-----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, WhVXu5GWrBn4yjVcX6gLnA7QzNaduYrPX8JOuC9nn+p4QSCLcregOZ/PxYg9gRlE EkLu96qtyl5LnTAsCY1h9w== 0000950168-99-002903.txt : 19991115 0000950168-99-002903.hdr.sgml : 19991115 ACCESSION NUMBER: 0000950168-99-002903 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 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: 99749959 BUSINESS ADDRESS: STREET 1: ONE JAMES RIVER PLAZA STREET 2: 701 E CARY STREET CITY: RICHMOND STATE: VA ZIP: 23219-3932 BUSINESS PHONE: 8047713000 MAIL ADDRESS: STREET 1: 701 E CARY STREET CITY: RICHMOND STATE: VA ZIP: 23219-3932 10-Q 1 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------- FORM 10-Q ----------- (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999 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 (I.R.S. EMPLOYER OF 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 October 31, 1999, 171,484 shares of common stock, without par value, of the registrant were outstanding. PAGE 2 VIRGINIA ELECTRIC AND POWER COMPANY INDEX ----- Page Number ------ PART I. Financial Information Item 1. Consolidated Financial Statements Consolidated Statements of Income - 3 Three Months and Six Months Ended September 30, 1999 and 1998 Consolidated Balance Sheets - 4-5 September 30, 1999 and December 31, 1998 Consolidated Statements of Cash Flows - 6 Six Months Ended September 30, 1999 and 1998 Notes to Consolidated Financial Statements 7-11 Item 2. Management's Discussion and Analysis of 12-20 Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About 21 Market Risk PART II. Other Information Item 1. Legal Proceedings 22 Item 5. Other Information 22-23 Regulation Rates Sources of Power Future Sources of Power Item 6. Exhibits and Reports on Form 8-K 24 PAGE 3 VIRGINIA ELECTRIC AND POWER COMPANY PART I. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 ------------ ------------ ----- ------- ------------- (Millions) (Millions) Revenues: Electric service $ 1,290.2 $ 1,253.1 $ 3,319.7 $ 3,092.7 Other 149.7 94.6 295.3 211.7 ------------ ------------- ------------ ------------- Total 1,439.9 1,347.7 3,615.0 3,304.4 ----------- ------------ ------------ ------------- Expenses: Fuel, net 317.9 282.8 779.1 753.3 Purchased power capacity, net 195.9 216.8 604.3 601.0 Impairment of regulatory assets 158.6 Operations and maintenance 264.1 223.8 702.9 627.3 Depreciation and amortization 146.3 142.9 420.3 396.7 Taxes other than income 86.2 87.5 219.5 230.1 ------------ ----------- ------------- ------------ Total 1,010.4 953.8 2,726.1 2,767.0 ------------- ----------- ------------- ------------ Income from operations 429.5 393.9 888.9 537.4 Other income 5.9 4.4 21.3 14.3 ------------- ----------- ------------- ------------ Income before interest and income taxes 435.4 398.3 910.2 551.7 ------------- ----------- ------------- ------------ Interest and related charges: Interest expense, net 72.8 74.5 212.3 233.7 Distributions - Preferred securities of subsidiary trust 2.7 2.7 8.2 8.2 ------------- ----------- ------------- ------------ Total 75.5 77.2 220.5 241.9 ------------- ----------- ------------- ------------ Income before income taxes 359.9 321.1 689.7 309.8 Income tax expense 124.2 115.1 241.3 125.3 ------------ ----------- ------------- ------------ Income before extraordinary item 235.7 206.0 448.4 184.5 Extraordinary item (net of income taxes of $197.1) (254.8) ------------ ----------- ------------- ------------ Net income 235.7 206.0 193.6 184.5 Preferred dividends 9.2 8.9 26.7 26.7 ------------ ----------- ------------ ------------ Balance available for Common Stock $ 226.5 $ 197.1 $ 166.9 $ 157.8 =========== ============ ============ ===========
The Company had no other comprehensive income reportable in accordance with SFAS No. 130, REPORTING COMPREHENSIVE INCOME. The accompanying notes are an integral part of the consolidated financial statements. PAGE 4 VIRGINIA ELECTRIC AND POWER COMPANY CONSOLIDATED BALANCE SHEETS ASSETS (UUAUDITED)
September 30, December 31, 1999 1998* ------------- ----------- (Millions) CURRENT ASSETS: Cash and cash equivalents $ 115.1 $ 49.6 Accounts receivable: Customer accounts receivable, net 824.2 777.8 Other 52.9 76.2 Materials and supplies: Plant and general 146.5 142.0 Fossil fuel 103.8 95.0 Commodity contract assets 352.2 179.8 Other 136.3 149.9 ------------- ------------- Total current assets 1,731.0 1,470.3 ------------ ------------ INVESTMENTS: Nuclear decommissioning trust funds 780.1 705.1 Other 51.3 45.6 ------------- ------------ Total investments 831.4 750.7 ------------- ------------- DEFERRED DEBITS AND OTHER ASSETS: Regulatory assets 223.7 620.0 Unamortized debt issuance costs 31.6 28.5 Commodity contract assets 11.6 17.5 Other 18.6 16.0 -------------- ------------ Total deferred debits and other assets 285.5 682.0 ------------- ------------- PROPERTY, PLANT AND EQUIPMENT: Generation (includes $287.9 plant under construction in 1999 and $154.4 in 1998) 8,203.7 8,008.7 Transmission and distribution (includes $157.8 plant under construction in 1999 and $234.8 in 1998) 6,920.0 6,824.6 Other (includes $75.1 plant under construction in 1999 and $60.1 in 1998) 447.0 374.3 ------------- ------------- 15,570.7 15,207.6 Less accumulated depreciation 6,697.6 6,278.8 ------------ ------------ 8,873.1 8,928.8 Nuclear fuel, net 134.3 153.1 ------------- ------------- Net property, plant and equipment 9,007.4 9,081.9 ------------ ------------ Total assets $ 11,855.3 $ 11,984.9 ========== ===========
The accompanying notes are an integral part of the consolidated financial statements. * The consolidated balance sheet at December 31, 1998 has been derived from the audited consolidated financial statements at that date. PAGE 5 VIRGINIA ELECTRIC AND POWER COMPANY CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDER'S EQUITY (UNAUDITED)
September 30, December 31, 1999 1998* -------------- ------------- (Millions) CURRENT LIABILITIES: Securities due within one year $ 377.4 $ 321.0 Short-term debt 257.6 221.7 Accounts payable, trade 620.1 566.5 Payrolls accrued 76.4 79.0 Interest accrued 84.5 93.8 Taxes accrued 206.5 48.1 Commodity contract liabilities 328.3 265.8 Other 157.5 178.7 -------------- -------------- Total current liabilities 2,108.3 1,774.6 ------------- ------------- LONG-TERM DEBT 3,486.7 3,464.7 ------------- ------------- DEFERRED CREDITS AND OTHER LIABILITIES: Accumulated deferred income taxes 1,430.1 1,563.6 Deferred investment tax credits 150.7 221.4 Commodity contract liabilities 11.6 11.4 Other 210.2 192.5 -------------- -------------- Total deferred credits and other liabilities 1,802.6 1,988.9 ------------- ------------- COMMITMENTS AND CONTINGENCIES (See Note (c)) COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUST** 135.0 135.0 -------------- ------------- PREFERRED STOCK: Preferred stock subject to mandatory redemption 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 1,059.4 1,178.4 ------------- ------------- Total common stockholder's equity 3,813.7 3,932.7 ------------- ------------- Total liabilities and stockholders' equity $ 11,855.3 $ 11,984.9 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. *The consolidated balance sheet at December 31, 1998 has been derived from the audited consolidated financial statements at that date. ** As described in Note (d) to CONSOLIDATED FINANCIAL STATEMENTS, the 8.05% Junior Subordinated Notes totaling $139.2 million principal amount constitute 100% of the Trust's assets. PAGE 6 VIRGINIA ELECTRIC AND POWER COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, 1999 1998 ---- ---- (Millions) Cash flow from (to) operating activities: Net income $ 193.6 $ 184.5 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 478.4 455.8 Deferred income taxes 21.8 57.1 Deferred investment tax credits, net (12.7) (12.7) Deferred fuel expenses (27.9) (25.3) Extraordinary item, net of income taxes 254.8 Impairment of regulatory assets 158.6 Changes in: Accounts receivable (23.1) (22.6) Materials and supplies (13.3) (23.6) Accounts payable, trade 53.6 211.9 Accrued expenses 118.7 57.3 Commodity contract assets and liabilities (103.8) 52.7 Other 35.0 (55.7) --------- ---------- Net cash flow from operating activities 975.1 1,038.0 ---------- ---------- Cash flow from (to) financing activities: Issuance (repayment) of short-term debt, net 35.9 (148.7) Issuance of long-term debt 230.0 150.0 Repayment of long-term debt (332.7) (292.5) Common Stock dividend payments (285.5) (285.7) Preferred stock dividend payments (26.7) (26.7) Distribution-preferred securities of subsidiary trust (8.1) (8.2) Other (5.3) (4.7) ---------- ---------- Net cash flow to financing activities (392.4) (616.5) ---------- ---------- Cash flow to investing activities: Plant expenditures (452.8) (300.6) Nuclear fuel (39.4) (70.2) Nuclear decommissioning contributions (19.9) (37.5) Other (5.1) (3.7) ---------- ---------- Net cash flow to investing activities (517.2) (412.0) ---------- ---------- Increase in cash and cash equivalents 65.5 9.5 Cash and cash equivalents at beginning of period 49.6 36.0 --------- --------- Cash and cash equivalents at end of period $ 115.1 $ 45.5 ========= =========
The accompanying notes are an integral part of the consolidated financial statements. PAGE 7 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 engages in off-system wholesale purchases and sales of electricity and purchases and sales of natural gas, and is developing trading relationships beyond the geographic limits of its 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. 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 September 30, 1999, the results of operations for the three months and nine months ended September 30, 1999 and 1998, and the cash flows for the nine months ended September 30, 1999 and 1998. Certain amounts in the 1998 consolidated financial statements have been reclassified to conform to the 1999 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 consolidated financial statements, and notes thereto, included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. DISCONTINUANCE OF SFAS NO. 71AND RELATED ACCOUNTING CHANGES In the first quarter of 1999, the Company discontinued the application of Statement of Financial Accounting Standards No. 71 (SFAS No. 71), ACCOUNTING FOR THE EFFECTS OF CERTAIN TYPES OF REGULATION, to its generation operations upon enactment of deregulation legislation. The effect thereof was an after-tax charge of $254.8 million. See Note (b) for further discussion. As discussed below, the Company prospectively changed certain of its accounting policies and estimates, pursuant to the discontinuance of SFAS No. 71, to conform such policies and estimates to those used by non-regulated entities. The overall impact of these changes was not material to the Company's results of operations and financial condition. The Company no longer includes an allowance for funds used during construction (AFC) in the cost of property, plant, and equipment constructed for its generation operations. Rather, such costs include, where applicable, interest costs capitalized in accordance with SFAS No. 34, CAPITALIZATION OF INTEREST COST. The Company continues to include AFC, rather than capitalized interest, in the cost of property, plant, and equipment used in its transmission and distribution operations, where permitted by regulating authorities. PAGE 8 VIRGINIA ELECTRIC AND POWER COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company no longer provides for the cost of removal in its provision for depreciation of generation related property, as formerly required by regulators. Such costs are expensed as incurred. Also, the Company no longer records retirements of generation related property by charging accumulated depreciation. Rather, the Company records gains and losses upon retirement of such property based upon the difference between proceeds received, if any, and the property's undepreciated basis at the retirement date. In addition, the Company reevaluated the economic useful life estimates of its generation related property in light of the scheduled deregulation of the generation business in Virginia. (b) Virginia Jurisdictional Rates In 1998, the Company negotiated a settlement with the Virginia State Corporation Commission (Virginia Commission) that resolved then outstanding rate proceedings. As part of the settlement, the Company agreed to a one-time rate refund paid to customers in 1998 and a two-phased rate reduction and base rate freeze through February 2002. For additional information, see Note P to CONSOLIDATED FINANCIAL STATEMENTS included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. In March 1999, the Governor of Virginia signed into law legislation establishing a detailed plan to restructure the electric utility industry in Virginia. Such legislation will deregulate generation by 2002 with the phase-in of retail customer choice beginning at that time. Under this legislation, the Company's base rates will remain generally unchanged until July 2007 and recovery of generation-related costs will continue to be provided through the capped rates. The legislation's deregulation of generation required discontinuation of SFAS No. 71 for the Company's generation operations in the first quarter of 1999. The Company's transmission and distribution operations continue to meet the criteria for recognition of regulatory assets and liabilities as defined by SFAS No. 71. In addition, fuel expense continues to be subject to deferral accounting. The effect of discontinuing SFAS No. 71 was an after-tax charge to earnings of $254.8 million. The $254.8 million charge included the write-off of generation-related assets that were not expected to be recovered during the transition period. It also included the write-off of approximately $38 million, after-tax, of deferred investment tax credits. Also, in conjunction with the discontinuance of SFAS No. 71, the Company reviewed its utility plant assets and long-term power purchase contracts for possible impairment. No impairments were recorded based on the Company's analyses which were highly dependent on the underlying assumptions. Significant estimates were required in recording the effect of the deregulation legislation, including the fair value determination for generating facilities and estimated purchases under long-term power purchase contracts. The Company remains subject to numerous risks including, among others, exposure to long-term power purchase commitment losses, environmental contingencies, changes in tax laws, decommissioning costs, inflation, increased capital costs, and recovery of certain other items. Management believes the stable rates that are provided until July 2007 by the legislation present a reasonable opportunity to recover a substantial portion of the Company's potentially stranded costs as more fully described in our 1998 Form 10-K in Competition--Exposure to Potentially Stranded Costs, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations. See also Note (b) to CONSOLIDATED FINANCIAL STATEMENTS included in the Company's Form 10-Q for the period ended March 31, 1999 for further discussion of the impact of the discontinuation of SFAS No. 71 and impairment review. PAGE 9 VIRGINIA ELECTRIC AND POWER COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (c) Contingencies NUCLEAR INSURANCE The Price-Anderson Act limits the public liability of an owner of a nuclear power plant to $9.7 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, 1998. ENVIRONMENTAL MATTERS In 1987, the Environmental Protection Agency (EPA) identified the Company and several other entities as Potentially Responsible Parties (PRPs) at two Superfund sites located in Kentucky and Pennsylvania. Current cost studies estimate total remediation costs for the sites to range from $106.0 million to $156.1 million. The Company's proportionate share of the total cost is expected to be in the range of $1.7 million to $2.8 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 generally seeks to recover its costs associated with environmental remediation from third party insurers. At September 30, 1999, any pending or possible claims were not recognized as an asset or offset against such obligations of the Company. In April 1999, the Company was notified by the Department of Justice of alleged noncompliance with the EPA's oil spill prevention, control and countermeasures (SPCC) plans and facility response plan (FRP) requirements at one of the Company's power stations. If, in a legal proceeding, such instances of noncompliance are deemed to have occurred, the Company may be required to remedy any alleged deficiencies and pay civil penalties. Settlement of this matter is currently in negotiation and is not expected to be material to the Company's financial condition or results of operations. In August 1999, the Company identified matters at certain other power stations that the EPA might view as not in compliance with the SPCC and FRP requirements. The Company reported these matters to the EPA and its plan for correction thereof. Presently, the EPA has not assessed any penalties against the Company, pending its review of the Company's disclosure information. Future resolution of these matters is not expected to have a material impact on the Company's financial condition or results of operations. 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, 1998. (d) 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. PAGE 10 VIRGINIA ELECTRIC AND POWER COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (e) Preferred Stock As of September 30, 1999, 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 10,000,000 authorized shares of the Company's preferred stock. Of the 1,800,000 issued and outstanding shares of preferred stock subject to mandatory redemption, 400,000 shares are scheduled to be redeemed in March 2000 and the remaining 1,400,000 shares are scheduled to be redeemed in September 2000. Accordingly, the Company has classified the $180 million of preferred stock subject to mandatory redemption in SECURITIES DUE WITHIN ONE YEAR at September 30, 1999. (f) Long-Term Incentives Certain officers and key employees of Virginia Power participate in a stock-based compensation plan sponsored by the Company's parent, Dominion Resources, Inc. During the first nine months of 1999, approximately 2 million Dominion Resources common stock options were granted to these individuals. As a result of a change adopted in September 1999, these stock options will vest on January 1, 2000. No compensation expense was recognized under the provisions of Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES and related Interpretations. Had compensation expense been measured based on the fair value of the options on the date of grant, calculated under the provisions of SFAS No. 123, ACCOUNTING FOR STOCK BASED COMPENSATION, the Company's allocated share of such compensation expense would not have a material effect on reported net income for the three months and nine months ended September 30, 1999. (g) Recently Issued Accounting Standards The Financial Accounting Standards Board (FASB) recently issued SFAS No. 137, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES--DEFERRAL OF THE EFFECTIVE DATE OF FASB STATEMENT NO. 133, which defers the effective date of SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. As a result, the Company must adopt SFAS No. 133 no later than January 1, 2001. SFAS No. 133 requires that derivative instruments (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at fair value. The statement requires that changes in a derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. The FASB-sponsored Derivatives Implementation Group that is addressing implementation issues related to SFAS No. 133 has tentatively concluded that certain long-term power purchase contracts may be considered derivatives under SFAS No. 133. The Company has not yet quantified the impacts of adopting SFAS No. 133 and has not yet determined the timing of, or method of, adoption. (h) Business Segments The Company manages its operations along two primary business lines, generation and wires. The Generation Business encompasses the Company's generation portfolio, trading and marketing activities, nuclear consulting services and energy services activities. The Wires Business includes bulk power transmission, distribution and metering services, and customer service and continues to be subject to cost-based regulation. The majority of the Company's revenues are provided through bundled rate tariffs. Such revenues generally are allocated between the two business lines for management reporting based on prior cost of service studies. Interest allocations are based on internal management estimates. Income taxes are calculated using the Company's effective rate. The Other column includes the impact of the settlement of the Company's 1998 Virginia jurisdictional rate proceedings recorded in the second quarter of 1998 and the extraordinary item recorded in the first quarter of 1999. The segments are measured on their operating performance and are not held accountable for these unusual items. In addition, the Other column reflects the effects of measuring certain of the segments' financial information on a basis different than that used to prepare the consolidated financial statements. PAGE 11 VIRGINIA ELECTRIC AND POWER COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Generation Wires Consolidated Description Business Business Other Total ---------------------------------------------------------------------------------------------------------- (Millions) THREE MONTHS ENDED SEPTEMBER 30, 1999 Revenues $ 1,076.0 $ 354.7 $ 9.2 $ 1,439.9 Depreciation and amortization 68.9 62.2 15.2 146.3 Earnings before interest and taxes 289.1 144.1 2.2 435.4 Interest 35.2 38.1 2.2 75.5 Income taxes 86.2 38.0 124.2 Net income 167.7 68.0 235.7 Total Assets 7,250.5 4,604.8 11,855.3 Capital expenditures 70.2 66.2 136.4 THREE MONTHS ENDED SEPTEMBER 30, 1998 Revenues $ 1,013.6 $ 329.1 $ 5.0 $ 1,347.7 Depreciation and amortization 76.5 56.6 9.8 142.9 Earnings before interest and taxes 240.5 157.8 398.3 Interest 39.4 37.8 77.2 Income taxes 72.2 42.9 115.1 Net income 128.9 77.1 206.0 Total Assets-December 31, 1998 7,389.1 4,595.8 11,984.9 Capital expenditures 24.6 85.6 110.2 NINE MONTHS ENDED SEPTEMBER 30, 1999 Revenues $ 2,688.6 $ 905.6 $ 20.8 $ 3,615.0 Depreciation and amortization 213.9 183.5 22.9 420.3 Earnings before interest and taxes 540.9 367.1 2.2 910.2 Interest 107.4 110.9 2.2 220.5 Income taxes 149.3 92.0 241.3 Net income 284.2 164.2 (254.8) 193.6 Capital expenditures 221.5 231.3 452.8 NINE MONTHS ENDED SEPTEMBER 30, 1998 Revenues $ 2,576.4 $ 867.2 $ (139.2) $ 3,304.4 Depreciation and amortization 231.2 179.7 (14.2) 396.7 Earnings before interest and taxes 477.0 355.6 (280.9) 551.7 Interest 117.9 113.3 10.7 241.9 Income taxes 129.7 86.2 (90.6) 125.3 Net income 229.4 156.1 (201.0) 184.5 Capital expenditures 77.3 223.3 300.6
PAGE 12 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. The business and financial condition of Virginia Power are influenced by a number of factors including political and economic risks, market demand for energy, inflation, capital market conditions, governmental policies, legislative and regulatory actions (including those of the Federal Energy Regulatory Commission (FERC), the Environmental Protection Agency, the Department of Energy, the Nuclear Regulatory Commission, the Virginia Commission and the North Carolina Utilities Commission), industry and rate structure and legal and administrative proceedings. Some other important factors that could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements include changes in and compliance with environmental laws and policies, weather conditions and catastrophic weather-related damage, present or prospective wholesale and retail competition, competition for new energy development opportunities, pricing and transportation of commodities, operation of nuclear power facilities, acquisition and disposition of assets and facilities, recovery of the cost of purchased power, nuclear decommissioning costs, the ability of the Company, its suppliers, and its customers to successfully address Year 2000 readiness issues, exposure to changes in the fair value of commodity contracts, counter-party credit risk and unanticipated changes in operating expenses and capital expenditures. 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 Virginia Power. 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. As discussed in Note (h) to CONSOLIDATED FINANCIAL STATEMENTS, we manage our operations in a manner that requires disclosure of two separate segments--the Generation Business and the Wires Business. However, the majority of our revenues are provided through bundled rate tariffs. Such revenues are allocated between the segments for internal reporting purposes. Certain activities discussed in Liquidity and Capital Resources are not managed currently at the segment level; however, specific references to segments are made as appropriate. The following discussion of trends and variations generally applies to the Company as a whole. LIQUIDITY AND CAPITAL RESOURCES OPERATING ACTIVITIES resulted in $62.9 million decreased cash flow for the nine months ended September 30, 1999 as compared to the same period in 1998. This decrease reflects primarily the timing of payments of accounts payable and certain other expenses. Internal generation of cash exceeded our capital requirements during the first nine months of 1999 and 1998. PAGE 13 VIRGINIA ELECTRIC AND POWER COMPANY ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) FINANCING ACTIVITIES for the first nine months of 1999 resulted in a net cash outflow of $392.4 million. Cash flow from (to) financing activities was as follows:
Nine Months Ended September 30, 1999 1998 -------------- ----------- (Millions) Issuance (repayment) of short-term debt, net $ 35.9 $ (148.7) Issuance of long-term debt 230.0 150.0 Repayment of long-term debt (332.7) (292.5) Payment of dividends (312.2) (312.4) Other (13.4) (12.9) -------------- -------------- Net cash flow to financing activities $(392.4) $ (616.5) ============= =============
In June 1999, we issued $150 million in aggregate principal of unsecured Senior Notes, Series 1999-A, with an annual coupon rate of 6.7%, due June 30, 2009; and $80 million of Medium-Term Notes, Series G, with an annual coupon rate of 6.3%, due June 21, 2001. During the first nine months of 1999, we retired $309 million in aggregate principal amount of mandatory debt maturities. In July 1999, we repurchased $23.7 million in aggregate principal amount of First and Refunding Mortgage Bonds that were made available through the open market. As of September 30, 1999, we have available for our use to meet capital requirements $915 million of remaining principal amount under our currently effective shelf registrations with the Securities and Exchange Commission. We have 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 $257.6 million at September 30, 1999. On November 1, 1999, we issued $75 million in aggregate principal of unsecured Senior Notes, Series 1999-B, with an annual coupon rate of 7.2%, due November 1, 2004. INVESTING ACTIVITIES for the first nine months of 1999 resulted in a net cash outflow of $517.2 million primarily due to $452.8 million of plant expenditures, $39.4 million of nuclear fuel expenditures and $19.9 million of contributions to nuclear decommissioning trusts. Of the plant expenditures, we spent approximately $221.5 million on Generation Business projects, including additional capacity and environmental upgrades, and $231.3 million on Wires Business projects. Cash flow to investing activities was as follows:
Nine Months Ended September 30, 1999 1998 ---------- ----------- (Millions) Plant expenditures $ (452.8) $ (300.6) Nuclear fuel (39.4) (70.2) Nuclear decommissioning contributions (19.9) (37.5) Other (5.1) (3.7) --------- ---------- Net cash flow to investing activities $ (517.2) $ (412.0) ========= ==========
PAGE 14 VIRGINIA ELECTRIC AND POWER COMPANY ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS GENERAL REVENUES for the three months and nine months ended September 30, 1999 were allocated to the Generation and Wires Businesses as follows:
Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 ------------- -------------- ------------- ------------ (Millions) (Millions) Generation $ 1,076.0 $ 1,013.6 $ 2,688.6 $ 2,576.4 Wires 354.7 329.1 905.6 867.2
REVENUES for the three months and nine months ended September 30, 1999 varied from the same periods in the prior year primarily due to the following factors that affect both the Generation and Wires Businesses.
Three Months Ended Nine Months Ended September 30, September 30, 1999 vs. 1998 1999 vs. 1998 ---------------------------------- --------------------------------- (Millions) (Millions) Revenue - Electric Service Customer growth $ 21.0 $ 54.5 Weather 5.1 12.5 Base rate refund 153.7 Base rate reduction (14.9) (46.3) Fuel rate variance 17.8 18.7 Other retail, net (2.1) 2.7 ------------ ---------- Total retail 26.9 195.8 ----------- ---------- Other electric service 10.2 31.2 ----------- ---------- Total electric service $ 37.1 $ 227.0 ============= ===========
ELECTRIC SERVICE REVENUES consists primarily 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 three months and nine months ended September 30, 1999 were customer growth, weather, rate refund/rate reduction, and changes in fuel rates. Customer growth - There were 37,735 more customers at September 30, 1999 as compared to September 30, 1998. These additional customers increased our electric service revenues by $21.0 million and $54.5 million for the quarter and nine months ended September 30, 1999, respectively, as compared to the same periods in 1998. Weather - Electric service revenues for the nine months ended September 30, 1999 increased $12.5 million over the comparable period in 1998. This overall net increase reflects higher electricity demand for heating and cooling purposes during the first quarter and majority of the third quarter of 1999 as compared to those periods in the prior year. These increases were partially offset by lower electricity demand in the second quarter of 1999 due to somewhat milder weather during that period as compared to the same period in the prior year. PAGE 15 VIRGINIA ELECTRIC AND POWER COMPANY ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Heating and cooling degree-days were as follows:
Three months Ended Nine months Ended September 30, September 30, 1999 1998 Normal 1999 1998 Normal -------------------------------- ---------------------------------- Heating degree-days 2,240 2,035 2,431 Percentage change from prior year 10.1% (12.8)% Cooling degree-days 1,095 1,148 1,072 1,460 1,612 1,522 Percentage change from prior year (4.6)% 18.0% (9.4)% 25.7%
Rate refund and rate reduction -- In the second quarter of 1998, as part of the settlement to resolve then outstanding rate proceedings, we agreed to a one-time rate refund of approximately $150 million and a two-phased rate reduction, $100 million effective March 1, 1998 and an additional $50 million effective March 1, 1999, with a base rate freeze through February 2002. Electric service revenues for the nine months ended September 30, 1999 increased approximately $150 million as compared to the same period in 1998 because of the 1998 rate refund. This increase was partially offset by the two-phased rate reduction that reduced electric service revenues for the three months and nine months ended September 30, 1999 by $14.9 and $46.3 million, respectively. Fuel rates - The increase in fuel rate revenues is attributable to higher fuel rates in effect during the second and third quarters of 1999, as compared to the same periods in 1998. IMPAIRMENT OF REGULATORY ASSETS was recorded during the second quarter of 1998 in connection with the 1998 rate settlement. See Note (b) to the CONSOLIDATED FINANCIAL STATEMENTS. INTEREST EXPENSE, NET decreased for the nine months ended September 30, 1999, as compared to the same period in 1998, due in part to the interest cost associated with the 1998 rate refund in the 1998 rate settlement. See Note (b) in CONSOLIDATED FINANCIAL STATEMENTS for further discussion of the 1998 rate settlement. In addition, upon discontinuance of SFAS No. 71, we began capitalizing interest in accordance with SFAS No. 34, CAPITALIZATION OF INTEREST COST, in our Generation Business construction projects. EXTRAORDINARY ITEM -DISCONTINUANCE OF SFAS NO. 71 - On March 25, 1999, the Governor of Virginia signed into law legislation establishing a detailed plan to restructure the electric utility industry in Virginia. See Note (b) to CONSOLIDATED FINANCIAL STATEMENTS. Under this legislation, our base rates will remain generally unchanged until July 2007. We believe these rates will provide a reasonable opportunity to recover potentially stranded costs. The legislation's deregulation of generation is an event that required discontinuation of SFAS No. 71 for our generation operations although recovery of generation-related costs continues to be provided through capped rates and wires charges assessed to those customers opting for alternate suppliers. Our transmission and distribution operations continue to meet the criteria for recognition of regulatory assets and liabilities as defined by SFAS No. 71. In addition, cost-based recovery of fuel expenses continues until July 2007. Generation-related assets and liabilities that will not be recovered through the capped rates were written off in March 1999, resulting in an after-tax charge to earnings of $254.8 million. PAGE 16 VIRGINIA ELECTRIC AND POWER COMPANY ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) GENERATION BUSINESS Our Generation Business increased net income by approximately $38.8 million and $54.8 million for the three months and nine months ended September 30, 1999 as compared to the same periods in 1998. The overall change was primarily attributable to changes in the composition and the fair value of our portfolio of commodity contracts as well as the settlement of commodity contract liabilities using Company resources rather than market purchases. Selected financial information relevant to our Generation Business is as follows:
Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 -------------- ------------ ------------ ------------ (Millions) (Millions) Revenues--electric service $ 942.1 $ 931.9 $ 2,427.8 $ 2,395.8 Revenues--other 133.9 81.7 260.8 180.6 Fuel, net 317.8 282.8 779.1 753.3 Purchased power capacity, net 195.9 216.7 604.3 601.0 Operation and maintenance 131.7 123.4 365.3 319.6 Earnings before interest and taxes 289.1 240.5 540.9 477.0 Net income 167.7 128.9 284.2 229.4
REVENUES-OTHER includes sales of electricity beyond our service territory and sales of natural gas, nuclear consulting services, energy management services and other revenue. The increase for the three months and nine months ended September 30, 1999, as compared to the same periods in 1998, is primarily due to changes in the composition and the fair value of our portfolio of commodity contracts as well as the settlement of commodity contract liabilities using Company resources rather than market purchases. FUEL, NET increased for the three months ended September 30, 1999 primarily due to increased energy purchases to meet system requirements and the effect of increased fuel rate recoveries in 1999. FUEL, NET for the nine months ended September 30, 1999 increased due to increased fuel costs resulting from higher production from our generating units and increased energy purchases, offset in part by deferral of fuel costs expected to be recovered in future fuel rates. PURCHASED POWER CAPACITY, NET for the three months ended September 30, 1999 decreased as compared to the comparable period in 1998, primarily due to the timing of the accrual of certain contract payments in the third quarter of 1998. OPERATIONS AND MAINTENANCE increased for the nine months ended September 30, 1999 as compared to comparable period in 1998, primarily as a result of costs associated with planned outages. PAGE 17 VIRGINIA ELECTRIC AND POWER COMPANY ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) WIRES BUSINESS Overall, our Wires Business contributed $9.1 million less to net income for the three months ended September 30, 1999, as compared to the same period in 1998, primarily due to increased service restoration costs associated with hurricane damage. For the nine months ended September 30, 1999, our Wires Business generated an additional $8.1 million of net income as compared to the same period in 1998. The overall change was primarily due to increased revenues for electric transmission services and customer growth, offset in part by increased expenses associated with ice storm and hurricane damage. Selected financial information relevant to our Wires Business is as follows:
Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 ------------- ---------------- ------------ ------------ (Millions) (Millions) Revenues--electric service $ 348.0 $ 321.1 $ 891.8 $ 850.5 Operation and maintenance 99.8 72.2 231.4 213.0 Earnings before interest and taxes 144.1 157.8 367.1 355.6 Net income 68.0 77.1 164.2 156.1
ELECTRIC SERVICE REVENUES increased in both the three months and nine months ended September 30, 1999, as compared to the same period in 1998, due to increased revenues for electric transmission services and increased sales resulting primarily from customer growth. OPERATIONS AND MAINTENANCE related to the Wires Business increased for the three months and nine months ended September 30, 1999 as compared to comparable periods in 1998, primarily due to increased service restoration costs during the first and third quarters of 1999 associated with ice storm and hurricane damage. CONTINGENCIES For information on contingencies, see Note (c) to CONSOLIDATED FINANCIAL STATEMENTS. FUTURE ISSUES COMPETITION On March 25, 1999, the Governor of Virginia signed into law legislation establishing a detailed plan to restructure the electric utility industry in Virginia which will provide for customer choice beginning in 2002. Under this legislation, our base rates will remain unchanged until July 2007 and recovery of generation-related costs will continue to be provided through capped rates and wires charges assessed to those customers opting for alternate suppliers. In the absence of capped rates, we would be exposed, on a pre-tax basis, to approximately $3.2 billion of potential losses related to long-term power purchase commitments. The legislation's deregulation of generation is an event that requires discontinuation of SFAS No. 71 for our generation operations. Our transmission and distribution operations continue to meet the criteria for recognition of regulatory assets and liabilities as defined by SFAS No. 71. In addition, cost-based recovery of fuel expenses continues until July 2007. PAGE 18 VIRGINIA ELECTRIC AND POWER COMPANY ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) We are subject to a base rate freeze at reduced revenue levels until July 2007. In addition, we remain subject to numerous risks including, among others, exposure to long-term power purchase commitment losses, environmental contingencies, changes in tax laws, decommissioning costs, inflation, increased capital costs, and recovery of certain other items. We believe the stable rates that are provided until July 2007 by the legislation present a reasonable opportunity to recover a substantial portion of our potentially stranded costs as more fully described in our 1998 Form 10-K. See Competition--Exposure to Potentially Stranded Costs, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations. For additional information, see Note (b) to CONSOLIDATED FINANCIAL STATEMENTS and our discussion of the retail access pilot program in Item 5. OTHER INFORMATION in Part II of this Form 10-Q. NORTH CAROLINA RATES In support of the request of our parent company, Dominion Resources, for approval by the North Carolina Utilities Commission of its proposed merger with Consolidated Natural Gas Company, we and Dominion Resources reached an agreement with the Public Staff of the North Carolina Utilities Commission. As part of the agreement, we agreed not to request an increase in our North Carolina retail electric base rates until after December 31, 2005, except for certain events that would have a significant financial impact on our Company. Such events could include any governmental action or an occurrence that is beyond our control and not attributable to our fault or negligence. However, fuel rates are still subject to change under the annual fuel cost adjustment proceedings. The North Carolina Utilities Commission approved the merger, subject to conditions agreed to by Dominion Resources and our Company, on October 18, 1999. CLEAN AIR ACT MATTERS On November 8, 1999 and September 21, 1999, we received notices from the Attorney General of the States of Connecticut and New York, respectively, of their intention to file suit against Company for alleged violations of the Clean Air Act. The notices question whether modifications at certain Virginia Power generating facilities were properly permitted under the Clean Air Act and allege that emissions from these facilities have contributed to damage to public health and the environment in the Northeast. To date, no suits have been filed. We believe, based on newspaper reports and other sources, that we are one of a number of companies with fossil fuel power generating stations in the southeast and central U.S. to have received such notifications. We believe that we have obtained the permits necessary in connection with our generating facilities and that suits, if any, filed by the Attorney Generals would not have a material adverse effect on our financial condition or results of operations. YEAR 2000 READINESS The systems essential to providing electricity to our 2 million customers during the New Year rollover are year 2000 ready. Greater than 99% of our systems identified as critical to our operations are year 2000 ready. We anticipate that 100% of such systems will be year 2000 ready prior to January 1, 2000. During the remainder of 1999, the project team will focus on validating and fine-tuning contingency plans, non-critical remediation, validation of remediated components, and validation of critical supplier readiness. We expect year 2000 costs to be approximately $28 million to $33 million. Actual year 2000 costs of $23 million have been expended as of September 30, 1999. Expenses not yet incurred relate to contingency planning, communications activities, remediation of non-critical systems and continued remediation validation. We have completed a comprehensive assessment of the readiness of our suppliers. Suppliers include vendors, manufacturers, material providers, service providers, other energy providers and business partners. Based on this assessment, we have developed contingency plans for critical suppliers such as having extra supplies on hand. PAGE 19 VIRGINIA ELECTRIC AND POWER COMPANY ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Our year 2000 readiness efforts include evaluation of reasonably likely worst case scenarios and the development of contingency plans to address such scenarios, should they occur. In June 1999, we submitted our final contingency plans to the Southeastern Electric Reliability Council, one of the ten regional reliability councils in the North American Electric Reliability Council (NERC). When developing our contingency plans, we took into account that the Company, and the entire electric power industry, already have extensive contingency plans in place for many events such as extreme temperatures, storms, equipment failures, sudden loss of customer load or sudden loss of a generation unit. Year 2000 contingency planning is an extension of these existing plans. For example, one contingency plan allows for multiple alternate means of voice communications in the event that the public communication network fails. Our contingency planning efforts also include developing precautionary measures. Precautionary measures are intended to position us to be able to mitigate the impact of any year 2000 related problem, in the unlikely event a problem occurs. An example of these precautionary measures includes planned additional staffing in key operational positions to facilitate quick responses to unexpected events. We are actively participating in industry contingency planning efforts at the regional and national level. We successfully participated in two nationwide drills by electric utilities on April 9, 1999, and on September 8-9, 1999, coordinated by the NERC. The April exercise simulated the partial failure of some primary voice and data communications to demonstrate the ability of electric utilities to communicate operating information using backup systems. The September drill was a simulation of the rollover and tested administration, operating, communications, and contingency response plans for the year 2000 transition. No actual communication systems or generating units were shut down during either exercise. Service to our customers during the two drills was not affected. We will continue to refine and validate our year 2000 contingency plans throughout the remainder of 1999. We cannot estimate or predict the potential adverse consequences, if any, that could result from a third party's failure to effectively address the year 2000 issue, but believes that any impact would be short-term in nature and would not have a material adverse impact on results of operations. Based on our Company's and industry analyses to date, we do not believe the most reasonably likely worst case scenarios identified above, if they were to occur, would have a material adverse affect on our businesses or results of operations. For additional information, see YEAR 2000 COMPLIANCE under MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS included in our Annual Report on Form 10-K for the year ended December 31, 1998. MARKET RISK SENSITIVE INSTRUMENTS AND RISK MANAGEMENT COMMODITY PRICE RISK As part of our strategy to market energy from our generation capacity and to manage related risks, we manage a portfolio of derivative commodity contracts held for trading purposes. These contracts are sensitive to changes in the prices of natural gas and electricity. We employ established policies and procedures to manage the risks associated with these price fluctuations and use various commodity instruments, such as futures, swaps and options, to reduce risk by creating offsetting market positions. In addition, we seek to use our generation capacity, when not needed to serve customers in our service territory, to satisfy commitments to sell energy. PAGE 20 VIRGINIA ELECTRIC AND POWER COMPANY ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) One of the techniques commonly used to measure risk in a commodity trading portfolio is sensitivity analysis, which determines a hypothetical change in the fair value of the portfolio which would result from assumed changes in the market prices of the related commodities. The fair value of the portfolio is a function of the underlying commodity, contract prices and market prices represented by each derivative commodity contract. For exchange-for-physical contracts, basis swaps, fixed price forward contracts and options which require physical delivery of the underlying commodity, market value reflects our best estimates considering over-the-counter quotations, time value and volatility factors of the underlying commitments. Exchange-traded futures and options are marked to market based on closing exchange prices. We have determined a hypothetical loss by calculating a hypothetical fair value for each contract assuming a 10 percent unfavorable change in the market prices of the related commodity and comparing it to the fair value of the contracts based on market prices at September 30, 1999 and December 31, 1998. This hypothetical 10 percent change in commodity prices would have resulted in a hypothetical loss of approximately $4.3 million and $13.5 million in the fair value of our commodity contracts as of September 30, 1999 and December 31, 1998, respectively. The sensitivity analysis does not include the price risks associated with utility fuel requirements, since these costs are generally provided for through our rates established by the regulatory commissions having jurisdiction over fuel cost recovery, nor does it include risks that are either non-financial or non-quantifiable. In addition, provisions are made in the financial statements to address credit risk. EQUITY PRICE RISK AND INTEREST RATE RISK We are exposed to fluctuations in interest rates related to debt securities and prices of marketable equity securities held in its Nuclear Decommissioning Trusts. In addition, we are exposed to interest rate risk through our 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 our Annual Report on Form 10-K for the year ended December 31, 1998. PAGE 21 VIRGINIA ELECTRIC AND POWER COMPANY 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. PAGE 22 VIRGINIA ELECTRIC AND POWER COMPANY PART II. - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS - ------------------------- ENVIRONMENTAL MATTERS In April 1999, the Company was notified by the Department of Justice of alleged noncompliance with the EPA's oil spill prevention, control and countermeasures (SPCC) plans and facility response plan (FRP) requirements at one of the Company's power stations. If, in a legal proceeding, such instances of noncompliance are deemed to have occurred, the Company may be required to remedy any alleged deficiencies and pay civil penalties. Settlement of this matter is currently in negotiation and is not expected to be material to the Company's financial condition or results of operations. In August 1999, the Company identified matters at certain other power stations that the EPA might view as not in compliance with the SPCC and FRP requirements. The Company reported these matters to the EPA and its plan for correction thereof. Presently, the EPA has not assessed any penalties against the Company, pending its review of the Company's disclosure information. Future resolution of these matters is not expected to have a material impact on the Company's financial condition or results of operations. CLEAN AIR ACT MATTERS On November 8, 1999 and September 21, 1999, Virginia Power received notices from the Attorney General of the States of Connecticut and New York, respectively, of their intention to file suit against the Company for alleged violations of the Clean Air Act. The notices question whether modifications at certain Virginia Power generating facilities were properly permitted under the Clean Air Act and allege that emissions from these facilities have contributed to damage to public health and the environment in the Northeast. To date, no suits have been filed. The Company believes, based on newspaper reports and other sources, that it is one of a number of companies with fossil fuel power generating stations in the southeast and central U.S. to have received such notifications. The Company believes that it has obtained the permits necessary in connection with its generating facilities and that suits, if any, filed by the Attorney Generals will not have a material adverse effect on the Company and its subsidiaries. ITEM 5. OTHER INFORMATION - ------------------------- REGULATION - ---------- VIRGINIA As previously reported, on March 20, 1998, the Virginia Commission issued an Order instructing Virginia Power and AEP-Virginia, as the Commonwealth's two largest investor-owned utilities, each to design and file a retail access pilot program. We filed a report on November 2, 1998, describing the details, objectives and characteristics of our proposed retail access pilot program. On August 6, 1999 the Hearing Examiner issued a report on interim rules for the introduction of electric and natural gas retail competition in Virginia. On September 8, 1999, Virginia Power, the Virginia Commission Staff and two other parties entered into an agreement which resolved the size and scope of the proposed Pilot Program and the methodology for determining the market price of electricity used in calculating the wires charge assessed to those customers opting for alternate suppliers. A Hearing was held on September 8-9, 1999 and the Hearing Examiner's Report is anticipated later this year. FERC On June 3, 1999, Virginia Power, together with American Electric Power Services Corporation, Consumers Energy Company, The Detroit Edison Company, and First Energy Corporation, on behalf of themselves and their public utility operating company subsidiaries filed with FERC applications under Sections 205 and 203 of the Federal Power Act for approval of the proposed Alliance Regional Transmission Organization (Alliance RTO). PAGE 23 VIRGINIA ELECTRIC AND POWER COMPANY PART II. - OTHER INFORMATION (CONTINUED) The application seeks approval to create the Alliance RTO. If accepted, the Alliance RTO would operate the transmission systems of the companies, ensure transmission reliability and provide non-discriminatory access to the transmission grid. The applications include a proposed Alliance RTO open access transmission tariff that would cover service into, from and through the Alliance RTO. On October 1, 1999 the application process to form the Alliance RTO was completed. The Alliance Companies requested FERC issue an order approving the formation of the Alliance RTO by December 31, 1999. RATES - ----- VIRGINIA On October 22, 1999, Virginia Power filed an application with the Virginia Commission for an increase of approximately $86 million in fuel rates to be effective December 1, 1999. The Company is waiting for a hearing to be scheduled. NORTH CAROLINA RATE AGREEMENT In support of our parent company, Dominion Resources', request for approval by the North Carolina Utilities Commission of its proposed merger with Consolidated Natural Gas Company, the Company and Dominion Resources reached an agreement with the Public Staff of the North Carolina Utilities Commission. As part of the agreement, the Company agreed not to request an increase in our North Carolina retail electric base rates until after December 31, 2005, except for certain events that would have a significant financial impact on our Company. Such events could include any governmental action or an occurrence that is beyond our control and not attributable to our fault or negligence. However, fuel rates are still subject to change under the annual fuel cost adjustment proceedings. The North Carolina Utilities Commission approved the merger, subject to conditions agreed to by Dominion Resources and our Company, on October 18, 1999. COGENERATORS AND SMALL POWER PRODUCERS As previously reported, on November 6, 1998 we filed for approval of a new Schedule 19 which governs purchases from cogenerators and small power producers. On July 16, 1999, the North Carolina Commission issued an order directing us to file, on or before July 26, 1999, a long-term standard contract terms and conditions for five, ten and fifteen year periods for qualifying hydro-electric facilities and small power producers. On August 26, 1999 we filed the standard contract terms as directed by the North Carolina Commission. FUEL FILING On September 17, 1999, the Company filed a request with the North Carolina Commission for a $5.5 million increase in annual fuel rates. A hearing on the matter is scheduled for November 16, 1999. SOURCES OF POWER - ---------------- Virginia Power established a new one-hour integrated service area summer peak demand of 16,216 MW on July 6, 1999. Also on July 6, 1999, a new system energy output record was established for a 24-hour period of 326,188 MWh. FUTURE SOURCES OF POWER - ----------------------- As previously reported, on May 14, 1999 the Virginia Commission approved construction of four gas-fired turbine generators in Fauquier County, Virginia. A Petition to Appeal the approval was filed by an opposing party July 13, 1999, in the Virginia Supreme Court. On September 28, 1999 the Virginia Supreme Court agreed to hear the Appeal. The same party has appealed the air permit issued to the Company by the Department of Environmental Quality. The Company will participate in both of the appeals in support of upholding the applicable order and permit. Construction of the units has begun with commercial operation expected by mid 2000. PAGE 24 VIRGINIA ELECTRIC AND POWER COMPANY PART II - OTHER INFORMATION (CONTINUED) ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ---------------------------------------- (a) Exhibits: 3 Bylaws as in effect October 15, 1999 (filed herewith). 27 Financial Data Schedule (filed herewith). (b) Reports on Form 8-K: The Company filed a Current Report on Form 8-K, dated October 27, 1999, relating to the sale of $75 million of Senior notes. PAGE 25 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. VIRGINIA ELECTRIC AND POWER COMPANY Registrant November 12, 1999 /S/ M. S. Bolton, Jr. ------------------------------------------- M. S. Bolton, Jr. Vice President and Controller (Principal Accounting Officer)
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M+T-A;%)'0@T*/#P-"B]7:&ET95!O:6YT(%LP+CDV-#,@,2`P+C@R-3$@70T* M+T=A;6UA(%LQ+CD@,2XY(#$N.2!=#0HO36%TF4@.34-"B]2;V]T(#,@,"!2#0HO26YF;R`Q(#`@ M4@T*+TE$(%L\-F0S,CEC93EA,#EF.#0V.30W8V,T,6(T8V9E.#9A8F4^/#9D M,S(Y8V4Y83`Y9C@T-CDT-V-C-#%B-&-F93@V86)E/ET-"CX^#0IS=&%R='AR 2968-"C@R-34R#0HE)45/1@T* ` end EX-3.2 3 BYLAWS Exhibit 3.2 BYLAWS OF VIRGINIA ELECTRIC AND POWER COMPANY As amended and in effect on October 15, 1999 (and April 16, 1999 in the case of Article XI) TABLE OF CONTENTS Article Page I Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 II Shareholders' Meetings . . . . . . . . . . . . . . . . . . . . .1 III Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . .1 IV Special Meetings . . . . . . . . . . . . . . . . . . . . . . . .1 V Notice of Shareholders' Meetings and Voting Lists. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 VI Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . .3 VII Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 VIII Proxy and Voting . . . . . . . . . . . . . . . . . . . . . . . .4 IX Board of Directors . . . . . . . . . . . . . . . . . . . . . . .4 X Powers of Directors. . . . . . . . . . . . . . . . . . . . . . .4 XI Executive and Other Committees . . . . . . . . . . . . . . . . .5 XII Meetings of Directors and Quorum . . . . . . . . . . . . . . . .5 XIII Action Without a Meeting . . . . . . . . . . . . . . . . . . . .7 XIV Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 XV Eligibility of Officers. . . . . . . . . . . . . . . . . . . . .7 XVI Chairman of the Board of Directors and President. . . . . . . . . . . . . . . . . . . . . . . . . . . .8 XVII Vice Presidents. . . . . . . . . . . . . . . . . . . . . . . . .8 XVIII Corporate Secretary. . . . . . . . . . . . . . . . . . . . . . .9 XIX Treasurer. . . . . . . . . . . . . . . . . . . . . . . . . . . .9 XX Controller . . . . . . . . . . . . . . . . . . . . . . . . . . 10 XXI Resignations and Removals. . . . . . . . . . . . . . . . . . . 10 XXII Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . . . 10 XXIII Certificates for Shares. . . . . . . . . . . . . . . . . . . . 11 XXIV Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . 11 XXV Record Date. . . . . . . . . . . . . . . . . . . . . . . . . . 12 XXVI Voting of Shares Held. . . . . . . . . . . . . . . . . . . . . 12 XXVII Bonds, Debentures and Notes Issued Under an Indenture. . . . . . . . . . . . . . . . . . . . . . . . . . . 13 XXVIII Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . 13 XXIX Emergency Bylaws . . . . . . . . . . . . . . . . . . . . . . . 13 BYLAWS OF VIRGINIA ELECTRIC AND POWER COMPANY ARTICLE I. Name. The name of the Corporation is Virginia Electric and Power Company. ARTICLE II. Shareholders' Meetings. All meetings of the Shareholders shall be held at such place, within or without of the Commonwealth, as provided in the notice of the meeting given pursuant to Article V. If the Chairman of the Board of Directors determines that the holding of any meeting at the place named in the notice might be hazardous, he may cause it to be held at some other place deemed by him suitable and convenient, upon arranging notice to Shareholders who attend at the first place and reasonable opportunity for them to proceed to the new place. ARTICLE III. Annual Meeting. The Annual Meeting of the Shareholders shall be held on the fourth Friday in April in each year if not a legal holiday, and if a legal holiday then on the next business day not a legal holiday. In the event that such Annual Meeting is omitted by oversight or otherwise on the date herein provided for, the Board of Directors shall cause a meeting in lieu thereof to be held as soon thereafter as conveniently may be, and any business transacted or elections held at such meeting shall be as valid as if transacted or held at the Annual Meeting. Such subsequent meeting shall be called in the same manner as provided for Special Shareholders' Meetings. ARTICLE IV. Special Meetings. Special Meetings of the Shareholders shall be held whenever called by the Chairman of the Board of Directors, any Chief Executive Officer, or a majority of the Directors or in accordance with the provisions of Article III of the Articles of Incorporation. Special Meetings of the Shareholders shall also be held following the accrual or termination of voting rights of the Preferred Stock, whenever requested to be called in the manner provided in Article III of the Articles of Incorporation. 1 ARTICLE V. Notice of Shareholders' Meetings and Voting Lists. Written notice stating the place, day and hour of each Shareholders' Meeting and the purpose or purposes for which the meeting is called shall be given not less than 10 nor more than 60 days before the date of the meeting, or such longer period as is specified below, by, or at the direction of, the Board of Directors or its Chairman, any Chief Executive Officer, any President, or any Vice President or the Corporate Secretary or any Assistant Corporate Secretary, by hand or by mail, to each Shareholder of record entitled to vote at the meeting, at his or her registered address and the person giving such notice shall make affidavit in relation thereto. Such notice shall be deemed to be given when deposited in the United States mails addressed to the Shareholder at his address as it appears on the stock transfer books, with postage thereon prepaid or when hand delivered at said address. Notice of a Shareholders' Meeting to act on an amendment of the Articles of Incorporation, on a plan of merger or share exchange, on a proposed dissolution of the Corporation or on a proposed sale, lease or exchange, or other disposition, of all, or substantially all, of the property of the Corporation otherwise than in the usual and regular course of business, shall be given in the manner provided above, not less than 25 nor more than 60 days before the date of the meeting. Any notice of a Shareholders' Meeting to act on an amendment of the Articles of Incorporation, a plan of merger or share exchange or a proposed sale, lease or exchange, or other disposition of all, or substantially all, of the property of the Corporation otherwise than in the usual and regular course of business shall be accompanied by a copy of the proposed amendment, plan of merger or exchange or agreement effecting the disposition of assets. Any meeting at which all Shareholders having voting power in respect of the business to be transacted thereat are present, either in person or by proxy, or of which those not present waive notice in writing, whether before or after the meeting, shall be a legal meeting for the transaction of business notwithstanding that notice has not been given as hereinbefore provided. The officer or agent having charge of the share transfer books of the Corporation shall make, at least 10 days before each meeting of Shareholders, a complete list of the Shareholders entitled to vote at such meeting or any adjournment thereof, with the address of and number of shares held by each. The list shall be arranged by voting group and within each voting group by class or series of shares. Such list, for a period of 10 days prior to such meeting, shall be kept on file at the principal office of the Corporation. Any person who shall have been a Shareholder of record for at least 6 months immediately preceding his demand or who shall be the holder of record of at least 5% of all the outstanding shares of the Corporation, upon demand stating with reasonable particularity the purpose thereof, shall have the right to inspect such list, in person, for any proper purpose if such list is directly connected with such purpose, during usual business hours within the period of 10 days prior to the meeting. Such list shall also be produced at the time and place of the meeting and shall be subject to the inspection of any Shareholder during the whole time of the meeting for the purposes thereof. 2 ARTICLE VI. Waiver of Notice. Notice of any Shareholders' Meeting may be waived by any Shareholder, whether before or after the date of the meeting. Such waiver of notice shall be in writing, signed by the Shareholder and delivered to the Corporate Secretary. Any Shareholder who attends a meeting shall be deemed to have waived objection to lack of notice or defective notice of the meeting, unless the Shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting and shall be deemed to have waived objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the Shareholder objects to considering the matter when it is presented. ARTICLE VII. Quorum. At any meeting of the Shareholders, a majority in number of votes of all the shares issued and outstanding having voting power in respect of the business to be transacted thereat, represented by such Shareholders of record in person or by proxy, shall constitute a quorum, but a lesser interest may adjourn any meeting from time to time and the meeting may be held as adjourned without further notice. When a quorum is present at any meeting, a majority vote represented thereat shall decide any question brought before such meeting, unless the question is one upon which by express provision of law or of the Articles of Incorporation or of these Bylaws a larger or different vote is required, in which case such express provision shall govern and control the decision of such question. The provisions of this Article are, however, subject to the provisions of Article III of the Articles of Incorporation. 3 ARTICLE VIII. Proxy and Voting. Shareholders of record entitled to vote may vote at any meeting held, in person or by proxy executed in writing by the Shareholder or by his duly authorized attorney-in-fact, which shall be filed with the Corporate Secretary or the secretary of the meeting before being voted. A proxy shall designate only one person as proxy, except that proxies executed pursuant to a general solicitation of proxies may designate one or more persons as proxies. Proxies shall entitle the holders thereof to vote at any adjournment of the meeting, but shall not be valid after the final adjournment thereof. No proxy shall be valid after 11 months from its date unless the appointment form expressly provides for a longer period of validity. Shareholders entitled to vote may also be represented by an agent personally present, duly designated by power of attorney, with or without power of substitution, and such power of attorney shall be produced at the meeting on request. Each holder of record of stock of any class shall, as to all matters in respect of which stock of any class has voting power, be entitled to one vote for each share of stock of such class standing in his name on the books. ARTICLE IX. Board of Directors. A Board of Directors shall be chosen by ballot at the Annual Meeting of the Shareholders or at any meeting held in lieu thereof as herein before provided in Article III. The number of Directors may be fixed from time to time by resolution of the Board of Directors but shall not be less than six nor more than thirteen. Except as otherwise provided in Article XXI hereof, each Director shall serve until the next Annual Meeting of Shareholders and until his successor is duly elected and qualified or until the number of Directors is decreased. The foregoing provisions are, however, subject to Article III of the Articles of Incorporation, if and whenever the same may become applicable by the accrual of voting rights to the Preferred Stock. ARTICLE X. Powers of Directors. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be managed under the direction of, the Board of Directors, subject to any limitation set forth in the Articles of Incorporation and so far as this delegation of authority is not inconsistent with the laws of the Commonwealth of Virginia, with the Articles of Incorporation or with these Bylaws. 4 ARTICLE XI. Executive and Other Committees. The Board of Directors, by resolution passed by a majority of the whole Board, may designate two or more of its number to constitute an Executive Committee. If a quorum is present, the Committee may act upon the affirmative vote of a majority of the Committee members present. When the Board of Directors is not in session, the Executive Committee shall have and may exercise all of the authority of the Board of Directors except that the Executive Committee shall not (i) approve or recommend to Shareholders action that Virginia law requires to be approved by Shareholders; (ii) fill vacancies on the Board of Directors or any of its Committees or elect officers; (iii) Amend Articles of Incorporation other than as permitted by statute; (iv) adopt, amend or repeal these Bylaws; (v) approve a plan of merger not requiring Shareholder approval; (vi) authorize or approve a distribution, except according to a general formula or method prescribed by the Board of Directors; or (vii) authorize or approve the issuance or sale or contract for sale of shares, or determine the designation and relative rights, preferences, and limitations of a class or series of shares, except that the Board of Directors may authorize the Executive Committee to do so within limits specifically prescribed by the Board of Directors. If the Executive Committee is created for any designated purpose, its authority shall be limited to such purpose. The Executive Committee shall report its action to the Board of Directors. Regular and special meetings of the Executive Committee may be called and held subject to the same requirements with respect to time, place and notice as are specified in these Bylaws for regular and special meetings of the Board of Directors. Members of the Executive Committee shall receive such compensation for attendance at meetings as may be fixed by the Board of Directors. The Board of Directors likewise may appoint from their number other Committees from time to time, the number composing such Committees and the power conferred upon the same to be subject to the foregoing exceptions for an Executive Committee but otherwise as determined by vote of the Board of Directors. ARTICLE XII. Meetings of Directors and Quorum. Regular Meetings of the Board of Directors may be held at such places within or without the Commonwealth of Virginia and at such times as the Board by vote may determine from time to time, and if so determined no notice thereof need be given. Special Meetings of the Board of Directors may be held at any time or place either within or without the Commonwealth of Virginia, whenever called by the Chairman of the Board of Directors, the President, any Vice President, the Corporate Secretary, or three or more Directors, notice thereof being given to each Director by the Corporate Secretary or an Assistant Corporate Secretary, the Directors or the officer calling the meeting, or at any time without formal notice provided all the Directors are present or those not present waive notice thereof. Notice of Special Meetings, stating the time and place thereof, shall be given by mailing the same to each Director at his residence or business address at least two days before the meeting, or by delivering the same to him personally or telephoning the same to him at his residence or business address at least one day before the meeting, unless, in case of exigency, the Chairman of the Board of Directors or any Chief Executive Officer shall prescribe a shorter notice to be given personally or by telephoning each Director at his residence or business address. A written waiver of notice signed by the Director entitled to such notice, whether before or after the date of the meeting, shall be equivalent to the giving of such notice. A Director who attends or participates in a meeting shall be deemed to have waived timely and proper notice of the meeting unless the Director, at the beginning of the meeting or promptly upon his arrival, objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting. 5 A majority of the number of Directors fixed at the time in accordance with the Bylaws shall constitute a quorum for the transaction of business, but a lesser number may adjourn any meeting from time to time, and the meeting may be held without further notice. The foregoing provision is, however, subject to Article III of the Articles of Incorporation. When a quorum is present at any meeting, a majority of the members present thereat shall decide any question brought before such meeting, except as otherwise provided by law, by the Articles of Incorporation or by these Bylaws. 6 ARTICLE XIII. Action Without a Meeting. Any action required to be taken at a meeting of the Directors, or any action which may be taken at a meeting of the Directors or of a Committee, may be taken without a meeting if a consent in writing (which may be in any number of counterparts), setting forth the action so to be taken, shall be signed by all of the Directors, or all of the members of the Committee, as the case may be, either before or after such action is taken. Such consent shall have the same force and effect as a unanimous vote. ARTICLE XIV. Officers. The Board of Directors shall appoint such officers of the Corporation with such titles and duties as the Board in its discretion may determine. The Chairman of the Board of Directors and the Vice Chairman, if one is elected, shall be officers unless they are not full-time employees of the Corporation. The officers and the Chairman of the Board shall be elected or appointed by the Board of Directors after each election of Directors by the Shareholders, and a meeting of the Board of Directors may be held without notice for the purpose of electing officers following the Annual Meeting of the Shareholders. The foregoing shall not preclude the Board from electing individual officers at any regular or special meeting of the Board of Directors. The Board of Directors may appoint one or more Chief Executive Officers, Presidents, Chief Operating Officers, Chief Financial Officers, Treasurers and Controllers and other officers with such titles, powers and duties with respect to the Corporation and its operating divisions as the Board of Directors may prescribe. Except as otherwise prescribed by the Board of Directors, such officers shall have the powers and duties commonly incident to their offices. Where more than one such Chief Executive Officer or Chief Financial Officer has been so appointed, each shall be authorized to execute documents on behalf of the Corporation as its chief executive officer or chief financial officer, as the case may be, for purposes of filing the same with governmental or regulatory authorities including, without limitation, the State Corporation Commission of the Commonwealth of Virginia and the Securities and Exchange Commission. The officers appointed by the Board of Directors shall include a Corporate Secretary who shall perform the duties set forth in Article XVIII and such other duties as are commonly incident to such office. The Board of Directors, in its discretion, may appoint one or more Vice Presidents and one or more assistant officers to any of the officers it appoints with the exception of any Chief Executive Officers, Presidents, Chief Operating Officers or Chief Financial Officers, and may appoint such other officers or agents as it may deem advisable and prescribe their powers and duties. Unless otherwise provided by the Board, any such officer or agent shall have the powers and duties commonly incident to his office. Except as otherwise provided by the Board of Directors, each Chief Executive Officer, President and Vice President shall have authority to sign certificates of stock, bonds, deeds and contracts and to delegate such authority in such manner as may be approved by a Chief Executive Officer or President. ARTICLE XV. Eligibility of Officers. The Chairman of the Board of Directors, any Vice Chairman of the Board of Directors, any Chief Executive Officer and any President of the Corporation shall be Directors. The office of Chief Executive Officer may be held by a person who does not also hold the office of President. In the case where a Chief Executive Officer who is not a President has been appointed by the Board of Directors, any President also appointed shall not be chief executive officer, but shall have such other powers and responsibilities as are prescribed by the Board of Directors and these Bylaws. Any person may hold more than one office provided, however, that none of the Corporate Secretary, any Treasurer, any Chief Financial Officer or any Controller shall at the same time hold the office of Chairman of the Board of Directors or any office as Chief Executive Officer or President. 7 ARTICLE XVI. Chairman of the Board of Directors and Vice Chairman. The Chairman of the Board of Directors shall preside at the meetings of the Board of Directors. He may call meetings of the Board of Directors and of any Committee thereof whenever he deems it necessary. He shall call to order, and act as chairman of, all meetings of the Shareholders and prescribe rules of procedure therefor. He shall perform the duties commonly incident to his office and such other duties as the Board of Directors shall designate from time to time. In the absence of the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, if one has been elected, shall perform his duties. The Vice Chairman, if any, shall also perform the duties commonly incident to his office and such other duties as the Board of Directors shall designate from time to time. In the absence of the Vice Chairman of the Board of Directors, or if no Vice Chairman has been elected, his duties shall be performed by a Chief Executive Officer of the Corporation. If more than one Chief Executive Officer has been appointed, the Chairman shall from time to time designate the order in which such chief executive officers shall serve in the event of such absences. ARTICLE XVII. Presidents; Vice Presidents In the event of the absence or disability of a Chief Executive Officer, the duties and powers of the Chief Executive Officer shall be performed and exercised by the President; and in the event of the absence or disability of a President, the duties and powers of the President shall be performed and exercised by the Vice President designated to so act by the line of succession provided by the Board of Directors, or if not so provided by the Board of Directors, in accordance with the order of priority set forth below. Where the absent or disabled Chief Executive Officer or President has been appointed for a division, the officers in the line of succession referred to in this Article shall, unless otherwise provided by the Board of Directors, be officers in the corresponding division. The order of priority among Vice Presidents for succession referred to above is: (a) The Executive Vice Presidents in order of their seniority of first election to such office, or if two or more shall have been first elected to such office on the same day, in order of their seniority in age; (b) The Senior Vice Presidents in order of their seniority of first election to such office, or if two or more shall have been first elected to such office on the same day, in order of their seniority in age; (c) All other Vice Presidents at the principal office of the Corporation in the order of their seniority of first election to such office or if two or more shall have been first elected to such office on the same day, the order of their seniority in age; and (d) Any other persons that are designated on a list that shall have been approved by the Board of Directors, such persons to be taken in such order of priority and subject to such conditions as may be provided in the resolution approving the list. 8 ARTICLE XVIII. Corporate Secretary. The Corporate Secretary shall keep accurate minutes of all meetings of the Shareholders, the Board of Directors and the Executive Committee, shall perform the duties commonly incident to his office, and shall perform such other duties and have such other powers as the Board of Directors shall designate from time to time. The Corporate Secretary shall have power, together with a Chief Executive Officer, a President or a Vice President, to sign certificates for shares of stock. In his absence an Assistant Corporate Secretary shall perform his duties. ARTICLE XIX. Treasurer. The Treasurer, subject to the order of the Board of Directors, shall have the care and custody of the money, funds and securities of the Corporation and shall have and exercise under the supervision of the Board of Directors, all the powers and duties commonly incident to his office. He shall deposit all funds of the Corporation in such bank or banks, trust company or trust companies or with such firm or firms doing a banking business, as the Directors shall designate. He may endorse for deposit or collection all checks, notes, et cetera, payable to the Corporation or to its order, may accept drafts on behalf of the Corporation, and, together with the President or a Vice President, may sign certificates for shares of stock. All checks, drafts, notes and other obligations for the payment of money except bonds, debentures and notes issued under an Indenture shall be signed either manually or, if and to the extent authorized by the Board of Directors, through facsimile, by the Treasurer or an Assistant Treasurer or such other officer or agent as the Board of Directors shall authorize. Checks for the total amount of any payroll may be drawn in accordance with the foregoing provisions and deposited in a special fund. Checks upon this fund may be drawn by such person as the Treasurer shall designate. Where a Treasurer has been appointed to serve for a division of the Corporation, he shall exercise the foregoing power and duties with respect to such division. 9 ARTICLE XX. Controller. The Controller shall keep accurate books of account of the Corporation's transactions and shall perform such other duties and have such other powers as the Board of Directors shall designate from time to time. ARTICLE XXI. Resignation and Removals. Any Director may resign at any time by giving written notice to the Board of Directors, to the Chairman of the Board of Directors, to a Chief Executive Officer or to the Corporate Secretary, and any member of any Committee may resign by giving written notice either as aforesaid or to the Committee of which he is a member or the chairman thereof. Any officer may resign at any time by delivering notice to the Corporation. Any such resignation shall take effect at the time specified therein or, if the time be not specified, upon receipt thereof; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. The Shareholders, at any meeting called for the purpose, by vote of a majority of the stock having voting power issued and outstanding, may remove any Director from office with or without cause and elect his successor; but this provision is subject to Article III of the Articles of Incorporation, if and whenever the same may become applicable by the accrual of voting rights to the Preferred Stock. The Board of Directors, by vote of a majority of the entire Board, may remove any officer, agent or member of any Committees elected or appointed by them, with or without cause, from office. ARTICLE XXII. Vacancies. If the office of any officer or agent, one or more, becomes vacant by reason of death, disability, resignation, removal, disqualification or otherwise, the Directors at the time in office, may, by a majority vote at a meeting at which a quorum is present, choose a successor or successors who shall hold office for the unexpired term or until his successor is duly elected and qualified or his position is eliminated. 10 ARTICLE XXIII. Certificates for Shares. Every Shareholder shall be entitled to a certificate or certificates for shares of record owned by him in such form as may be prescribed by the Board of Directors, duly numbered and setting forth the number and kind of shares to which such Shareholder is entitled. Such certificates shall be signed by a Chief Executive Officer, a President or a Vice President and by a Treasurer or an Assistant Treasurer or the Corporate Secretary or an Assistant Corporate Secretary. The Board of Directors may also appoint one or more Transfer Agents and/or Registrars for its stock of any class or classes and may require stock certificates to be countersigned and/or registered by one or more of such Transfer Agents and/or Registrars. If certificates for shares are signed by a Transfer Agent or by a Registrar, the signatures thereon of the President or a Vice President and the Treasurer or an Assistant Treasurer or the Corporate Secretary or an Assistant Corporate Secretary may be facsimiles, engraved or printed. Any provisions of these Bylaws with reference to the signing of stock certificates shall include, in cases above permitted, such facsimiles. In case any officer or officers who shall have signed, or whose facsimile signature or signatures shall have been used on, any such certificate or certificates shall cease to be such officer or officers of the Corporation, whether because of death, resignation or otherwise, before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates may nevertheless be issued and delivered as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures shall have been used thereon had not ceased to be such officer or officers of the Corporation. Notwithstanding the foregoing, the Board of Directors may authorize the issue of some or all of the shares of any or all of its classes or series without certificates. Within a reasonable time after the issue or transfer of shares without certificates, the Corporation shall send the Shareholder a written statement of the information required on certificates by the Virginia Stock Corporation Act or other applicable law. ARTICLE XXIV. Transfer of Shares. Shares may be transferred by delivery of the certificate accompanied either by an assignment in writing on the back of the certificate or by a written power of attorney to sell, assign and transfer the same on the books of the Corporation, signed by the person appearing by the certificate to be the owner of the shares represented thereby, and shall be transferable on the books of the Corporation upon surrender thereof so assigned or endorsed. The person registered on the books of the Corporation as the owner of any shares shall be entitled exclusively as the owner of such shares to receive dividends and to vote in respect thereof. It shall be the duty of every Shareholder to notify the Corporation of his address. 11 ARTICLE XXV. Record Date. For the purpose of determining the Shareholders entitled to notice of or to vote at any meeting of Shareholders, or any adjournment thereof, or entitled to receive payment of any dividend, or in order to make a determination of Shareholders for any other proper purpose, the Board of Directors may fix in advance a date as the record date for any such determination of Shareholders, provided that such date shall not in any case be more than 70 days prior to the date on which the particular action, requiring such determination of Shareholders, is to be taken. If no record date shall be fixed for the determination of Shareholders entitled to notice of or to vote at a meeting of Shareholders, or for the determination of the Shareholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of Shareholders in such cases. A determination of Shareholders entitled to notice of or to vote at a Shareholders' meeting is effective for any adjournment of the meeting unless the Board of Directors fixes a new record date, which it shall do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting. ARTICLE XXVI. Voting of Shares Held. Unless the Board of Directors shall otherwise provide, the Chairman of the Board of Directors, any Chief Executive Officer, President or Vice President, or the Corporate Secretary may from time to time appoint one or more attorneys-in-fact or agents of the Corporation, in the name and on behalf of the Corporation, to cast the votes that the Corporation may be entitled to cast as a shareholder or otherwise in any other corporation, any of whose stock or securities of which may be held by the Corporation, at meetings of the holders of any such other corporations, or to consent in writing to any action by any such other corporation, and may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent, and may execute or cause to be executed on behalf of the Corporation such written proxies, consents, waivers or other instruments as he may deem necessary or proper in the premises; or either the Chairman of the Board of Directors, a Chief Executive officer, a President or the Corporate Secretary may himself attend any meeting of the shareholders of any such other corporation and there at vote or exercise any or all other powers of the Corporation as the shareholder of such other corporation. 12 ARTICLE XXVII. Bonds, Debentures and Notes Issued Under an Indenture. All bonds, debentures and notes issued under an Indenture shall be signed A Chief Executive Officer, President or any Vice President or such other officer or agent as the Board of Directors shall authorize and by the Corporate Secretary or any Assistant Corporate Secretary or by a Treasurer or any Assistant Treasurer or such other officer or agent as the Board of Directors shall authorize. The signature of any authorized officer of the Corporation on bonds and debentures authenticated by a corporate trustee may be made manually or by facsimile. ARTICLE XXVIII. Amendments. All Bylaws shall be subject to alteration or repeal, and new Bylaws may be made by the affirmative vote of a majority of the Directors. The Shareholders entitled to vote, however, shall have the power to rescind, amend, alter or repeal the Bylaws and to enact Bylaws which, if expressly so provided, may not be amended, altered or repealed by the Board of Directors. ARTICLE XXIX. Emergency Bylaws. The Emergency Bylaws provided in this Article XXIX shall be operative during any emergency notwithstanding any different provision in the preceding Articles of the Bylaws or in the Articles of Incorporation of the Corporation or in the Virginia Stock Corporation Act. An emergency exists if a quorum of the Corporation's Board of Directors cannot readily be assembled because of some catastrophic event. To the extent not inconsistent with these Emergency Bylaws, the Bylaws provided in the preceding Articles shall remain in effect during such emergency and upon the termination of such emergency the Emergency Bylaws shall cease to be operative unless and until another such emergency shall occur. During any such emergency: (a) Any meeting of the Board of Directors may be called by any officer of the Corporation or by any Director. Notice shall be given by the person calling the meeting. The notice shall specify the place of the meeting, which shall be the principal office of the Corporation at the time if feasible, but otherwise shall be any other place specified in the notice. The notice shall also specify the time of the meeting. Notice may be given only to such of the Directors as it may be feasible to reach at the time and by such means as may be feasible at the time, including publication or radio. If given by mail, messenger or telephone, the notice shall be addressed to the Director's address or such other place as the person giving the notice shall deem most suitable. Notice shall be similarly given, to the extent feasible, to the other persons referred to in (b) below. Notice shall be given at least two days before the meeting if feasible in the judgment of the person giving the notice, but otherwise shall be given any time before the meeting as the person giving the notice shall deem necessary. 13 (b) At any meeting of the Board of Directors, a quorum shall consist of a majority of the number of Directors fixed at the time by Article IX of the Bylaws. If the Directors present at any particular meeting shall be fewer than the number required for such quorum, other persons present, as determined by the following provisions and in the following order of priority, up to the number necessary to make up such quorum, shall be deemed Directors for such particular meeting: (i) The Executive Vice Presidents; (ii) The Senior Vice Presidents in the order of their seniority of first election to such office, or if two or more shall have been first elected to such office on the same day, in the order of their seniority in age; (iii) All other Vice Presidents at the principal office of the Corporation in the order of their seniority of first election to such office, or if two or more shall have been first elected to such office on the same day, in the order of their seniority in age; and (iv) Any other persons that are designated on a list that shall have been approved by the Board of Directors before the emergency, such persons to be taken in such order of priority and subject to such conditions as may be provided in the resolution approving the list. (c) The Board of Directors, during as well as before any such emergency, may provide, and from time to time modify, lines of succession in the event that during such an emergency any or all officers or agents of the Corporation for any reason shall be rendered incapable of discharging their duties. (d) The Board of Directors, before and during any such emergency, may, effective in the emergency, change the principal office or designate several alternative principal offices or regional offices, or authorize the officers so to do. No officer, Director or employee shall be liable for any action taken in good faith in accordance with these Emergency Bylaws. These Emergency Bylaws shall be subject to repeal or change by further action of the Board of Directors or by action of the Shareholders, except that no such repeal or change shall modify the provisions of the next preceding paragraph with regard to action or inaction prior to the time of such repeal or change. Any such amendment of these Emergency Bylaws may make any further or different provision that may be practical and necessary for the circumstances of the emergency. 14 EX-27 4 FDS
UT 3-MOS DEC-31-1999 SEP-30-1999 PRO-FORMA 9,007 831 1,731 286 0 11,855 2,737 17 1,060 3,814 135 509 3,487 0 0 258 197 180 31 10 3,234 11,855 3,615 241 2,726 2,967 648 21 669 221 194 27 167 286 0 975 0 0
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