-----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, O3hOGO0vJozN57g/hRigXllphCLmpVexOmSfaArbmowOxzXFNFzk1lToVYTdt/Ar Womqk9uqk48cuE9fOUJ3qQ== 0000916641-98-000605.txt : 19980515 0000916641-98-000605.hdr.sgml : 19980515 ACCESSION NUMBER: 0000916641-98-000605 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: VIRGINIA ELECTRIC & POWER CO CENTRAL INDEX KEY: 0000103682 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 540418825 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-02255 FILM NUMBER: 98621209 BUSINESS ADDRESS: STREET 1: ONE JAMES RIVER PLAZA CITY: RICHMOND STATE: VA ZIP: 23219-3932 BUSINESS PHONE: 8047713000 10-Q 1 FIRST QUARTER REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------- FORM 10-Q -------------- (Mark one) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE ----- SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-2255 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 Richmond, Virginia 23219 - 3932 (Address of principal executive offices) (Zip Code) (804) 771-3000 (Registrant's telephone number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ At April 30, 1998, 171,484 shares of common stock, without par value, of the registrant were outstanding. VIRGINIA ELECTRIC AND POWER COMPANY INDEX Page Number ------ PART I. Financial Information Item 1. Consolidated Financial Statements Consolidated Statements of Income - Three Months Ended March 31, 1998 and 1997 3 Consolidated Balance Sheets - March 31, 1998 and December 31, 1997 4-5 Consolidated Statements of Cash Flows - Three Months Ended March 31, 1998 and 1997 6 Notes to Consolidated Financial Statements 7-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11-16 Item 3. Quantitative and Qualitative Disclosures About Market Risk 16 PART II. Other Information Item 4. Submission of Matters to a Vote of Security Holders 17 Item 5. Other Information 17 Regulation 17 Rates 18 Interconnections 18 Item 6. Exhibits and Reports on Form 8-K 19 VIRGINIA ELECTRIC AND POWER COMPANY PART I. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended March 31, 1998 1997 ----------- -------- (Millions) Revenues: Electric service $1,021.4 $1,046.3 Other 414.0 128.5 -------- -------- 1,435.4 1,174.8 ------- -------- Expenses: Fuel, net 609.5 329.5 Purchased power capacity, net 180.8 184.4 Operations and maintenance 188.1 200.8 Depreciation and amortization 139.9 131.7 Amortization of terminated construction project costs 8.6 8.6 Taxes other than income 69.6 71.2 ------- -------- Total 1,196.5 926.2 ------- -------- Income from operations 238.9 248.6 Other income (4.7) 2.0 -------- -------- Income before interest and income taxes 234.2 250.6 ------- -------- Interest and related charges: Interest expense, net 75.3 77.5 Distributions - preferred securities of subsidiary trust 2.7 2.7 -------- -------- Total 78.0 80.2 -------- -------- Income before income taxes 156.2 170.4 Income taxes 57.6 60.1 -------- -------- Net income 98.6 110.3 Preferred dividends 8.9 8.8 ------- -------- Balance available for Common Stock $ 89.7 $ 101.5 ======= ======== The accompanying notes are an integral part of the financial statements. VIRGINIA ELECTRIC AND POWER COMPANY CONSOLIDATED BALANCE SHEETS Assets (Unaudited) March 31, December 31, 1998 1997 --------- --------- (Millions) (*) CURRENT ASSETS: Cash and cash equivalents $ 83.3 $ 36.0 Accounts receivable: Customer accounts receivable, net 431.1 462.4 Other 75.8 108.0 Accrued unbilled revenues 214.8 245.2 Materials and supplies: Plant and general 148.3 145.2 Fossil fuel 56.7 67.4 Other 128.0 134.7 --------- --------- Total current assets 1,138.0 1,198.9 --------- --------- INVESTMENTS: Nuclear decommissioning trust funds 632.9 569.1 Other 40.9 38.3 --------- --------- Total net investments 673.8 607.4 --------- --------- DEFERRED DEBITS AND OTHER ASSETS: Regulatory assets: Deferred capacity expenses 69.5 47.3 Other 713.3 729.3 Unamortized debt issuance costs 23.6 24.2 Other 143.7 127.1 --------- --------- Total deferred debits and other assets 950.1 927.9 --------- --------- UTILITY PLANT: Plant (includes $257.3 plant under construction in 1998 and $240.9 in 1997) 14,856.5 14,794.2 Less accumulated depreciation 5,893.4 5,724.3 --------- --------- 8,963.1 9,069.9 Nuclear fuel, net 150.3 149.3 --------- --------- Net utility plant 9,113.4 9,219.2 --------- --------- Total assets $11,875.3 $11,953.4 ========= ========= The accompanying notes are an integral part of the consolidated financial statements. (*) The consolidated balance sheet at December 31, 1997 has been derived from the audited consolidated financial statements at that date. VIRGINIA ELECTRIC AND POWER COMPANY CONSOLIDATED BALANCE SHEETS Liabilities and Stockholders' Equity (Unaudited) March 31, December 31, 1998 1997 --------- --------- (Millions) (*) CURRENT LIABILITIES: Securities due within one year $ 373.5 $ 333.5 Short-term debt 79.9 226.2 Accounts payable, trade 417.3 452.0 Customer deposits 45.8 44.6 Payrolls accrued 56.8 77.5 Interest accrued 86.3 95.1 Taxes accrued 95.9 30.5 Other 168.6 160.8 --------- --------- Total current liabilities 1,324.1 1,420.2 --------- --------- LONG-TERM DEBT 3,474.9 3,514.6 --------- --------- DEFERRED CREDITS AND OTHER LIABILITIES: Accumulated deferred income taxes 1,607.3 1,607.0 Deferred investment tax credits 234.1 238.4 Deferred fuel expenses 25.9 12.8 Other 279.0 220.3 --------- --------- Total deferred credits and other liabilities 2,146.3 2,078.5 --------- --------- COMMITMENTS AND CONTINGENCIES (See Note (b)) 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 2,737.4 2,737.4 Other paid-in capital 16.9 16.9 Earnings reinvested in business 1,351.7 1,361.8 --------- --------- Total common stockholder's equity 4,106.0 4,116.1 --------- --------- Total liabilities and shareholders' equity $11,875.3 $11,953.4 ========= ========= The accompanying notes are an integral part of the consolidated financial statements. (*) The consolidated balance sheet at December 31, 1997 has been derived from the audited consolidated financial statements at that date. (**) As described in Note (c) to CONSOLIDATED FINANCIAL STATEMENTS, the 8.05% Junior Subordinated Notes totaling $139.2 million principal amount constitute 100% of the Trust's assets. VIRGINIA ELECTRIC AND POWER COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31, 1998 1997 ----------- -------- (Millions) Cash flow from (to) operating activities: Net income $ 98.6 $ 110.3 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 168.4 159.5 Allowance for other funds used during construction 0.3 0.4 Deferred income taxes 5.5 13.5 Deferred investment tax credits, net (4.2) (4.2) Noncash return on terminated construction project costs - pretax (0.7) (1.3) Deferred fuel expenses 13.1 8.3 Deferred capacity expenses (22.2) (15.8) Changes in: Accounts receivable 63.4 (3.9) Accrued unbilled revenues 30.4 25.9 Materials and supplies 7.6 11.7 Accounts payable, trade (34.7) (60.4) Accrued expenses 54.1 54.3 Other 45.8 16.4 --------- --------- Net cash flow from operating activities 425.4 314.7 --------- --------- Cash flow from (to) financing activities: Issuance of long-term debt 200.0 Repayment of short-term debt (146.3) (8.6) Repayment of long-term debt (299.3) Common Stock dividend payments (99.7) (95.8) Preferred stock dividend payments (8.8) (8.8) Distribution-preferred securities of subsidiary trust (2.7) (2.7) Other 2.4 (2.5) --------- --------- Net cash to financing activities (255.1) (217.7) --------- --------- Cash flow from (used in) investing activities: Utility plant expenditures (excluding AFC-other funds) (83.7) (73.9) Nuclear fuel (excluding AFC-other funds) (20.8) (18.8) Nuclear decommissioning contributions (21.6) (9.1) Purchase of assets (20.0) Other 3.1 1.3 --------- --------- Net cash flow used in investing activities (123.0) (120.5) --------- --------- Increase (Decrease) in cash and cash equivalents 47.3 (23.5) Cash and cash equivalents at beginning of period 36.0 47.9 --------- --------- Cash and cash equivalents at end of period $ 83.3 $ 24.4 ========= ========= Cash paid during the period for: Interest (reduced for the net cost of borrowed funds capitalized as AFC) $ 84.7 $ 78.7 Income taxes 5.3 0.8
The accompanying notes are an integral part of the consolidated financial statements. 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 transacts business under the name Virginia Power in Virginia and under the name North Carolina Power in North Carolina. It has retail customers (including governmental agencies) and wholesale customers such as rural electric cooperatives, power marketers and municipalities and serves more than 80 percent of Virginia's population. The Company's wholesale power group engages in off-system wholesale purchases and sales of electricity and purchases and sales of natural gas beyond the geographic limits of Virginia Power's retail service territory. Virginia Power has developed a broad array of "non-traditional" product and service offerings from its operating business units and subsidiaries, including energy-related products and services, instrumentation equipment services, nuclear management and operations services, power distribution related services and telecommunications services through the Company's existing fiber-optic network. In the opinion of the management of Virginia Power, the accompanying unaudited consolidated financial statements contain all adjustments, including normal recurring accruals, necessary to present fairly the financial position as of March 31, 1998, the results of operations for the three-month periods ended March 31, 1998 and 1997, and the cash flows for the three-month periods ended March 31, 1998 and 1997. Certain amounts in the 1997 consolidated financial statements have been reclassified to conform to the 1998 presentation. The results of operations for the interim period are not necessarily indicative of the results to be expected for the full year. The consolidated financial statements include the accounts of the Company and its subsidiaries, with all significant intercompany transactions and accounts being eliminated on consolidation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These financial statements should be read in conjunction with the financial statements, and notes thereto, included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. VIRGINIA ELECTRIC AND POWER COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (b) Contingencies Nuclear 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 Company is a member of certain insurance programs that provide coverage for property damage to members' nuclear generating plants, replacement power and liability in the event of a nuclear incident. The Company may be subject to retrospective premiums in the event of major incidents at nuclear units owned by covered utilities (including the Company). For additional information, see Note C to CONSOLIDATED FINANCIAL STATEMENTS included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. Virginia Jurisdictional Rates 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 (AIF), 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 (ARP) in March 1997, based on 1996 financial information. Subsequently, the Commission consolidated the proceeding concerned with the AIF 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 AIF. On March 24, 1998, the Commission Staff filed its testimony in the consolidated ARP/AIF proceeding. The Staff recommended a rate reduction of $277 million and proposed an alternative ratemaking plan. The Staff proposed plan would allow Virginia Power to retain a portion of its earnings above an authorized return on equity in a reserve account for recovery of stranded costs when Virginia begins its transition to a competitive market. The Staff proposal retains the fuel factor as well as deferral accounting for capacity payments. Other opposing parties in the proceeding have made filings recommending rate reductions in excess of $200 million. Virginia Power's previous filings in this proceeding support maintaining rates at current levels. On April 30 1998 the Virginia Commission issued an order delaying filing of rebuttal testimony to May 18, 1998. Surrebuttal testimony is due June 12 1998, and the hearing is scheduled to begin on July 9, 1998. Virginia Power believes that it is extremely important to have a regulatory plan in place that addresses transition cost issues and other matters potentially impacting the Company's ability to prepare for a competitive market and is willing to negotiate with other parties to achieve that result. Virginia Power, the Staff of the Virginia Commission and the Virginia Attorney General are engaged in discussions exploring the potential for reaching an acceptable settlement in the Company's rate proceeding. At this time the Company is unable to predict whether or not a settlement will be reached. On May 12, 1998, the Staff of the Virginia Commission filed a Report and Motion with the Virginia Commission. In its filing, the Staff stated that the current status of discussions warrant continued efforts to attempt to reach agreement on significant issues in the proceeding and moved for an order extending the dates for filing of rebuttal testimony to May 26, 1998, for filing surrebuttal testimony to June 19, 1998, and for the scheduled public hearing to begin on July 10, 1998. Based on pre-filed testimony and settlement discussions to date, it appears that either a negotiated settlement or further litigation could result in some level of reduction in the Company's Virginia jurisdictional rates. At this time the Company is unable to predict the amount of such a reduction or its impact on the Company's results of operations, cash flows or financial position. VIRGINIA ELECTRIC AND POWER COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Site Remediation The Environmental Protection Agency (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 $61.8 million to $69.5 million. The Company's proportionate share of the cost is expected to be in the range of $1.7 million to $2.3 million, based upon allocation formulas and the volume of waste shipped to the sites. 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, Inc. 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 March 31, 1998, any pending or possible claims were not recognized as an asset or offset against recorded obligations of the Company. For additional information regarding Contingencies, see Note Q to CONSOLIDATED FINANCIAL STATEMENTS included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. (c) Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust In 1995, the Company established Virginia Power Capital Trust I (VP Capital Trust). VP Capital Trust sold 5,400,000 shares of Preferred Securities for $135.0 million, representing preferred beneficial interests and 97% beneficial ownership in the assets held by VP Capital Trust. Virginia Power issued $139.2 million of its 1995 Series A, 8.05% Junior Subordinated Notes (the Notes) in exchange for the $135.0 million realized from the sale of the Preferred Securities and $4.2 million of common securities of VP Capital Trust. The common securities represent the remaining 3% beneficial ownership interest in the assets held by VP Capital Trust. The Notes constitute 100% of VP Capital Trust's assets. (d) Preferred Stock As of March 31, 1998, there were 1,800,000 and 5,090,140 issued and outstanding shares of preferred stock subject to mandatory redemption and preferred stock not subject to mandatory redemption, respectively. There are a total of 10,000,000 authorized shares of the Company's preferred stock. VIRGINIA ELECTRIC AND POWER COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (e) Virginia Fuel Factor 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 generation 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. On April 16, 1998, the Virginia Commission completed its annual review of Virginia Power's fuel factor, providing an additional reduction to the Company's fuel recovery rate to become effective May 1, 1998. The new fuel factor of 1.050 cents per kWh represents an additional annual fuel factor revenue decrease of $19.2 million, bringing the total fuel factor revenue reduction to $113 million. On April 24, 1998, the Commission entered an Order Establishing Fuel Factor affirming the new fuel factor. (f) Recently Issued Accounting Standards During 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 130 "Reporting Comprehensive Income". This statement is effective for fiscal years beginning after December 15, 1997. For the three-month periods ended March 31, 1998 and 1997, the Company did not have any material items of other comprehensive income as defined in SFAS No. 130. VIRGINIA ELECTRIC AND POWER COMPANY ITEM 2. 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 the Federal Energy Regulatory Commission (FERC), the EPA, the Nuclear Regulatory Commission, the Virginia State Corporation Commission and the North Carolina Utilities 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 of purchased power, nuclear decommissioning costs, and present or prospective wholesale and retail competition. The business and profitability of Virginia Power are also 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 resulted in $110.7 million increased cash flow for the three-month period ended March 31, 1998 as compared to the same period in 1997. This increase was primarily attributable to trading activities of the Company's wholesale power group, offset in part by the impact of mild weather on our traditional retail electricity business. Internal generation of cash exceeded the Company's capital requirements during the first quarters of 1998 and 1997. Financing activities for the first three months of 1998 resulted in a net cash outflow of $255.1 million. Cash from (to) financing activities was as follows:
Three Months Ended March 31, 1998 1997 ---------- -------- (Millions) Issuance of long-term debt $ 200.0 Repayment of short-term debt $(146.3) (8.6) Repayment of long-term debt and preferred stock (299.3) Payment of dividends (108.5) (104.6) Other (0.3) (5.2) -------- -------- Total $(255.1) $(217.7) ======== ========
VIRGINIA ELECTRIC AND POWER COMPANY ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) We currently have three shelf registration statements effective with the Securities and Exchange Commission from which we can obtain additional debt capital. 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 $79.9 million at March 31, 1998. Investing activities for the first three months of 1998 resulted in a net cash outflow of $123 million primarily due to $83.7 million of construction expenditures, $20.8 million of nuclear fuel expenditures and approximately $21.6 million of contributions to nuclear decommissioning trusts. Of the construction expenditures, the Company spent approximately $54.8 million on transmission and distribution projects, $9.9 million on production projects and $19 million on general support facilities. Cash from (used in) investing activities was as follows:
Three Months Ended March 31, 1998 1997 ---------- -------- (Millions) Utility plant expenditures (excluding AFC-other funds) $ (83.7) $ (73.9) Nuclear fuel (excluding AFC-other funds) (20.8) (18.8) Nuclear decommissioning contributions (21.6) (9.1) Purchase of assets (20.0) Other 3.1 1.3 ------- ----- Net cash flow used in investing activities $(123.0) $(120.5) ======== ======== Results of Operations Revenue changed from the same period in the prior year primarily due to the following: Three Months Ended March 31, 1998 vs. 1997 (Millions) Revenue - Electric Service Customer growth $ 10.9 Weather (24.4) Base rate variance (4.1) Fuel rate variance (14.2) Other retail, net 22.4 ------ Total retail (9.4) Other electric service (15.5) Total electric service (24.9) Revenue - Other Wholesale - power marketing 134.5 Natural gas 150.9 Other, net 0.1 ------ Total revenue - other 285.5 Total revenue $260.6
VIRGINIA ELECTRIC AND POWER COMPANY ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) 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 the first three months of 1998 were customer growth, weather and fuel rates. Customer growth - There were 50,701 new customer connections in the twelve months ended March 31, 1998. These additional customers increased our revenue by $10.9 million in the first quarter of 1998 compared to the same period in 1997. Weather - The mild weather in the first quarter of 1998 caused customers to use less electricity for heating, which reduced retail revenue by $24.4 million from the previous year. Heating degree days were as follows:
1998 1997 Normal ---- ---- ------ Heating degree days 1,739 1,856 2,105 Percentage change compared to prior year (6.3)% (20.5)% Fuel rates - The decrease in fuel rate revenue is attributable to lower fuel rates which went into effect December 1, 1997 and an additional reduction effective March 1, 1998. These reductions decreased recovery of fuel costs by approximately $14.2 million in the first quarter of 1998. Customer kilowatt-hour sales changed as follows: Three Months Ended March 31, 1998 vs. 1997 ---------------------------- Residential (2.7)% Commercial 4.2 Industrial 4.6 Public authorities 2.8 Total retail sales 1.3 Wholesale - system (27.0) Wholesale - power marketing 171.8 Total sales 26.8
The overall increase in kilowatt-hour sales reflects the success of our wholesale power marketing efforts, offset in part by the impact of mild weather on residential sales. 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 for the three-month period ended March 31, 1998, as compared to the same period in 1997, is primarily due to our success at marketing electricity and natural gas beyond our service territory. Fuel, net increased as compared to the first quarter of 1997, primarily due to the cost of the power marketing and natural gas sales which reflects increased purchases of energy from other wholesale power suppliers and purchases of natural gas. VIRGINIA ELECTRIC AND POWER COMPANY ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Operations and maintenance decreased for the three-month period ended March 31, 1998, as compared to the same period in 1997, as a result of scheduled maintenance in 1997 at the Company's Surry Unit 1 nuclear power station and also due to reductions in expenses attributable to the Company's strategic initiatives. Contingencies For information on contingencies, see Note (b) to CONSOLIDATED FINANCIAL STATEMENTS. Future Issues Competition 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 was signed into law by Virginia's Governor in April 1998. The law, which becomes effective July 1, 1998, 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 o 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. 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 the timing or details of such a plan. For additional information, see Future Issues-Competition under MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. 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 (AIF), 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 (ARP) in March 1997, based on 1996 financial information. Subsequently, the Commission consolidated the proceeding concerned with the AIF 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 AIF. VIRGINIA ELECTRIC AND POWER COMPANY ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) On March 24, 1998, the Commission Staff filed its testimony in the consolidated ARP/AIF proceeding. The Staff recommended a rate reduction of $277 million and proposed an alternative ratemaking plan. The Staff proposed plan would allow Virginia Power to retain a portion of its earnings above an authorized return on equity in a reserve account for recovery of stranded costs when Virginia begins its transition to a competitive market. The Staff proposal retains the fuel factor as well as deferral accounting for capacity payments. Other opposing parties in the proceeding have made filings recommending rate reductions in excess of $200 million. Virginia Power's previous filings in this proceeding support maintaining rates at current levels. On April 30 1998 the Virginia Commission issued an order delaying filing of rebuttal testimony to May 18, 1998. Surrebuttal testimony is due June 12 1998, and the hearing is scheduled to begin on July 9, 1998. Virginia Power believes that it is extremely important to have a regulatory plan in place that addresses transition cost issues and other matters potentially impacting the Company's ability to prepare for a competitive market and is willing to negotiate with other parties to achieve that result. Virginia Power, the Staff of the Virginia Commission and the Virginia Attorney General are engaged in discussions exploring the potential for reaching an acceptable settlement in the Company's rate proceeding. At this time the Company is unable to predict whether or not a settlement will be reached. On May 12, 1998, the Staff of the Virginia Commission filed a Report and Motion with the Virginia Commission. In its filing, the Staff stated that the current status of discussions warrant continued efforts to attempt to reach agreement on significant issues in the proceeding and moved for an order extending the dates for filing of rebuttal testimony to May 26, 1998, for filing surrebuttal testimony to June 19, 1998, and for the scheduled public hearing to begin on July 10, 1998. Based on pre-filed testimony and settlement discussions to date, it appears that either a negotiated settlement or further litigation could result in some level of reduction in the Company's Virginia jurisdictional rates. At this time the Company is unable to predict the amount of such a reduction or its impact on the Company's results of operations, cash flows or financial position. Market Risk Sensitive Instruments and Risk Management Commodity Price Risk Virginia Power's wholesale power group is engaged in off-system wholesale purchases and sales of electricity and purchases and sales of natural gas; accordingly, it manages a portfolio of derivative commodity instruments held for trading purposes. These contracts are sensitive to changes in the prices of natural gas and electricity. The Company employs established policies and procedures to manage its risks associated with these price fluctuations and uses various commodity contracts, such as futures, swaps and options, to reduce risk by essentially creating offsetting market exposures. The fair value of the portfolio is a function of the underlying commodity, contract prices and market prices represented by each derivative commodity contract. For exchange-for-physical contracts, basis swaps, fixed price forward contracts and options which require physical delivery of the underlying commodity, market value reflects management's best estimates considering over-the-counter quotations, time value and volatility factors of the underlying commitments. Futures contracts and options on futures contracts are marked to market based on closing exchange prices. VIRGINIA ELECTRIC AND POWER COMPANY ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) At December 31, 1997, the fair value of such contracts was not material to the Company's financial position. During the first quarter of 1998, the number of contracts held for trading purposes has increased significantly. The estimated fair values of contract assets and contract liabilities at March 31, 1998, were as follows: (millions) Estimated fair value of contract assets $176.3 Estimated fair value of contract liabilities 173.8 ----- Estimated net fair value $ 2.5 ===== Management has determined that any potential near term losses in future earnings, fair values or cash flows, resulting from reasonably possible near term changes in market prices for such contracts are not anticipated to be material to the Company's results of operations, financial position or cash flows. Our evaluation of market risk does not include the price risks associated with utility operations and utility fuel requirements, since these costs are generally recovered through regulated cost of service, nor does it include risks that are either nonfinancial or nonquantifiable, such as credit risk. Equity Price Risk and Interest Rate Risk Virginia Power is exposed to fluctuations in interest rates related to debt securities and prices of marketable equity securities held in its Nuclear Decommissioning Trusts. In addition, the Company is exposed to interest rate risk through its use of fixed rate and variable rate debt and preferred securities as sources of capital. For additional information, see Market Risk Sensitive Instruments and Risk Management under MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See Market Risk Sensitive Instruments and Risk Management under MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. VIRGINIA ELECTRIC AND POWER COMPANY PART II. - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders (a) By consent in lieu of an Annual Meeting, Dominion Resources, Inc., the sole holder of all the voting Common Stock of the Company, on April 17, 1998, elected the following persons to serve as Directors of the Company for the a term expiring in 2001: John B. Adams, Jr. Norman Askew John W. Harris Benjamin J. Lambert, III Richard L. Leatherwood Frank S. Royal (b) The following incumbent Directors will continue on the Board with terms expiring in the year listed: Name Year Name Year ---- ---- ---- ---- Harvey L. Lindsay, Jr. 1999 Thos. E. Capps 2000 Kenneth A. Randall 1999 John B. Bernhardt 2000 William T. Roos 1999 James F. Betts 2000 Judith B. Sack 1999 Jean E. Clary 2000 William G. Thomas 1999 S. Dallas Simmons 2000 David A. Wollard 1999 Robert H. Spilman 2000 Item 5. Other Information Regulation Virginia On March 20, 1998 the Virginia Commission issued an Order Establishing Investigation with regard to independent system operators (ISOs), regional power exchanges (RPXs) and retail access pilot programs. The order directed all investor-owned electric utilities doing business in Virginia, in conjunction with the Commission Staff and other interested stakeholders, to begin work immediately to develop one or more ISOs and RPXs to serve the public interest in Virginia. The order also required those utilities to file a report with the Virginia Commission on or before April 15, 1998, concerning their previous and present activities, and future plans, concerning ISOs and RPXs. Subsequent monthly reports are also required. Virginia Power filed its initial report on April 15, 1998. The Commission's order further directed Virginia Power and AEP-Virginia, which together serve 85% of retail electric customers in Virginia, to begin work immediately, in conjunction with the Staff, to implement at least one retail access pilot program and study. Proposed pilot programs must be filed with the Virginia Commission by August 1, 1998. FERC LG&E Westmoreland Southampton (Southampton) owns a cogeneration facility in Franklin, Virginia, and sells output to Virginia Power. Southampton sought a waiver of FERC operating requirements for Qualifying Facilities (QF's) under PURPA for its 1992 operating year only; however, FERC refused to grant such a waiver. In 1996 Southampton sought rehearing and clarification, and initiated a separate rate proceeding seeking approval of the contract rates paid to it by the Company for 1992 only. On May 13, 1998, FERC denied the rehearing, granted the clarification and accepted Southampton's 1992 rates subject to a refund to the Company due to Southampton's failure to meet the QF operating requirements in 1992. VIRGINIA ELECTRIC AND POWER COMPANY PART II. - OTHER INFORMATION (Continued) Rates Virginia In reference to the consolidated Alternative Regulatory Plan (ARP) and the 1995 Annual Informational Filing (AIF) proceeding before the Virginia Commission, on March 24, 1998, the Commission Staff filed its testimony in the consolidated ARP/AIF proceeding. The Staff recommended a rate reduction of $277 million and proposed an alternative ratemaking plan. The plan proposed by the Staff would allow Virginia Power to retain a portion of its earnings above an authorized return on equity in a reserve account for recovery of stranded costs when Virginia begins its transition to a competitive market. The Staff proposal retains the fuel factor as well as deferral accounting for capacity payments. On April 30, 1998, the Virginia Commission issued an order delaying the filing of rebuttal testimony to May 18, 1998. Surrebuttal testimony is due on June 12, and the hearing is scheduled to begin on July 9, 1998. On May 12, 1998, the Staff of the Virginia Commission filed a Report and Motion with the Virginia Commission. In its filing, the Staff stated that the current status of discussions warrant continued efforts to attempt to reach agreement on significant issues in the proceeding and moved for an order extending the dates for filing of rebuttal testimony to May 26, 1998, for filing surrebuttal testimony to June 19, 1998, and for the scheduled public hearing to begin on July 10, 1998. In the proceeding before the Virginia Commission involving a decrease in Virginia Power's recovery of fuel expenses, on April 24, 1998, the Commission approved a decrease in the fuel factor from 1.322 cents per kWh to 1.050 cents per kWh effective May 1, 1998. For additional information, see Note (e) to the Consolidated Financial Statements. FERC In reference to the Standards of Conduct filed in compliance with FERC's Order No. 889-A, FERC issued an order directing the Company to file certain revisions to its Standards of Conduct. On March 16, 1998, the Company made the changes directed by the FERC order, and also sought rehearing on the order. On April 15, 1998 FERC granted rehearing for purposes of further consideration of the matters raised in rehearing. The Company is awaiting further FERC action on the Company's rehearing request. On March 27, 1998 the Company requested that FERC suspend the procedural schedule in the proceeding on market-based rates due to a settlement in principle reached by the participants in the proceeding. The Presiding Administrative Law Judge suspended the procedural schedule and directed the Company to file a formal Offer of Settlement by May 11, 1998. A formal Offer of Settlement was filed as directed, and the Company is awaiting further FERC action on the Offer of Settlement. Interconnections In reference to the Company's participation in the experimental test of principles developed by the General Agreement on Parallel Paths (GAPP), on March 3, 1998, the Company notified FERC that it had withdrawn from the GAPP Agreement and on March 31, 1998, FERC accepted the Company's notice. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 10.1* -- Employment Agreement dated March 16, 1998 between Virginia Power and John A. Shaw (filed herewith). 10.2* -- Dominion Resources, Inc. Directors' Stock Compensation Plan effective April 9, 1998 (filed herewith). 10.3* -- Form of an Employment Agreement dated June 23, 1994 between Virginia Power and certain executive officers, including James P.O'Hanlon Lawrence E. DeSimone and Larry M. Girvin (Exhibit 10(xxi), Form 10-K for the fiscal year ended December 31, 1996 File No. 1-2255, incorporated by reference). [The only material respect in which the particular employment agreeements differ is the base salary set forth therein.] 27 -- Financial Data Schedule (filed herewith). * Indicates management contract or compensatory plan or arrangement (b) Reports on Form 8-K; NONE SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. VIRGINIA ELECTRIC AND POWER COMPANY Registrant May 14, 1998 /S/ J. A. SHAW -------------------------- J. A. SHAW Senior Vice President and Chief Financial Officer EX-10.1 2 EMPLOYMENT AGREEMENT Exhibit 10.1 February 16, 1998 Mr. John A. Shaw 2410 White Horse Road Berwyn, PA 19312 Dear John: It is with great pleasure that we welcome you to Virginia Power. As we have discussed, your employment will begin March 16, 1998, based on the Board of Directors electing you as an officer on February 20, 1998. Your title will be Senior Vice President and Chief Financial Officer for Virginia Power. The terms of your employment agreement are as follows: Duties Both you and the Company agree that you will serve in a senior management position. You agree to (i) devote your knowledge, skill and best efforts on a full-time basis to performing your 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) comply with the lawful and non arbitrary directions and orders of the Board of Directors and Chief executive Officer of the Company with respect to the performance of your duties. EXECUTIVE DIRECT COMPENSATION Your total direct compensation will consist of three components: base salary, annual incentive, and long-term incentive. Base Salary Your initial base salary will be $240,000, paid monthly on or about the 25th of the month. Each fall, officer's salaries are normally reviewed by the Virginia Power Board of Directors and any changes will take effect on the following March 1. You will participate in the base salary program on the same terms as all other elected officers. Mr. Shaw Page 2 Annual Incentive Your annualized incentive target for 1998 is $114,100 and is based on meeting corporate and business goals for the calendar year 1998. For 1998, you will receive a pro-rata award of one-twelfth for every full month of employment during 1998, or a target of $85,575. Annual incentive awards are approved by the Board and are paid during the first quarter of the following year (e.g., awards for 1998 will be paid in the first quarter of 1999). The Board reviews the program each February, and approves the current year targets at that time. You will participate in the annual incentive program on the same terms as all other elected officers. Long - Term Incentive Every year we begin a new three-year plan cycle. For each partial cycle in which you participate you will receive a pro rata distribution from the plan. For example, when you complete the 1998 - 2000 three-year cycle, you will receive 33/36 of the final award distribution (representing your participation from April 1, 1998 through December 31, 2000). Your 100% target for the 1998 - 2000 cycle is $157,000, which will be prorated to $143,917. Shares of stock will be issued at the completion of the cycle based on the then-current value per share and in compliance with the guidelines of the long-term plan. These plans will continue at the discretion of the Virginia Power Board of Directors. Your participation in the long-term incentive plan will be on the same terms as all other elected officers. EXECUTIVE INDIRECT COMPENSATION Qualified Pension Plan As stated in your offer letter, you will be credited with 20 years of service upon attaining age 55 and 30 years of service at age 60. Executive Supplement Retirement Plan (ESRP) Officers who retire with a minimum of five years of service as a company employee receive additional payments for 10 years. The annual benefit is payable on a monthly basis and is equal to 25% of final annual compensation. Final annual compensation is defined as the base salary at the time of retirement plus a percentage (currently 95%) of the annual incentive target. The plan also provides for payments to begin if you die or become disabled before retirement. If you die after retirement, but before receiving ten years of benefits, your beneficiary will receive the remaining payments. At retirement, you may elect to receive an actuarially reduced payment for up to 16 years. There is a Mr. Shaw Page 3 separate calculation for participants having a minimum of five years service but retiring before age 55. Executive Retirement Benefit Restoration Plan Since the company sets base salaries below market, and since the qualified pension is based on actual base salaries, executive pensions are calculated using an "adjusted base salary for pension purposes." The increased pension benefit cannot, by law, be paid out of the qualified pension plan. The Benefit Restoration Plan makes up for the portion of the pension which cannot be paid from the qualified plan. Federal law also limits the qualified pension coverage to the first $160,000 of base salary. The restoration plan is also used to make up for base salary which exceeds the $160,000 cap. Rabbi Trust From time to time, the company makes discretionary payments into a Rabbi Trust. This account is used to fund the payment of benefits payable under the Executive Supplemental Retirement Plan and/or the Executive Retirement Benefit Restoration Plan. The funds in the trust can only be used for the executive's benefit, and cannot revert to the company under any circumstances. Benefits funded in the Rabbi Trust are subject to claims of the company's creditors. The amount of the company's contribution to the trust fund is not taxable to the executive until actual payments are made to the executive from the trust. EXECUTIVE PERQUISITES Executive Continuity Agreement This "Golden Parachute" provides three years of protection for salary and incentives in case of a hostile takeover. Company Car and Phone A company car, with cellular phone, is furnished. The value of personal use is reported as taxable income. Executive Accidental Death and Dismemberment All executives and spouses are provided $200,000 coverage for business travel aboard company aircraft. However, as a senior executive, you are provided $200,000 coverage for all accidents. Your spouse receives all accident coverage at the lesser rate of $150,000. These benefit amounts are payable for loss of life, hands, feet or eyes. Half the benefit is payable for loss of one hand, foot, or eye. Coverage ends at age 70. Mr. Shaw Page 4 Executive Deferred Compensation Executives may elect to defer part or all of base salary and/or annual incentive awards. The election must take place before the period in which the compensation is earned. Deferred compensation is subject to Social Security and Medicare tax, but federal and state income taxes are deferred. No funds or assets are specifically set aside for the deferred amount. Deferred compensation is carried as a liability on the company books and the executive has the status of an unsecured creditor of the company. The deferred amount accumulates "earnings" as if it were invested in the executive's choice of an interest bearing account or Dominion Resources, Inc. Common Stock. Executive Physical Examinations Employee Health Services schedules executives for annual physical examinations. Executive Estate and Tax Planning The company pays for an initial educational consultation with a local attorney (Louis Mezzullo) specializing in estate planning. Subsequently, the executive may choose Mr. Mezzullo or any qualified professional to aid in the development of an initial estate plan. The company will reimburse up to $1,000 toward the initial estate plan, and $500 per year, thereafter, for an annual review and update. These taxable reimbursements are paid through payroll. STANDARD BENEFITS Health: Medical, Drugs, Dental & Vision Employees may choose among three deductible/co-pay options for medical coverage (Blue Cross/Blue Shield Preferred Provider Plan) or one of several HMOs. Dental and vision coverage is available. All are subsidized and may include eligible dependents. Group Life Insurance Up to three times annual salary coverage is available on a subsidized basis. An additional two times annual salary is available on a non-subsidized basis. $10,000 coverage is available for a spouse; $4,000 for children. Accidental Death and Dismemberment Up to three times base salary (as selected for group life) is available for employees at no extra charge. Mr. Shaw Page 5 Long-Term Disability Subsidized coverage of 60% or 65% of salary is available after eligibility is established. There is a maximum benefit of $10,000 per month. Qualified Pension Plan At age 65, the normal benefit for 30 years of service is approximately 60% of your final five years average salary, subject to a Social Security offset. It is non-contributory. Your coverage under Virginia Power's Retirement Plan will begin after six (6) months of employment. 401(k) Plan and Savings Plan Both pre- and post-tax options are available. The company matches 50% on the first 6% of salary contributed by the employee, limited to the first $160,000 of salary. We believe that this is an excellent opportunity for Virginia Power to benefit from your skills and background, and we look forward to you joining our team. To indicate your acceptance of this offer, please sign below and return a copy to me. Sincerely yours, Norman Askew President and Chief Executive Officer Acknowledged: /s/ John A. Shaw Dated: February 18, 1998 EX-10.2 3 DIRECTORS' STOCK COMPENSATION PLAN Exhibit 10.2 DOMINION RESOURCES, INC. DIRECTORS STOCK COMPENSATION PLAN TABLE OF CONTENTS Page ---- 1. PURPOSE................................................................2 2. DEFINITIONS............................................................2 3. PARTICIPATION IN THE PLAN..............................................3 4. STOCK RESERVED FOR THE PLAN............................................3 5. DEFERRALS OF ANNUAL STOCK RETAINER ....................................3 6. EFFECT OF STOCK DIVIDENDS AND OTHER CHANGES TO COMPANY STOCK...........4 7. INTERPRETATION AND ADMINISTRATION OF THE PLAN..........................4 8. TERM OF THE PLAN.......................................................4 9. AMENDMENT OF THE PLAN..................................................4 10. RIGHTS UNDER THE PLAN..................................................4 11. BENEFICIARY............................................................4 12. NOTICE.................................................................5 13. CONSTRUCTION...........................................................5 1. Purpose. The Dominion Resources, Inc. Directors Stock Compensation Plan (the "Plan") provides a mechanism for the Board of Directors of Dominion Resources, Inc. and certain subsidiaries to pay a portion of their non-employee directors' compensation in the Company's common stock. It also allows such director to defer receipt of such stock until a future date, if desired. 2. Definitions. As used in the Plan, the following terms have the meanings indicated: (a) "Annual Meeting" means, for the Dominion Resources Board, the annual meeting of shareholders at which a class of members of the Dominion Resources Board is routinely elected. The Annual Meeting for any other Board shall be the same as for the Dominion Resources Board unless that Board establishes a different date as an Annual Meeting date. (b) "Annual Stock Retainer" means that portion of an Eligible Director's annual retainer paid in Company Stock. (c) "Board" means the Dominion Resources Board or the board of directors of any wholly-owned subsidiary of the Company that is designated by the Dominion Resources Board as a Board eligible to participate in this plan. (d) "Change of Control" means an event described in (i) or (ii): (i) any person, including a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, becomes the owner or beneficial owner of Dominion Resources securities having 20% or more of the combined voting power of the then outstanding Dominion Resources securities that may be cast for the election of Dominion Resources' directors (other than as a result of an issuance of securities initiated by Dominion Resources, or open market purchases approved by the Dominion Resources Board, as long as the majority of the Dominion Resources Board approving the purchases is also the majority at the time the purchases are made); or (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 before such transactions cease to constitute a majority of the Dominion Resources Board, or any successor's board, within two years of the last of such transactions. (e) "Company" means Dominion Resources, Inc., or any successor business by merger, purchase, or otherwise that maintains the Plan. (f) "Company Stock" means the common stock of Dominion Resources, Inc. In the event of a change in the capital structure of the Company, the shares resulting from such a change shall be deemed to be the Company Stock (as provided in Section 6) within the meaning of the Plan. (g) "Dominion Resources Board" means the Board of Directors of Dominion Resources, Inc. (h) "Eligible Director" means a member of a Board who is not an employee of the Company or any subsidiary of the Company. 2 (i) "Plan Year" for any Board means the period beginning on the date of an Annual Meeting of that Board and ending on the day before the next Annual Meeting of that Board. 3. Participation in the Plan. At each Annual Meeting, Eligible Director may receive an Annual Stock Retainer. The Board on which the Eligible Director is a member shall determine the Annual Stock Retainer, if any, subject to approval by the Dominion Resources Board. An Eligible Director whose service terminates at an Annual Meeting shall not receive an Annual Stock Retainer. An Eligible Director also may elect to defer receipt of an Annual Stock Retainer as provided in Section 5. 4. Stock Reserved for the Plan. The aggregate number of shares of Company Stock authorized for distribution to Eligible Directors under Section 3 is 1,000,000, subject to adjustment pursuant to Section 6. 5. Deferrals of Annual Stock Retainer. (a) An Eligible Director may elect to defer the payment of some or the entire Annual Stock Retainer by completing a deferral election (a "Deferral Election"). A Deferral Election must be in writing and delivered to the Corporate Secretary of the Company before the Annual Meeting for the Plan Year to which the Deferral Election pertains. For the first year of the Plan's operation, the election must be made before the first Annual Meeting occurring after adoption of the Plan. A Deferral Election shall be irrevocable in respect to the Plan Year to which it pertains. A Deferral Election must specify the applicable number or percentage of the shares of Company Stock that the Eligible Director wishes to defer. A Deferral Election may be made for a single Plan Year or may be made applicable to all future Plan Years until revoked. Any revocation shall be effective as of the first day of the next Plan Year after the revocation is made. (b) With respect to all shares of Company Stock for which a Deferral Election is made, the Company shall issue shares of Company Stock to a trust. The Corporate Secretary of the Company shall be the trustee of the trust unless the Board designates another person or entity as trustee. The trust shall secure the Company's obligation to pay shares of Company Stock to the Eligible Director. The trust and its assets shall remain subject to the claims of the Company's creditors. Any interest that the Eligible Director may be deemed to have in the trust may not be sold, hypothecated or transferred (including, without limitation, transfer by gift), except by will or the laws of descent and distribution. Shares issued to the trust shall be issued in the name of the trustee and the trustee shall maintain a separate account for each Eligible Director. The trustee shall invest all cash dividends on Company Stock in additional shares of Company Stock to be held in the separate account of the Eligible Director. The Eligible Director shall have the right to direct the trustee as to the voting of the shares of Company Stock held in the Eligible Director's account. (c) A Deferral Election shall provide for distribution of the Company Stock held in such director's account at a future date or dates elected by the Eligible Director and provided on the Deferral Election Form. (d) Before a Change of Control, an Eligible Director may elect to receive a single lump sum transfer of the Company Stock in his or her account upon a Change of Control. The trustee shall distribute the Company Stock as soon as practicable after the Change of Control occurs unless the Eligible Director elects a later date for distribution. 3 (e) Upon the death of an Eligible Director, the Eligible Director's Beneficiary will receive the balance of any undistributed Company Stock held in such director's account in a single lump sum transfer as soon as practicable after the death. 6. Effect of Stock Dividends and Other Changes to Company Stock. In the event of a stock dividend, stock split or combination of shares, recapitalization or merger in which the Company is the surviving corporation or other change in the Company's capital stock, the number and kind of shares of stock of the Company to be subject to the Plan and the maximum number of shares which are authorized for distribution under the Plan shall be appropriately adjusted by the Dominion Resources Board, whose determination shall be binding on all persons. 7. Interpretation and Administration of the Plan. The Dominion Resources Board shall administer, construe and interpret the Plan. Any decision of the Dominion Resources Board with respect to the Plan shall be final, conclusive and binding upon all Eligible Directors. The Dominion Resources Board may act by a majority of its members. The Dominion Resources Board may authorize any member of the Board or any officer of the Company to execute and deliver documents on behalf of the Dominion Resources Board. The Dominion Resources Board may consult with counsel, who may be counsel to the Company, and shall not incur any liability for action taken in good faith in reliance upon the advice of counsel. The Corporate Secretary of the Company shall be authorized to take or cause to be taken such actions of a ministerial nature as necessary to effectuate the intent and purposes of the Plan, including issuing Company Stock for the Plan, maintaining records of the trust accounts of Eligible Directors and arranging for distributions of such accounts. 8. Term of the Plan. The Plan shall become effective when adopted by the Dominion Resources Board. The Plan shall continue until terminated at any time by action of the Dominion Resources Board or until there are no remaining shares available for the Plan under Section 4. Any termination of the Plan by the Dominion Resources Board shall not alter or impair any of the rights or obligations for Company Stock previously deferred. 9. Amendment of the Plan. The Dominion Resources Board may suspend or terminate the Plan or revise or amend the Plan in any respect; provided, any amendment or termination of the Plan shall not adversely affect an Eligible Director with respect to any Company Stock previously deferred. 10. Rights Under the Plan. The Plan shall not constitute or be evidence of any agreement or understanding, express or implied, that the Company or any subsidiary will retain any person as a director for any period of time. 4 11. Beneficiary. An Eligible Director may designate in writing delivered to the Company, one or more beneficiaries (which may include a trust) to receive any distributions under the Plan after the death of the Eligible Director. If an Eligible Director fails to designate a beneficiary, or no designated beneficiary survives the Eligible Director, any payments to be made with respect to the Eligible Director after death shall be made to the personal representative of the Eligible Director's estate. 12. 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 the Company - at its principal business address to the attention of the Corporate Secretary; (b) if to any Eligible Director - at the last address of the Eligible Director known to the sender at the time the notice or other communication is sent. 13. Construction. The Plan shall be construed and enforced according to the laws of the Commonwealth of Virginia. Headings and captions are for convenience only and have no substantive meaning. Reference to one gender includes the other, and references to the singular and plural include each other. 5 EX-27 4 FINANCIAL DATA SCHEDULE
UT 1,000,000 3-MOS DEC-31-1998 MAR-31-1998 PER-BOOK 9,113 674 1,138 950 0 11,875 2,737 17 1,352 4,106 180 509 3,475 0 0 80 374 0 27 8 3,116 11,875 1,435 58 1,196 1,254 181 (4) 177 78 99 9 90 100 0 425 0 0
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