate to achieve the objectives of the Incentive Award and the Plan and, without limitation and in addition to powers set forth elsewhere in the Plan, shall have the power and complete discretion to determine: (i) which eligible employees shall receive Incentive Awards and the nature of each Incentive Award, (ii) the terms and conditions of any Performance Grant, (iii) whether all or any part of an Incentive Award shall be accelerated upon a Change of Control, (iv) the number of shares of Company Stock to be covered by each Incentive Award, (v) whether Options shall be Incentive Stock Options or Nonstatutory Stock Options, (vi) when, whether and to what extent Stock Appreciation Rights shall be granted, (vii) the time or times when an Incentive Award shall be granted, (viii) whether an Incentive Award shall become vested over a period of time and when it shall be fully vested, (ix) when Options and Stock Appreciation Rights may be exercised, (x) whether a Disability exists, (xi) the manner in which payment will be made upon the exercise of Options or Stock Appreciation Rights, (xii) conditions relating to the length of time before disposition of Company Stock received upon the exercise of Options or Stock Appreciation Rights is permitted, (xiii) whether to authorize a Participant (A) to deliver Mature Shares to satisfy Applicable Withholding Taxes or (B) to have the Employer withhold from the shares to be issued upon the exercise of a Nonstatutory Stock Option or Stock Appreciation Right the number of shares necessary to satisfy Applicable Withholding Taxes, (xiv) the terms and conditions applicable to Restricted Stock awards, (xv) the terms and conditions on which restrictions upon Restricted Stock shall lapse, (xvi) whether to accelerate the time at which any or all restrictions with respect to Restricted Stock will lapse or be removed, (xvii) the terms and conditions applicable to Goal-Based Stock awards, (xviii) notice provisions relating to the sale of Company Stock acquired under the Plan, (xix) the extent to which information shall be provided to Participants about available tax elections, and (xx) any additional requirements relating to Incentive Awards that the Committee deems appropriate. Notwithstanding the foregoing, no "tandem stock options" (where two stock options are issued together and the exercise of one option affects the right to exercise the other option) may be issued in connection with Incentive Stock Options. Each Committee shall have the power to amend the terms of previously granted Incentive Awards that were granted by that Committee so long as the terms as amended are consistent with the terms of the Plan and provided that the consent of the Participant is obtained with respect to any amendment that would be detrimental to him or her, except that such consent will not be required if such amendment is for the purpose of complying with Rule 16b-3 or any requirement of the Code applicable to the Incentive Award. (b) Not withstanding anything in the Plan to the contrary, all grants of Incentive Awards and the terms and conditions of such Incentive Awards, and any adjustments due to a change in capital structure as set forth in Section 15 by the Virginia Power Committee shall be subject to the review and approval of the DRI Committee and no such Incentive Awards shall become effective without the approval of the DRI Committee. All grants of Incentive Awards made or approved by the DRI Committee shall be submitted to the DRI Board for such consideration as the DRI Board deems appropriate. (c) The DRI Committee may adopt rules and regulations for carrying out the Plan with respect to DRI Participants. The interpretation and construction of any provision of the Plan by the DRI Committee shall be final and conclusive as to any DRI Participant. The Virginia Power Committee may adopt rules and regulations for carrying out the Plan with respect to Virginia Power Participants. The interpretation and construction of any provision of the Plan by the Virginia Power Committee shall be final and conclusive as to any Virginia Power Participant. A Committee may consult with counsel, who may be counsel to the Employer, and shall not incur any liability for any action taken in good faith in reliance upon the advice of counsel. (d) A majority of the members of a Committee shall constitute a quorum, and all actions of a Committee shall be taken by a majority of the members present. Any action may be taken by a written instrument signed by all of the members, and any action so taken shall be fully effective as if it had been taken at a meeting. 17. Notice. All notices and other communications required or permitted to be given under this Plan shall be in writing and shall be deemed to have been duly given if delivered personally or mailed first class, postage prepaid, as follows (a) if to DRI at the principal business address of DRI to the attention of the Corporate Secretary of DRI; (b) if to Virginia Power at the principal business address of Virginia Power to the attention of the Corporate Secretary of Virginia Power; and if to any Participant at the last address of the Participant known to the sender at the time the notice or other communication is sent. 18. Interpretation. The terms of this Plan are subject to all present and future regulations and rulings of the Secretary of the Treasury of the United States or his or her delegate relating to the qualification of Incentive Stock Options under the Code. If any provision of the Plan conflicts with any such regulation or ruling, then that provision of the Plan shall be void and of no effect. The terms of this Plan shall be governed by the laws of the Commonwealth of Virginia. EX-23 8 EXHIBIT 23.1 Exhibit 23.1 Hunton & Williams 951 East Byrd Street Richmond, Virginia 23219-4074 March 20, 1998 Virginia Electric and Power Company Richmond, Virginia 23261 Virginia Electric and Power Company Form 10-K Gentlemen: We consent to the incorporation by reference into the Registration Statements of Virginia Electric and and Power Company on Form S-3 (File Nos. 33-50425, 33-59581, 33-60271, 333- 20561, and 333-47119) of the statements, included in this Annual Report on Form 10-K, made in regard to our firm that relate to franchises, title to properties, and limitations upon the issuance of bonds and preferred stocks. Sincrely, /s/ Hunton & Williams HUNTON & WILLIAMS EX-23 9 EXHIBIT 23.2 Exhibit 23.2 Jackson & Kelly 1600 Laidley Tower Charleston, West Virginia 25322 March 20, 1998 Virginia Electric and Power Company Richmond, Virginia 23261 Re: Virginia Electric and Power Company Form 10-K Gentlemen: We consent to the incorporation by reference into the registration statements of Virginia Electric and Power Company on Form S-3 (File No. 33-59581, File No. 33- 60271 and File No. 333-47119) of the statements, included in this Annual Report on Form 10-K, made in regard to our firm that are governed by the laws of West Virginia and that relate to franchises, title to properties, limitations upon the issuance of bonds and preferred stock, rate and other regulatory matters, and litigation. Sincerely yours, /s/ Jackson & Kelly JACKSON & KELLY EX-23 10 EXHIBIT 23.3 Exhibit 23.3 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference of our report dated February 9, 1998, appearing in the Annual Report on Form 10-K of Virginia Electric and Power Company for the year ended December 31, 1997, in the following Registration Statements: S-3 33-50425 S-3 33-59581 S-3 33-60271 S-3 333-20561 S-3 33-50423 S-3 333-47119 DELOITTE & TOUCHE LLP Richmond, Virginia March 18, 1998 EX-27 11 EXHIBIT 27
UT YEAR DEC-31-1997 DEC-31-1997 PER-BOOK 9,219 607 1,199 928 0 11,953 2,737 17 1,362 4,116 180 509 3,515 0 0 226 334 0 25 5 3,043 11,953 5,079 249 4,060 4,309 770 14 784 315 469 36 433 380 0 1,091 0 0
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