-----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, FTiSZ5OSVrMCN/+zhwwVk4I6A8vrZKL3Jmt1qKeTljD8jjmnUyLgVPrbChB+Nfps z8sBqY7REqO3w+CR6PLt+Q== 0000715957-97-000032.txt : 19970814 0000715957-97-000032.hdr.sgml : 19970814 ACCESSION NUMBER: 0000715957-97-000032 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DOMINION RESOURCES INC /VA/ CENTRAL INDEX KEY: 0000715957 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 541229715 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08489 FILM NUMBER: 97657555 BUSINESS ADDRESS: STREET 1: 901 E BYRD ST, WEST TOWER STREET 2: P O BOX 26532 CITY: RICHMOND STATE: VA ZIP: 23219 BUSINESS PHONE: 8047755700 MAIL ADDRESS: STREET 1: P O BOX 26532 STREET 2: 901 EAST BYRD STREET CITY: RICHMOND STATE: VA ZIP: 23261 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) /X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ Commission file number 1-8489 DOMINION RESOURCES, INC. (Exact name of registrant as specified in its charter) Virginia 54-1229715 (State or other jurisdiction (I.R.S. Employer incorporation or organization) Identification No.) 901 East Byrd Street, Richmond, Virginia 23219 (Address of principal executive offices) (Zip Code) Registrant's telephone number (804) 775-5700 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 July 31, 1997, 185,785,807 shares of common stock, without par value, of the registrant were outstanding. DOMINION RESOURCES, INC. INDEX Page Number PART I. Financial Information Item 1. Consolidated Financial Statements Consolidated Statements of Income - Three 3 and Six Months Ended June 30, 1997 and 1996 Consolidated Balance Sheets - June 30, 1997 4-5 and December 31, 1996 Consolidated Statements of Cash Flows 6-7 Six Months Ended June 30, 1997 and 1996 Notes to Consolidated Financial Statements 8-16 Item 2. Management's Discussion and Analysis 17-29 PART II. Other Information Item 1. Legal Proceedings 30 Item 4. Submission of Matters to a Vote of Security Holders 30 Item 5. Other Information 30-37 Item 6. Exhibits and Reports on Form 8-K 37 DOMINION RESOURCES, INC. PART I. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 Millions, except per share amounts Operating revenues and income: Virginia Power $ 1,028.0 $1,029.1 $2,155.8 $2,193.9 East Midlands 407.4 962.7 Nonutility 199.3 91.9 371.3 166.4 1,634.7 1,121.0 3,489.8 2,360.3 Operating expenses: Fuel, net 264.3 225.6 545.6 488.7 Purchased power capacity, net 159.5 165.9 344.0 360.1 Supply and distribution-East Midlands 337.4 784.0 Other operation 258.6 186.1 490.4 355.7 Maintenance 61.6 60.3 115.8 119.9 Accelerated cost recovery 2.8 2.8 Restructuring 6.3 19.3 6.3 24.7 Depreciation and amortization 195.7 153.0 390.0 301.1 Other taxes 66.4 67.6 139.8 141.6 1,352.6 877.8 2,818.7 1,791.8 Operating income 282.1 243.2 671.1 568.5 Other income 6.1 3.6 13.0 6.4 Income before fixed charges and income taxes 288.2 246.8 684.1 574.9 Fixed charges: Interest charges, net 160.4 95.7 295.9 190.9 Preferred dividends and distributions of Virginia Power, net 10.8 10.6 21.3 21.4 171.2 106.3 317.2 212.3 Income before provision for income taxes 117.0 140.5 366.9 362.6 Provision for income taxes 37.9 46.3 117.9 118.2 Net income $ 79.1 $ 94.2 $ 249.0 $ 244.4 Average common stock 184.7 177.4 183.8 177.0 Earnings per common share $ 0.43 $ 0.53 $ 1.35 $ 1.38 Dividends paid per common share $ 0.645 $ 0.645$ 1.29 $ 1.29 __________________ The accompanying notes are an integral part of the Consolidated Financial Statements. DOMINION RESOURCES, INC. CONSOLIDATED BALANCE SHEETS ASSETS (UNAUDITED) June 30, December 31, 1997 1996* (Millions) Current assets: Cash and cash equivalents $ 215.8 $ 110.8 Trading securities 4.4 16.4 Customer accounts receivable, net 521.9 354.8 Other accounts receivable 245.5 174.9 Accrued unbilled revenues 169.7 162.8 Accrued taxes 22.0 Materials and supplies: Plant and general 166.5 148.7 Fossil fuel 66.6 76.8 Mortgage loans in warehouse 125.9 65.8 Other 162.0 209.5 1,700.3 1,320.5 Investments 2,559.1 1,893.4 Property, plant and equipment: 18,990.2 16,815.8 Less accumulated depreciation and amortization 6,706.2 6,306.4 12,284.0 10,509.4 Deferred charges and other assets: Regulatory assets 787.6 773.9 Goodwill 1,870.8 179.1 Other 221.8 229.3 2,880.2 1,182.3 Total assets $19,423.6 $14,905.6 __________________ The accompanying notes are an integral part of the Consolidated Financial Statements. * The Balance Sheet at December 31, 1996 has been taken from the audited Consolidated Financial Statements at that date. DOMINION RESOURCES, INC. CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY (UNAUDITED) June 30, December 31, 1997 1996* (Millions) Current liabilities: Securities due within one year $ 569.4 $ 750.7 Short-term debt 584.4 378.2 Accounts payable, trade 579.5 410.6 Accrued interest 137.5 107.3 Accrued taxes 19.9 Accrued payroll 61.1 73.1 Customer deposits 46.1 50.0 Severance costs accrued 34.7 50.2 Other 292.4 155.4 2,325.0 1,975.5 Long-term debt: Virginia Power 3,570.0 3,579.4 Nonrecourse - nonutility 2,764.9 505.7 East Midlands 1,448.2 Other 300.0 642.5 8,083.1 4,727.6 Deferred credits and other liabilities: Deferred income taxes 2,000.0 1,743.3 Investment tax credits 246.8 255.3 Other 913.2 455.5 3,160.0 2,454.1 Total liabilities 13,568.1 9,157.2 Virginia Power obligated mandatorily redeemable preferred securities of subsidiary trust ** 135.0 135.0 Preferred stock: Virginia Power stock subject to mandatory redemption 180.0 180.0 Virginia Power stock not subject to mandatory redemption 509.0 509.0 Common shareholders' equity: Common stock - no par 3,563.5 3,471.4 Retained earnings 1,467.3 1,437.9 Accumulated translation adjustments (15.0) Allowance on available-for-sale securities (0.5) (1.1) Other 16.2 16.2 5,031.5 4,924.4 Total liabilities & shareholders' equity $19,423.6 $14,905.6 The accompanying notes are an integral part of the Consolidated Financial Statements. * The Balance Sheet at December 31, 1996 has been taken from the audited Consolidated Financial Statements at that date. ** As described in Note (G) to NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, the 8.05% Junior Subordinated Notes totaling $139.2 million principal amount constitute 100% of the Trust's assets. DOMINION RESOURCES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended June 30, 1997 1996 (Millions) Cash flows from (used in) operating activities: Net income $ 249.0 $ 244.4 Adjustments to reconcile net income to net cash from operating activities: Depreciation, depletion and amortization 426.8 344.9 Unremitted earnings of subsidiary (24.7) Currency translation adjustment (14.9) Minority interests 44.7 Purchase and originations of mortgage loans (1,055.3) (166.5) Proceeds from sales and principle collections of mortgage loans 995.2 1.0 Deferred income taxes 22.1 31.6 Investment tax credits, net (8.5) (8.6) Deferred fuel expenses (0.7) (23.6) Deferred capacity expenses (38.4) 6.0 Changes in assets and liabilities: Accounts receivable 49.9 12.7 Accrued unbilled revenues (6.5) (7.2) Materials and supplies (3.3) 16.1 Accounts payable, trade (87.6) (11.7) Accrued interest and taxes (17.4) (4.4) Other changes (64.0) (97.3) Net cash flows from operating activities 466.4 337.4 Cash flows from (used in) financing activities: Issuance of common stock 90.4 79.0 Issuance of long-term debt: Virginia Power 210.0 24.5 East Midlands 1,904.2 Nonrecourse-nonutility 2,491.2 264.2 Issuance of short-term debt 126.8 117.3 Repayment of long-term debt and preferred stock (2,594.6) (267.1) Common dividend payments (237.4) (228.2) Other 36.9 (5.5) Net cash flows from (used in) financing activities 2,027.5 (15.8) DOMINION RESOURCES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED) Six Months Ended June 30, 1997 1996 (Millions) Cash flows from (used in) investing activities: Utility capital expenditures-(excluding AFC) $ (211.8) $(233.2) Nonutility capital expenditures (182.4) (86.0) Purchase of East Midlands (1,885.8) Acquisition of business, net of cash (96.1) Investments in marketable securities 15.4 19.1 Other (28.2) (28.4) Net cash flows used in investing activities (2,388.9) (328.5) Increase (decrease) in cash and cash equivalents 105.0 (6.9) Cash and cash equivalents at beginning of period 110.8 66.7 Cash and cash equivalents at end of period $ 215.8 $ 59.8 Supplementary cash flows information: Cash paid during the period for: Interest (net of interest capitalized) $ 252.0 $205.1 Income taxes 76.3 100.8 Non-cash transactions from investing and financing activities: Equity contribution for Wolverine acquisition $ 22.2 Issuance of loan notes-East Midlands acquisition 19.4 Exchange of available for sale securities 21.8 $ 4.3 The accompanying notes are an integral part of the Consolidated Financial Statements. DOMINION RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (A) DOMINION RESOURCES AND INTERIM REPORTING POLICIES GENERAL Dominion Resources is a holding company headquartered in Richmond, Virginia. Its primary business is Virginia Electric and Power Company (Virginia Power), which is a regulated public utility engaged in the generation, transmission, distribution and sale of electric energy within a 30,000 square mile area in Virginia and northeastern North Carolina. It sells electricity to retail customers (including government agencies) and to wholesale customers such as rural electric cooperatives and municipalities. The Virginia service area comprises about 65 percent of Virginia's total land area, but accounts for 80 percent of its population. Acquired early in 1997 East Midlands Electricity plc (East Midlands) a subsidiary of Dominion Resources, is principally a power and supply distribution company serving 2.3 million homes and businesses in the East Midlands region of the United Kingdom. Dominion Resources uses the exchange rate at June 30, 1997 ($1.6655 per pound sterling) to evaluate amounts originally denominated in pounds sterling. Dominion Resources also operates business subsidiaries active in independent power production, the acquisition and sale of natural gas reserves, financial services, and real estate. Some of the independent power and natural gas projects are located in foreign countries. Net assets of approximately $445 million are involved in independent power production operations in Central and South America. In the opinion of Dominion Resources' management, the accompanying unaudited Consolidated Financial Statements contain all adjustments, consisting only of normal recurring accruals, necessary to present fairly the financial position as of June 30, 1997, the results of operations for the three-month periods ended June 30, 1997 and 1996, and cash flows for the six-month periods ended June 30, 1997 and 1996. These Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Dominion Resources Annual Report on Form 10-K for the year ended December 31, 1996. The consolidated financial statements include the accounts of Dominion Resources and its subsidiaries, with all significant intercompany transactions and accounts being eliminated on consolidation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Information for quarterly periods is affected by seasonal variations in sales, rate changes, timing of fuel expense recovery and other factors. DOMINION RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) DERIVATIVES Dominion Resources utilizes derivative instruments to manage exposure to fluctuations in interest rates, foreign exchange rates and natural gas, purchasing and electricity prices. Derivatives that are used by Dominion Resources in the management of interest rate and foreign currency exposures, through the use of interest rate and currency swaps, are accounted for on a settlement basis. In addition, East Midlands, employs fixed price forward contracts (contracts for differences), which are utilized to protect against price volatility in its supply business. Contracts for differences are contracts, which are entered into between generators and suppliers to fix the price of a contracted quantity of electricity over a specified period. East Midlands accounts for these instruments on a settlement basis. Under this method, each net payment/receipt due or owed under the derivative is recorded in earnings during the period to which the payment/receipt relates. Income and expense are recorded in the same category as that arising from the related asset or liability. For example, amounts to be paid or received under interest rate swap agreements are recognized in interest expense in the periods in which they accrue and the amounts paid or received under contracts for differences are recognized as an adjustment to Supply & Distribution expense. Cash flows from interest rate swaps, currency swaps and fixed price forward contracts are reported in Net Cash Flows from Operating Activities. Under the deferral method, gains and losses related to effective hedges of existing assets and liabilities are recorded on the balance sheet and recognized in earnings in conjunction with earnings of the designated asset or liability. Instruments are deemed to be effective hedges when the historical value fluctuations correlate strongly with those of the item being hedged and the instruments are designated as hedges. Income and expense related to instruments that do not meet the hedge criteria, hedges that have been terminated, and transactions in which the hedged item has been sold or matured, are recognized in current earnings. Dominion Resources uses the deferral method to account for derivative instruments which are designated as effective hedges. Dominion Energy uses commodity natural gas options and collars as hedges against natural gas price exposure. Gains and losses resulting from natural gas price derivative instruments activities are included in Operating revenues and income - Nonutility. Cash flows from commodity natural gas options and collars are reported in Cash Flows from Operating Activities. Dominion Resources' UK subsidiary (DR Investments) utilizes the deferral method to account for derivatives which minimize exposure to currency fluctuations. These derivatives are designed to minimize cross-currency exposure on the issuance by DR Investments of U.S. dollar denominated Senior Notes. In addition, the deferral method has been employed to account for derivatives such as forward rate agreements which stabilized the interest rate on the anticipated issuance of the Senior Notes and Eurobonds. The forward rate agreement and the cross-currency swaps associated with the Senior Notes are treated in aggregate as an adjustment to Long-term debt East Midlands and is amortized to Interest expense over the life of the bonds. Cash flows from the forward rate agreements and the cross-currency swaps are reported as Net Cash Flows from Financing Activities. The amortization of these agreements and swaps are included in Net Cash Flows from Operating Activities. DOMINION RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The fair value method, which is used for those derivative transactions which do not qualify for settlement or deferral accounting, requires that derivatives are carried on the balance sheet at fair value with changes in that value recognized in earnings or stockholder's equity. Virginia Power's wholesale power group is engaged in off-system purchases and sales of energy and capacity. A substantial portion of its trading activities are through fixed-priced forward contracts which require physical delivery of the underlying commodity. In addition, Virginia Power's trading activities include the purchase and sale of over-the-counter options that require physical delivery of the underlying commodity. Virginia Power purchases and sells NYMEX natural gas futures contracts, as well as options on such contracts in order to manage price risk associated with natural gas requirements. Options and futures contracts are marked to market with the resulting gains and losses reported in earnings unless the options qualify, and are designated, as a hedge for accounting purposes. For options which require physical delivery of the underlying commodity, market value reflects management's best estimates considering over-the-counter quotations, time value and volatility factors of the underlying commitments. Futures contracts and options on futures contracts are marked to market based on closing exchange prices. No options or futures contracts were designated as hedges during the six months ended June 30, 1997. Purchased options and options sold are reported in Deferred Charges and Other Assets Other and in Deferred Credits and Other Liabilities Other respectively, until exercise or expiration. Gains and losses are reported in Other Income unless the options or futures contracts have been designated as hedges. For designated hedges, unrealized gains and losses are deferred during the hedge period as Deferred Credits and Other Liabilities Other and Deferred Debits and Other Assets Other, respectively, and are ultimately reflected in the measurement of the hedged transaction. Electric options exercised are reflected in the recording of related purchases or sales of electricity as Operating Expenses or Operating Revenues, respectively. Upon expiration, electric options written are recognized in Operating Revenues and options purchased are reported in Operating Expenses. Cash flows from options and futures contracts are reported in Net Cash Flow from Operating Activities. Options, futures and forward contracts are used by Dominion Resources' financial services indirect subsidiary (Saxon Mortgage) for the purpose of reducing exposure to the effects of changes in interest rates on mortgage loans which the company has funded or has committed to fund. Gains and losses incurred on options, futures and forward contracts used to hedge the interest rate exposure are deferred as an adjustment to the value of the mortgages and recorded in Mortgage Loans in Warehouse. The gains and losses are recognized at the time of securitization and are recorded to Operating Revenues and Income Nonutility. The related cash flows are recorded in Net Cash Flow from Operating Activities. In addition, Saxon Mortgage utilizes the deferral method to account for interest rate caps. The caps are used to hedge the value of mortgage investments retained from the securitization of mortgage loans. The cost of the caps are included with the mortgage investments reported in Investments and are amortized as an adjustment to Operating Revenues and Income - Nonutility. Cash flows from interest rate caps are included Net Cash Flow from Investing Activities. The amortization of the caps is included in Net Cash Flow from Operating Activities. DOMINION RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (B) COMMON STOCK At June 30, 1997 there were 300,000,000 shares of common stock authorized of which 185,604,273 were issued and outstanding. Common shares issued during the referenced periods were as follows: Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 Automatic Dividend Reinvestment and Stock Purchase Plan 727,704 1,418,180 Employee Savings Plan 245,598 122,656 469,295 123,265 Dominion Direct Investment 1,063,129 1,974,548 Wolverine Pooling 1,879,974 Stock Repurchase and Retirement 0 (136,800) Other 49,885 (15) 59,710 75,140 Total Shares 1,358,612 850,345 4,383,527 1,479,785 (C) LONG-TERM INCENTIVE PLAN For the six-month period ended June 30, 1997, 2,250 common shares were issued associated with exercised stock options from previous awards. As of June 30, 1997, options from 8,351 shares were exercisable from previous awards. (D) PREFERRED STOCK - VIRGINIA POWER As of June 30, 1997, there were 1,800,000 and 5,090,140 issued and outstanding shares of preferred stock subject to mandatory redemption and preferred stock not subject to mandatory redemption, respectively. There are a total of 10,000,000 authorized shares of Virginia Power's preferred stock. DOMINION RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (E) PROVISION FOR FEDERAL INCOME TAXES Total Federal income tax expense differs from the amount computed by applying the statutory Federal income tax rate to pre-tax income for the following reasons: Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 (Millions) Computation of Provision for Federal Income Tax: Income before income taxes $117.0 $140.5 $366.9 $362.6 Foreign income tax (0.3) (0.4) (28.9) (0.7) Other income tax 2.3 (1.6) 0.1 (3.1) Income before Federal tax $119.0 $138.5 $338.1 $358.8 Tax at statutory federal income tax rate of 35% applied to pre-tax income $41.7 $ 48.5 $118.4 $125.6 Changes in federal income taxes resulting from: Preferred dividends of Virginia Power 3.1 3.1 6.2 6.2 Nonconventional fuel credit (6.7) (6.6) (12.7) (13.2) Ratable amortization of investment tax credits (4.3) (4.3) (8.5) (8.5) Foreign tax 3.7 (20.7) Other, net 2.4 3.6 6.4 4.3 Total Provision for Federal Income Tax Expense $ 39.9 $ 44.3 $ 89.1 $114.4 Effective Tax Rate 33.5% 32.0% 26.4% 31.9% (F) INTEREST RATE AND FOREIGN CURRENCY RISK On May 9, 1997, DR Investments, a UK indirect subsidiary of Dominion Resources, issued $819 million of senior notes. The obligations are denominated in US dollars and the net proceeds were used to repay a portion of the short-term debt incurred in connection with the acquisition of East Midlands. In order to hedge the currency exposures associated with a US dollar financing, DR Investments entered into certain interest rate and currency swaps that are intended to minimize any cross-currency exposures and maintain the fixed nature of the interest payment obligations. On June 6, 1997, DR Investments, issued $166.6 million of Euro-Sterling 10 year bonds. The net proceeds were used to repay a portion of the short-term debt incurred in the acquisition of East Midlands. In anticipation of the issuance of these bonds, DR Investments also entered into a forward rate agreement for the purpose of fixing the interest rate for the Euro-Sterling Bonds. DOMINION RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (G) VIRGINIA POWER OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUST In 1995, Virginia Power established Virginia Power Capital Trust I (VP Capital Trust). VP Capital Trust sold 5,400,000 shares of Preferred Securities for $135.0 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. (H) CONTINGENCIES VIRGINIA POWER Nuclear Insurance The Price-Anderson Act limits the public liability of an owner of a nuclear power plant to $8.9 billion for a single nuclear incident. Virginia Power is a member of certain insurance programs that provide coverage for property damage to members' nuclear generating plants, replacement power and liability in the event of a nuclear incident. Virginia Power may be subject to retrospective premiums in the event of major incidents at nuclear units owned by covered utilities (including Virginia Power). For additional information, see Note Q to CONSOLIDATED FINANCIAL STATEMENTS included in Dominion Resources' Annual Report on Form 10-K for the year ended December 31, 1996. Virginia Jurisdictional Rates On March 6, 1997, in the proceeding in which Virginia Power filed its alternative rate plan and in the separate 1995 Annual Informational Filing proceeding, the Virginia State Corporation Commission (Virginia Commission) entered an order on March 6, 1997 providing that Virginia Power's rates shall become interim rates subject to refund as of March 1, 1997. Site Remediation The Environmental Protection Agency (EPA) has identified Virginia Power and several other entities as Potentially Responsible Parties (PRPs) at two Superfund sites located in Kentucky and Pennsylvania. The estimated future remediation costs for the sites are in the range of $61.5 million to $72.5 million. Virginia Power's proportionate share of the cost is expected to be in the range of $1.7 million to $2.5 million, based upon allocation formulas and the volume of waste shipped to the sites. As of June 30, 1997, Virginia Power had 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, Virginia Power has determined that it is probable that the PRPs will fully pay the costs apportioned to them. DOMINION RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Virginia Power and Dominion Resources, Inc., along with Consolidated Natural Gas, have remedial action responsibilities remaining at two coal tar sites. Based on site studies and investigations performed at these sites, Virginia Power accrued a $2 million reserve to meet its estimated liability. As of June 30, 1997, Virginia Power had incurred remedial action costs for the two sites totaling $2 million. Virginia Power does not anticipate that it will be liable for additional remedial action costs that are significant in amount. In addition to the remedial action costs associated with the coal tar sites, two civil actions have been instituted against the City of Norfolk and Virginia Power. Several property owners allege that their property has been contaminated by toxic pollutants originating from one of the coal tar sites now owned by the City of Norfolk and formerly owned by Virginia Power. The plaintiffs are seeking compensatory damages of $12 million and punitive damages of $6 million. It is too early in the cases for the Virginia Power to predict their outcome. Virginia Power has filed answers denying liability. A trial date of August 18, 1997 has been set for one of the two actions seeking fifteen million dollars. Virginia Power generally seeks to recover its costs associated with environmental remediation from third party insurers. At June 30, 1997, any pending or possible claims were not recognized as an asset or offset against recorded obligations of Virginia Power. NONUTILITY SUBSIDIARIES Dominion Energy Dominion Cogen, Inc., a wholly owned subsidiary of Dominion Energy, has an investment interest in a corporation that owns two cogeneration plants in Texas. Under terms of various equity support agreements entered into in connection with this investment, Dominion Resources must provide contingent equity support to Dominion Energy. While management believes that the possibility of such support is remote, Dominion Resources could be required to ensure that Dominion Energy has sufficient funds to meet its equity support obligations which management does not believe will exceed $50.0 million. Dominion Energy has general partnership interests in certain of its energy ventures. Accordingly, Dominion Energy may be called upon to fund future operations of these investments to the extent operating cash flow is insufficient. In addition, Dominion Energy may be required to make payments under certain agreements on behalf of its energy ventures. As of June 30, 1997, no payments have been required. Dominion Capital As of June 30, 1997, Saxon Mortgage, Inc. a wholly-owned subsidiary of Dominion Capital has entered into commitments of approximately $233 million to fund mortgage loans. The commitments for mortgages have original terms of not more than 60 days. DOMINION RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (I) LINES OF CREDIT At June 30, 1997, Dominion Resources and its subsidiaries have lines of credit and revolving credit agreements that provide for maximum borrowings of $2,649 million. At June 30, 1997, $1,553.0 million had been borrowed under such agreements. In addition, these credit agreements supported $372.4 million of Dominion Resources' commercial paper and $524.1 million of nonrecourse commercial paper issued by Dominion Resources' subsidiaries which was outstanding at June 30, 1997. A total of $300 million of the commercial paper is classified as long-term debt since it is supported by revolving credit agreements that have expiration dates extending beyond one year. (J) CHANGE IN ACCOUNTING STANDARD In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 129 "Disclosure of Information about Capital Structure." This statement establishes standards for disclosing information about an entity's capital structure. SFAS NO. 129 continues and consolidates previous disclosure requirements regarding an entity's capital structure. This statement is effective for periods ending after December 15, 1997. In June 1997, FASB issued SFAS No. 130, " Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 130 establishes standards for reporting and disclosure of comprehensive income and its components in financial statement format. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. Items considered comprehensive income include foreign currency items, minimum pension liability adjustments and unrealized gains and losses on certain investments in debt and equity securities. SFAS No. 130 is effective for financial statements for fiscal years beginning after December 15, 1997. SFAS No. 131 establishes standards for the reporting information about operating segments by public entities in annual financial statements and requires that those entities report selected information about operating segments in interim financial reports issued for shareholders. This statement supersedes SFAS No. 14, Financial Reporting for Segments of a Business Enterprise and amends SFAS No. 94, " Consolidation of All-Majority-Owned Subsidiaries." SFAS No. 131 requires that public entities report financial and descriptive information about its reportable business segments. This statement is effective for financial statements for periods beginning after December 15, 1997. (K) SUBSEQUENT EVENTS East Midlands On July 2, 1997, the United Kingdom Labour Party in its first budget as the new Government included proposals for a windfall profit tax on the excess profits of the privatized utilities. The Labour Party's majority in the UK parliament makes it probable that proposals will become law. East Midlands' portion of this tax is estimated at 96 million pounds sterling or approxi- mately $160 million. The tax will be payable in two equal installments on or before December 1, DOMINION RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1997 and December 1, 1998. It is expected that a liability amounting to approximately $160 million will be recorded in the third quarter of 1997. Dominion Energy On August 1, 1997, Dominion Energy sold to Chilgener S.A. 49 percent of its interest in Inversiones Dominion Peru S.A., a Peruvian company which holds a 60 percent interest in EGENOR S.A., a 405 megawatt electric generation business in Peru. DOMINION RESOURCES, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING INFORMATION This report 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 contained 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. In addition to certain contingency matters (and their respective cautionary statements) discussed elsewhere in this report, the following important factors should be considered with respect to any forward-looking statements made herein: Current governmental policies and regulatory actions both domestic and international (including those of FERC, the EPA, the NRC, the Virginia Commission and UK regulatory authorities), industry and rate structure, general industry trends, operation of nuclear power facilities, acquisition and disposal of assets and facilities, operation and storage facilities, recovery of the cost of purchased power, nuclear decommissioning costs, economic and geographic factors including political and economic risks (particularly those associated with international development and operations, including currency fluctuation), changes in and compliance with environmental laws and policies, weather conditions and catastrophic weather related damage, competition, including competition for retail and wholesale customers, pricing and transportation of commodities, market demand for energy, inflation, capital market conditions, unanticipated development project delays or changes in project cost, unanticipated changes in operating expenses and capital expenditures, competition for new energy development opportunities and legal and administrative proceedings. All such factors are difficult to predict, contain uncertainties that may materially affect actual results, and may be beyond the control of Dominion Resources. New factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the businesses of Dominion Resources. Any forward-looking statement speaks only as of the date on which such statement is made, and Dominion Resources undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made. DOMINION RESOURCES, INC. ITEM 2. MANAGEMENTS'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) DOMINION RESOURCES - CONSOLIDATED RESULTS OF OPERATIONS Earnings Per Share Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 Virginia Power $0.34 $.50 $.90 $1.31 East Midlands (.05) .22 Nonutility .14 .03 .24 .07 Total Shares $0.43 $0.53 $1.36 $1.38 The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Information for quarterly periods is affected by seasonal variations in sales, rate changes, timing of fuel expense recovery and other factors. Consolidated earnings decreased 10 cents per share for the second quarter of 1997 when compared to the second quarter of 1996. The decline was primarily due to the decrease in earnings from Virginia Power as result of unseasonably mild weather experienced in the second quarter. The decrease also included an anticipated loss for the second quarter at East Midlands which was acquired earlier this year. East Midlands is a winter-peaking company whose earnings are generated primarily in the first and fourth quarters. Earnings from Dominion Resources' nonutility subsidiaries offset part of the second quarter decline with an increase in earnings from 4 cents per share to 14 cents per share for the second quarter of 1996 and 1997, respectively. Dominion Energy's earnings increased primarily as a result of income from the acquisition of power generation assets in Peru in August 1996 and higher gas prices and greater production volumes due to the acquisition of natural gas properties in the Gulf Coast area in March 1996 and in Michigan in January 1997. Increased earnings at Dominion Capital was primarily due to the securitization of residential mortgages and additional income contributed by its First Source Financial subsidiary as a result of the purchase of the remaining 50 percent interest in early 1997. Operating Revenues And Expenses Operating revenues increased by $513 million or 46% in the second quarter 1997 as compared to the second quarter of 1996 and $1,130 million or 48% for the six months ended June 30, 1997 as compared to the six months ended June 30, 1996. Both increases reflect the addition of revenues from East Midlands which was acquired in early 1997 as well as increased operating revenues from Dominion Resources nonutility subsidiaries. Operating expenses increased in the second quarter of 1997 by $470 million or 53% as compared to the second quarter of 1996 and $1,023 million or 57% for the six months ended June 30, 1997 as compared to the six months ended June 30, 1996. Both increases reflect the addition of expenses from East Midlands. DOMINION RESOURCES, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Interest Expense Interest expense increased $65 million or 66% in the second quarter 1997 as compared to the second quarter of 1996 and $105 million or 55% for the six months ended June 30, 1997 as compared to the six months ended June 30, 1996. Both increases are attributed to the issuance of short and long-term debt for the acquisition of East Midlands. LIQUIDITY Cash Flows From Operations Cash flows from operating activities for the six months ended June 1997 increased by $129 million as compared to the six months ended June 30, 1996 primarily due to normal operations plus the securitization of residential mortgage loans in Dominion Resources' financial service business. Cash Flows From Financing Activities For the six months ended June 30, 1997, net cash flows from financing activities were $2,025 million due to the issuance of long-term debt to finance the mandatory maturities of First and Refunding Mortgage Bonds at Virginia Power, as well as the acquisitions of East Midlands and the remaining interest in a subsidiary by Dominion Capital. During the six months ended June 30, 1997, approximately $800 million of short-term debt was issued and retired for the acquisition of East Midlands. On April 18, 1997, the Board of Directors of Dominion Resources declared a quarterly common stock dividend of $0.645 per share, payable June 20, 1997 to holders of record at the close of business May 30, 1997. Dominion Resources issued 1,308,727 net shares of common stock through its Dominion Direct Investment and Employee Savings Plan (see Note (B) to CONSOLIDATED FINANCIAL STATEMENTS) during the three-month period ended June 30, 1997. The proceeds from the issuance of common stock are invested on a short-term basis by Dominion Resources and ultimately utilized to provide equity capital to its subsidiaries generally within the same calendar year as the issuance of the common stock. Cash Flows Used In Investing Activities Cash flows used in investing activities for the second quarter of 1997 were $2,387 million resulting primarily from the acquisition of East Midlands, utility plant capital expenditures, and Dominion Capital's acquisition of the remaining interest of a subsidiary. FUTURE ISSUES Year 2000 Compliance Dominion Resources has begun to address possible remedial efforts in connection with computer software and devices containing embedded DOMINION RESOURCES, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) microprocessors necessitated by the upcoming millennium change. At this time, Dominion Resources believes, with respect to its computerized systems and devices containing embedded microprocessors, that the Year 2000 compliance issue is being addressed properly to prevent any adverse operational or financial impacts. Management has not yet determined an estimate or range of estimates of the costs to be incurred. The Year 2000 issue may impact other entities with which Dominion Resources transacts business. Dominion Resources cannot estimate or predict the potential adverse consequences, if any, that could result from such entities' failure to address this issue. VIRGINIA POWER LIQUIDITY AND CAPITAL RESOURCES Cash Flows From Operations Internal generation of cash during the first six months of 1997 provided 110% of funds required for Virginia Power's capital requirements compared to 155% during the first six months of 1996. With the completion of the Clover Power Station in 1996, Virginia Power is in a period in which internal cash generation should exceed construction expenditures. As detailed in the Consolidated Statements of Cash Flows, cash flow from operating activities for the six-month period ended June 30, 1997 decreased $102.9 million as compared to the six-month period ended June 30, 1996. The decrease was primarily attributable to a decline in retail sales caused by the unusually mild weather in the first six months of 1997 as compared to the colder winter and warmer spring weather in the first six months of 1996. Cash Flows Used in Financing Activities Cash from (used in) financing activities was as follows: Six Months Ended June 30, 1997 1996 (Millions) Mortgage bonds $ 200.0 Pollution control securities 10.0 Issuance of short-term debt, net 127.9 $ 125.1 Issuance of tax exempt securities 4.5 Repayment of long-term debt (299.3) (220.9) Dividends (206.7) (209.5) Preferred securities distribution (5.4) (5.4) Other (1.1) 1.7 Total $(174.6) $(284.5) Financing activities for the first six months of 1997 resulted in a net cash outflow of $174.6 million. DOMINION RESOURCES, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) In February 1997, the Company issued $200 million of First and Refunding Mortgage Bonds of 1997, Series A, 6.75%, due February 1, 2007. The proceeds from the sale of these bonds and cash provided by operating activities were used to fund first quarter 1997 mandatory maturities of First and Refunding Mortgage Bonds in the amount of $299.3 million. In April 1997, the Industrial Development Authority of the Town of Louisa, Virginia issued $10 million of Solid Waste and Sewage Disposal Revenue Bonds that were secured by a pledge of payments to be made by Virginia Power. The proceeds from the sale of these bonds were used to finance certain solid waste and sewage disposal equipment previously installed at Virginia Power's North Anna Power Station located in Louisa County, Virginia. The Virginia Power's commercial paper program is supported by credit facilities totaling $500 million. Borrowings under the commercial paper program were $440.2 million at June 30, 1997, which is an increase of $127.8 million from the balance at December 31, 1996. Proceeds from the sale of commercial paper are primarily used to finance working capital for operations. On July 2, 1997, Virginia Power issued $60 million of its Medium Term Notes, Series F, at an annual interest rate of 6.35%, maturing on July 2, 1999. The proceeds from the sale of the notes were used to reduce commercial paper borrowings. Cash Flows Used in Investing Activities Cash used in investing activities was as follows: Six Months Ended June 30, 1997 1996 (Millions) Utility plant expenditures $(164.8) $(157.6) Nuclear fuel (47.0) (57.6) Nuclear decommissioning contributions (18.1) (18.1) Purchase of assets (20.0) (14.6) Other (1.1) (7.2) Total $(251.0) $(255.1) Investing activities for the first six months of 1997 resulted in a net cash outflow of $251.0 million primarily due to $164.8 million of construction expenditures, $47.0 million of nuclear fuel expenditures and $20.0 million for the purchase of a gas-fired combined cycle generator. Of the construction expenditures, Virginia Power spent approximately $121 million on transmission and distribution projects, $22 million on production projects, $21 million on general support facilities, and $1 million on clean air projects. RESULTS OF OPERATIONS Balance available for Common Stock decreased by $24.5 million and $66.7 million for the three months and six months, respectively, ended June 30, 1997, as compared to the same periods in 1996, primarily as a result of the DOMINION RESOURCES, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) unusually mild weather experienced in 1997 versus the more extreme weather experienced in the first six months of 1996. Operating Revenues Operating revenues changed primarily due to the following: Three Months Ended Six Months Ended June 30, June 30, 1997 vs. 1996 1997 vs. 1996 (Millions) Weather $(31.1) $(111.9) Customer growth 9.2 21.9 Change in base revenues (16.2) (17.6) Fuel cost recovery 12.2 23.2 Other, net (7.1) (14.9) Total retail (33.0) (99.3) Sales for resale 25.0 49.5 Other operating revenues 6.9 11.7 Total revenues $ (1.1) $ (38.1) Customer kilowatt-hour sales changed as follows: Three Months Ended Six Months Ended June 30, June 30, 1997 vs. 1996 1997 vs. 1996 Residential (6.9)% (9.8)% Commercial (2.8) (3.9) Industrial 6.1 3.5 Public authorities (7.2) (7.1) Total retail sales (3.1) (5.3) Resale 67.5 56.4 Total sales 7.1 3.8 Heating and cooling degree days during the second quarter were as follows: 1997 1996 Normal Heating degree days 468 374 303 Percentage change compared to prior year 25.1% 33.1% Cooling degree days 303 468 451 Percentage change compared to prior year (35.3)% 9.3% Heating and cooling degree days during the first six months were as follows: 1997 1996 Normal Heating degree days 2,324 2,708 2,375 Percentage change compared to prior year (14.2)% 22.9% Cooling degree days 309 468 459 Percentage change compared to prior year (34.0)% (24.9)% DOMINION RESOURCES, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Retail operating revenues and retail kilowatt-hour sales for the three- and six-month periods ended June 30, 1997, decreased as compared to the same periods in 1996. The decreases are primarily attributable to the mild weather experienced in the first two quarters of 1997 combined with the colder and warmer weather experienced in the first two quarters of 1996. To illustrate, the first quarter of 1996 was the third coldest quarter in 28 years whereas the first quarter of 1997 was the fifth warmest. In addition, the second quarter of 1997 was the third mildest quarter in twenty-eight years. The increase in sales for resale for the three- and six-month periods ended June 30, 1997, as compared to the same periods in 1996, is due primarily to Virginia Power's heightened power marketing efforts. Fuel, net Fuel, net increased for the three-month and six-month periods ended June 30, 1997, as compared to the same periods in 1996, primarily due to an increase in the volume and price of power purchased for resale Virginia Power's wholesale power group in connection with Virginia Power's power marketing efforts. Restructuring Virginia Power recorded $6.3 million of restructuring charges in the three and six months ended June 30, 1997, as compared to $19.3 million and $24.7 million, respectively, recorded in the three- and six-month periods ended June 30, 1996. The restructuring costs are associated with the implementation of Vision 2000, Virginia Power's strategic plan to prepare for the increasingly competitive electric industry in the United States. Accelerated Cost Recovery In the second quarter of 1997, Virginia Power established a $2.8 million reserve for potential costs related to the transition to competition for electric operations in Virginia. The reserve is consistent with Virginia Power's alternative regulatory plan pending before the Virginia State Corporation Commission. Operation - Other and Maintenance Other operating and maintenance expenses increased for the three- and six-month periods ended June 30, 1997, as compared to the same periods in 1996, primarily due to the timing of maintenance and refueling outages at Virginia Power's power stations. The increase in the expenses for the six months ended June 30, 1997, as compared to the six months ended June 30, 1996, was also attributable to transmission expenses related to Virginia Power's increased off-system sales, expenses related to the growth of Virginia Power's Energy Services Business, increased computer lease expenses, fees paid to the Nuclear Regulatory Commission and lump sum merit payments to Virginia Power's employees. These increases were partially offset by a decrease in salaries and wages pursuant to Vision 2000 involuntary separations. DOMINION RESOURCES, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Income Taxes Income taxes decreased for the three- and six-month periods ended June 30, 1997, as compared to the same periods in 1996, primarily as a result of decreased income subject to tax. Contingencies For information on contingencies, see Note (H) to CONSOLIDATED FINANCIAL STATEMENTS. Future Issues Competition Presently, Virginia Power expects to continue to operate under regulation and to recover its cost of providing traditional electric service. However, the form of cost-based rate regulation under which Virginia Power operates is likely to evolve as a result of various legislative or regulatory initiatives, including Virginia Power's alternative regulatory plan filed with the Virginia Commission on March 24, 1997 (see Note (H) to CONSOLIDATED FINANCIAL STATEMENTS). At this time, Virginia Power management can predict neither the ultimate outcome of regulatory reform in the electric utility industry nor the impact such changes would have on Virginia Power. For additional information, see Future Issues-Competition under MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION included in Dominion Resources' Annual Report on Form 10-K for the year ended December 31, 1996. Sale of Subsidiary On August 6, 1997, Virginia Power sold its wholly-owned subsidiary, A&C Enercom, Inc. (A&C). Eaarlier this year, the TriTech division of A&C was integrated into Evantage, the retail side of Virginia Power's energy services business unit. Management believes that TriTech's experience in helping commercial and industrial customers improve performance and increase competitiveness, combined with its geographic presence around the country, strengthens Evantage's position as an energy services provider. The sale of A&C will not have a material impact on Virginia Power's financial statements. DOMINION ENERGY RESULTS OF OPERATIONS Net income increased by $14.1 million during the first six months of 1997 as compared to the same period in 1996 primarily due to income from power genera- tion assets in Peru acquired in August 1996; higher gas prices; and greater production volumes due to the acquisition of natural gas properties in the Gulf Coast area in March 1996 and in Michigan in January 1997. DOMINION RESOURCES, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) LIQUIDITY AND CAPITAL RESOURCES Cash Flows From Operations Cash flows from operations for the six months ended June 30, 1997 increased by $62.8 million as compared to the six months ended June 30, 1996 primarily due to income from power generation assets in Peru acquired in August 1996; higher gas prices; and greater production volumes due to the acquisition of natural gas properties in the Gulf Coast area in March 1996 and in Michigan in January 1997. Cash Flows Used In Financing Activities Cash from (used in) financing activities was as follows: Six Months Ended June 30, 1997 1996 (Millions) Issuance (repayment) of long-term debt $(19.9) $10.5 Investment from parent 40.0 Dividend payment (24.6) (21.2) Other 7.8 (0.7) Total $(36.7) $28.6 During the first six months of June 30, 1997, cash flows used in financing activities were $36.7 million primarily for the repayment of long-term debt and payment of dividends to parent. Cash Flows Used In Investing Activities Cash used in investing activities was as follows: Six Months Ended June 30, 1997 1996 (Millions) Investment in natural gas assets $(20.9) (68.0) Investment in power generation assets (40.5) Other (3.4) (3.4) Total $(64.8) $(71.4) DOMINION RESOURCES, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) During the first six months of June 30, 1997, cash flows used in investing activities were $64.8 million primarily for the natural gas and oil drilling activity and investments in power generation assets. CAPITAL EXPENDITURES During the first six months of 1997, Dominion Energy expended $61.4 million in capital requirements. Total capital requirements for 1997 are estimated to be $339 million. DOMINION CAPITAL RESULTS OF OPERATIONS Net income increased by $12 million during the second quarter and the first six months of 1997 as compared to the same periods in 1996 primarily due to residential mortgage securitizations performed by Saxon Asset Securities Company and the acquisition of the remaining fifty percent interest in First Source Financial LP. in early 1997. LIQUIDITY AND CAPITAL RESOURCES Cash Flows From Operations Cash flows used in operations for the six months ended June 30, 1997 decreased by $157.4 million as compared to the six months ended June 30, 1996 primarily due to a decrease in the net cash outflow of mortgage loan activity for Saxon Mortgage. Cash Flows Used In Financing Activities Cash from (used in) financing activities was as follows: Six Months Ended June 30, 1997 1996 (Millions) Issuance of long-term debt $ 2,412.4 $191.1 Repayment of long-term debt (2,275.4) (46.2) Investment from parent 99.0 44.4 Dividend payment (21.4) (14.9) Issuance (repayment) of intercompany debt (17.5) 56.4 Other (7.0) (0.2) Total $ 190.1 $230.6 During the first six months of June 30, 1997, cash flows from financing activities were $190.1 million primarily due to the acquisition of the remaining fifty percent interest in First Source Financial LLP. DOMINION RESOURCES, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Cash Flows Used In Investing Activities Cash from (used in) investing activities was as follows: Six Months Ended June 30, 1997 1996 (Millions) Marketable securities $ 5.9 $ 7.3 Acquisition of remaining interest in subsidiary (96.1) Other (27.6) (19.7) Total $(117.8) $ (2.4) During the first six months of June 30, 1997, cash flows used in investing activities increased primarily due to the acquisition of the remaining fifty percent interest in First Source Financial LLP. . CAPITAL EXPENDITURES During the first six months of 1997, Dominion Capital expended $229.4 million in capital requirements. Total capital requirements for 1997 are estimated to be $486 million. EAST MIDLANDS RESULTS OF OPERATIONS A separate discussion of East Midlands is not presented because it was not part of Dominion Resources' consolidated entity during the first six months of 1996. LIQUIDITY AND CAPITAL RESOURCES Financing the Acquisition In the first quarter of 1997, Dominion Resources acquired 100% indirect ownership of East Midlands by means of a cash tender offer commenced on November 22, 1996. Dominion Resources, through two UK financing subsidiaries, obtained the funds necessary for the tender offer in part from borrowings of approximately $1,055 million under a short-term credit agreement and borrowings of 700 million pounds sterling ($1,154 million) under a revolving credit agreement, both guaranteed by Dominion Resources. The direct holding company of East Midlands issued approximately $20 million in unsecured loan notes, with the remainder of the funds contributed indirectly by Dominion Resources. DOMINION RESOURCES, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) On May 9, 1997, DR Investments, one of the UK financing subsidiaries, issued $819 million of five- and ten- year senior notes, the net proceeds of which were used to pay down debt borrowed under the short-term credit agreement. On June 6, 1997, DR Investments issued $156.6 million ten year Euro-Sterling Bonds, the net proceeds of which were used to pay down debt borrowed under the short-term credit agreement. On June 24, 1997, DR Investments signed a $333.1 million 5 year term loan facility with a group of banks and at the same time DR Investments and East Midlands Electricity signed a $333.1 million 5 year revolving credit facility to provide working capital. On June 25, 1997, DR Investments drew down $83.3 million under the term loan facility which was used to repay the balance of the short-term credit agreement. A further drawing of $250 million under the term loan facility was made by DR Investments on July 10, 1997 and was used to fund the return of share capital of $250 million to the parent of DR Investments, DR Nottingham. DR Nottingham used $245 million of this payment to repay part of its revolving credit agreement put in place to fund the acquisition of East Midlands Electricity. Cash Flows From Operations Cash flows from operations for the six months ended June 30, 1997 were $2.5 million and were primarily due to normal operations. A comparison is not made to the six months ended June 30, 1996 because East Midlands was not part of Dominion Resources' consolidated entity during the first six months of 1996. Cash Flows From Financing Activities Cash Flows from financing activities was as follows: Six Months Ended June 30, 1997 (Millions) Issuance of long-term debt $1,904.2 Investment from parent 51.4 Dividend payment (2.2) Other (51.7) Total $2,005.2 During the first six months of 1997, cash from financing activities was primarily due to the issuance of the following debt:$819 million of senior notes, $165 million of Eurobonds, and $830 million under a revolving credit agreement. The proceeds were used to pay down the debt borrowed under the short-term credit agreement, fund the expected return of share capital to the parent of DR Investments and finance the initial funding for the acquisition of East Midlands. DOMINION RESOURCES, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Cash Flows Used In Investing Activities Cash from (used in) investing activities was as follows: Six Months Ended June 30, 1997 (Millions) Purchase of shares in EME $(1,885.8) Purchase of fixed assets (106.1) Other 27.0 Total $(1,964.9) During the first six months of June 30, 1997, cash flows used in investing activities was utilized primarily to acquire the outstanding shares of stock in East Midlands. CAPITAL EXPENDITURES During the first six months of 1997, East Midlands expended $106.1 million in capital requirements. Total capital requirements for 1997 are estimated to be $210.6 million. FUTURE ISSUES Supply Regulation The market for supply customers in the United Kingdom with a peak demand above 1MW has been open to competition among suppliers of electricity since privatization in 1990, while, for customers with a peak demand above 100KW (the Non-Franchise Supply Customers), the market became competitive in April 1994. The final stage of the process is scheduled to begin on April 1, 1998, when the exclusive right of Public Electricity Supply License (PES License) holders to supply Franchise Supply Customers is scheduled to end. The current proposal is for full competition to be phased in for both business and domestic customers in three stages in each PES area. The date of the first stage will vary across different PES regions. In a consultation papers dated May and July 1997, The Director General of Electricity Supply indicated that he would be seeking to maintain some form of continuing supply price control to operate from April 1998, the precise nature and form of regulation is under discussion. DOMINION RESOURCES, INC. PART II. - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On July 10, 1997, the Virginia Commission entered an Order terminating the proceedings to investigate the holding company structure and the relationship between Dominion Resources and Virginia Power. The Order noted that all actions required by prior order of the Commission had been taken and that relative harmony had continued over the past year. The Order directed Virginia Power to continue to file an independent certified annual audit of affiliate transactions each year. VIRGINIA POWER In reference to the motion for judgment filed by Doswell Limited Partnership against Virginia Power, on April 2, 1997, in the Circuit Court of the City of Richmond, a hearing on the Demurrer filed by Virginia Power, which seeks dismissal of the lawsuit, has been scheduled for August 26, 1997. In reference to the complaint filed by Doswell Limited Partnership against Virginia Power on April 2, 1997 in the United States District Court for the Eastern District of Virginia, no hearing date has been set on Virginia Power's Motion to Dismiss filed on April 25, 1997. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Dominion Resources Annual Shareholders Meeting was held on April 18, 1997 and the results were reported in the company's first quarter ended March 31, 1997 Form 10-Q, dated May 14, 1997. ITEM 5. OTHER INFORMATION THE COMPANY EAST MIDLANDS Dominion Resources purchased East Midlands Electricity plc (East Midlands) in the first quarter of 1997. East Midlands' principal businesses are the distribution of electricity and the supply of electricity to approximately 2.3 million customers in the East Midlands region of the United Kingdom. East Midlands' primary business is its distribution business which is a regulated monopoly and its electricity supply business. Together these businesses produced substantially all of East Midlands' consolidated operating income. Franchise Area East Midlands' Franchise Area (or service area) has a resident population of over five million and covers approximately 9,920 square miles extending from Coventry to the Lincolnshire coast and from Milton Keynes to Chesterfield of which the southernmost part is less than 60 miles from London. The bulk of the Franchise Area consists of the East Midlands region, which is centrally located in the UK and has a diverse industrial base and a multi- skilled workforce. The region benefits from extensive road and rail transportation infrastructure and features a number of major industries, including agriculture and food, automobile manufacturing (including Toyota's European manufacturing base), iron and steel, minerals, chemicals and coal mining. DOMINION RESOURCES, INC. PART II. - OTHER INFORMATION (CONTINUED) Distribution Business East Midlands owns, manages and operates the electricity distribution network within its Franchise Area. The primary activity of the distribution business is the receipt of electricity from the national grid transmission system and its distribution to end users connected to East Midlands' power lines. Because East Midlands is the exclusive holder of a Public Electricity Supply (PES) license for its Franchise Area, virtually all electricity supplied (whether by East Midland's supply business or by other suppliers) to consumers in East Midland's Franchise Area is transported through East Midlands' distribution network. As a holder of a PES license, East Midlands is subject to a price cap regulatory framework that provides economic incentives to increase the number of units of electricity distributed and to operate in a more cost-efficient manner. In addition to the network division, East Midlands' distribution business also includes construction and metering divisions. The construction division provides construction, standby and maintenance services to the network as well as performing similar services for certain third-parties. East Midlands' metering division focuses on the ownership and management of metering and related assets as well as data collection and transmission service. While portions of construction and metering are gradually opening to competition, the network division, which generates over 80% of the distribution business' profits, is expected to remain a regulated monopoly subject to price regulation. Customers East Midlands' distribution system has approximately 2.3 million customers. This customer group consists predominantly of residential and small commercial consumers, which provides East Midlands a stable customer base. East Midlands also distributes electricity to industrial concerns in its Franchise Area. The principal activities of East Midlands' largest distribution customers include agriculture, automobile manufacturing, iron and steel, minerals, chemicals and coal mining. Distribution Facilities Electricity is transported across the national grid transmission system (the high voltage transmission system in England that carries the generated electricity in bulk from power stations to regional and local distribution systems) at 400kv or 275kv to 14 grid supply points within East Midlands' distribution network, where East Midlands transforms the voltage to 132kv for entry into East Midlands' distribution system. Electricity is also transported to one national grid supply point located in a neighboring REC's franchise area, which is connected to East Midlands' distribution system by overhead lines and underground cables. Substantially all electricity which enters East Midlands' system is received at these 15 grid supply points. At March 31, 1996, East Midlands' electricity distribution network (excluding service connections to consumers) included 15,034 circuit miles of overhead lines and 26,142 circuit miles of underground cables. DOMINION RESOURCES, INC. PART II. - OTHER INFORMATION (CONTINUED) East Midlands' distribution facilities also include approximately: Number Transformers: 132kv/lower voltages . . . . . . . . . . . . . . . . . . . .185 33kv/11kv or 6/6kv . . . . . . . . . . . . . . . . . . . . .679 11kv or 6.6 kv/lower voltages (including 22,085 pole mounted transformers). . . . . . . . . . . 37,774 Substations: 132kv/33kv . . . . . . . . . . . . . . . . . . . . . . . . . 85 33kv/11kv or 6.6kv . . . . . . . . . . . . . . . . . . . . .368 11kv or 6.6kv/415v or 240v . . . . . . . . . . . . . . . 15,689 Substantially all substations are owned and the balance are leased which will not expire for 10 years. Competition East Midlands' network distribution division is a regulated monopoly within its Franchise Area, and therefore does not face direct competition. East Midlands' network distribution division contributes over 80% of the distribution businesses' profits. Such business faces indirect competition from alternative energy sources such as gas. Furthermore, to the extent a customer may invest in its own on-site electricity generating plants, such customer would no longer require distribution and related services from East Midlands. Currently the metering division is essentially a regulated business but will become subject to full competition by 2000. The majority of the work of the construction division relates to the maintenance, support and development of East Midlands' own distribution network. This division's work is open to competition from a number of firms. Supply Business East Midlands' supply business consists of selling electricity to end users, purchasing such electricity primarily from the Pool and arranging for its distribution to those end users. The Pool is the wholesale trading market that was established at the time of privatization (1990) for bulk trading of electricity in England between generators and suppliers. Basically all electricity generated in England must be sold and purchased through the Pool. The Pool does not buy or sell electricity. East Midlands' supply business predominately supplies Franchise Supply Customers who have a peak demand of less than 100kW, and Non-Franchise Supply Customers who have a peak demand of 100kW or more. In addition, East Midlands supplies gas to approximately 4,000 customers. Franchise Supply Market East Midlands holds a PES License under which it currently has the exclusive right to supply electricity to approximately 2.3 million Franchise Supply Customers within its Franchise Area. At the time that the industry was privatized,"Franchise Supply Customers" included all customers whose supply peak demand was less than 1MW. The 1MW threshold was reduced to 100 kW on April 1, 1994. The exclusive right to supply Franchise Supply Customers is currently scheduled to end over a 6-month phase-in period beginning April 1, 1998. On completion of the phase-in period, there will be no Franchise Supply Customers and all supply customers will have the ability to choose their DOMINION RESOURCES, INC. PART II. - OTHER INFORMATION (CONTINUED) electricity supplier. Supply prices of electricity from Franchise Supply Customers are based on the Supply Price Control Formula, pursuant to which East Midlands' costs of purchasing and delivering electricity and costs of hedging the purchase price are charged to end-users. Non-Franchise Supply Market Non-Franchise Supply Customers are currently defined as customers whose peak demand equals or exceeds 100kW. In addition to competing for Non-Franchise Supply Customers in its Franchise Area, East Midlands holds a second tier license to compete with the Regional Electric Companies and other suppliers to provide electricity to Non-Franchise Supply Customers outside its Franchise Area. The market to supply Non-Franchise Supply Customers is fully competitive, with the principal competitors being other Regional Electric Companies and major generators. Non-Franchise Supply Customers are typically supplied through individual 12-month contracts with competitively bid or negotiated prices. Power Purchasing and Risk Management Regulations governing the Franchise Supply Market permit the pass-through to customers of prudent costs, which include the cost of arrangements such as contracts for differences (CFDs) to hedge against Pool price volatility. CFDs are contracts predominantly entered into between generators and suppliers to fix the price of a contracted quantity of electricity over a specific period. Differences between the actual prices set by the Pool and the agreed prices give rise to difference payments between the parties to the particular CFD. At the present time, East Midlands' forecast franchise supply market demand for fiscal 1998 is substantially hedged through various types of agreements, including CFDs. The most common contracts for supply to Non-Franchise Supply customers are for a twelve-month term and contain fixed rates. East Midlands is exposed to two principal risks associated with such contracts: (a) purchasing price risk (East Midlands' cost of purchased electricity relative to the price East Midlands receives from the supply customer) and (b) load shape risk (the risk associated with a shift in the customer's usage pattern, including absolute amounts demanded and timing of amounts demanded). East Midlands employs risk management methods to maximize its return consistent with an acceptable level of risk. East Midlands seeks to hedge purchasing price risk through a variety of risk management tools, including management of its supply contract portfolio, CFDs, option arrangements and other means which mitigate risk of future Pool price volatility. Load shape risk is mitigated by paying detailed attention to forecasting demand. Competition East Midlands' non-franchise supply business competes with electricity generators and a number of other suppliers of electricity, primarily the other PES license holders. When East Midlands' exclusive right to supply Franchise Supply Customers in its Franchise Area is phased out, East Midlands will likewise face competition from such generators and other suppliers. East Midlands' supply business also competes with a number of other gas suppliers. Furthermore, to the extent a larger customer may, invest in its own on-site DOMINION RESOURCES, INC. PART II. - OTHER INFORMATION (CONTINUED) electricity generating plants, such customer would no longer require electricity supplied by East Midlands. UK Environmental Regulation East Midland' businesses are subject to numerous regulatory requirements with respect to the protection of the environment. The Electricity Act (legislation governing the electricity industry in Great Britain) obligates the UK Secretary of State for Trade and Industry (the Secretary of State) to take into account the effect of electricity generation, transmission and supply activities upon the environment in approving applications for the construction of generating facilities and the location of overhead power lines. The Electricity Act requires East Midlands to adhere to such guidelines when it formulates proposals for development. East Midlands is required to mitigate any effect its proposals may have on the environment and may be required to carry out an environmental assessment when it intends to construct overhead lines. East Midlands also has produced an Environmental Policy Statement which sets out the manner in which it intends to comply with its obligations under the Electricity Act. Britain's Environmental Protection Act 1990 addresses waste management issues and imposes certain obligations and duties on companies which handle and dispose of waste. Some of East Midlands' distribution activities produce waste, but Dominion Resources believes East Midlands is in compliance with applicable standards. Possible adverse health effects of electro-magnetic fields (EMFs) from various sources, including transmission and distribution lines, have been the subject of a number of studies and increasing public discussion. The scientific research currently is inconclusive as to whether EMFs can cause adverse health effects. Claims are currently being brought against other companies within the electricity business alleging damages caused by EMFs. East Midlands believes that it has taken and continues to take sufficient measures to comply with the applicable laws and governmental regulations for the protection of the environment. Employees East Midlands currently has 4,418 employees. Of East Midlands' employees, 85% are trade union members. Approximately 95% of East Midlands' employees are subject to collective bargaining agreements. The 5% of employees who are not party to a collective bargaining agreement are party to personal/individual contracts. There are various collective agreements covering the distribution, and the supply businesses and the different groups of staff within each of these businesses. These provisions may be amended by agreement between the particular business' management representatives and the appropriate trade union and are terminable with not less than 12 months notice by either party. Most staff of East Midlands' contracting business have terms and conditions based on one of two national collective bargaining agreements which have DOMINION RESOURCES, INC. PART II. - OTHER INFORMATION (CONTINUED) minimum standards. In the past 10 years there have been no work stoppages which have resulted in a loss of man days. Dominion Resources believes East Midlands relations with its employees and representatives are generally good. DOMINION ENERGY In reference to the purchase of the Kincaid Power Station from Commonwealth Edison Company (ComEd) by Kincaid Generation, L.L.C. (LLC), a subsidiary of Dominion Energy, in March 1997, the Illinois Commerce Commission (ICC) issued an order approving the transaction. ComEd and certain intervenors requested rehearing before the ICC, and certain intervenors requested the ICC to stay the effort of its approval order, all requests were denied by the ICC. ComEd and certain intervenors have filed appeals to the Appellate Court of Illinois for the Fourth District. VIRGINIA POWER During April, Dr. James T. Rhodes, President and Chief Executive Officer of Virginia Power since 1989, announced his retirement effective August 1, 1997. On May 23, 1997, the Board of Directors elected Mr. Norman B.M. Askew as the new President and Chief Executive Officer, effective August 1, 1997. Mr. Askew was previously the Chief Executive of East Midlands , the United Kingdom regional electricity company acquired by Dominion Resources during the first quarter of 1997. Pursuant to Virginia Power's policy on employee Directors, Dr. Rhodes resigned from and Mr. Askew was appointed to the Board of Directors effective August 1, 1997. On August 6, 1997, Virginia Power sold its wholly-owned subsidiary, A&C Enercom, Inc. (A&C) to Intellisource, Inc. of Fairfield, CT. Earlier this year, the TriTech division of A&C was integrated into Evantage, the retail side of Virginia Power's energy services business unit. For additional information see Sale of Subsidiary under MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Regulation Virginia In the proceeding before the Virginia Commission for authority to implement a program for monitoring of compliance by nonutility generators with the "Qualifying Facility" (QF) requirements of the Public Utility Regulatory Policies Act of 1978, on June 13, 1997, the Commission granted the authority requested. In reference to its application before the Virginia Commission for authority to provide interexchange non-switched dedicated telecommunication services throughout Virginia, on August 8, 1997, the Commission issued an order granting the certificate to provide such telecommunications services and approving the proposed affiliate agreements between Virginia Power and its wholly-owned subsidiary, VPS Communications, Inc. In reference to the consolidated alternative regulatory plan and 1995 Annual Information Filing proceeding before the Virginia Commission, a public hearing has been rescheduled to February 17, 1998. On June 2, 1997, Virginia Power issued a NUG Mitigation Report and the Staff issued its report on the DOMINION RESOURCES, INC. PART II. - OTHER INFORMATION (CONTINUED) developments in the wholesale power market. The Staff has requested an extension of time to file its report on increased monitoring of electric service quality from July 1, 1997 to March 1, 1998. Nuclear In reference to Virginia Power's joint petition with thirty-five other utility petitioners against the U.S. Department of Energy (DOE) in the U.S. Court of Appeals for the District of Columbia and a parallel lawsuit filed by numerous states and state agencies, DOE filed a response to mandamus petitions on June 6, 1997, and the utilities and state petitioners filed replies on June 16, 1997. Oral argument has been scheduled for September 25, 1997. Rates FERC In reference to Virginia Power's Open Access Transmission service tariff, on June 11, 1997, FERC issued a Letter Order approving Virginia Power's tariff. On July 14, 1997, Virginia Power filed amendment to its open Access Transmission tariff and Standards of Conduct to conform with the requirements of FERC Orders 888-A and 889-A. On July 1, 1997, Virginia Power filed an amendment to its Power Sales Tariff to Eligible Customers dated June 28, 1994. The amendments provide for sales of electric capacity and energy at market-based rates and for the resale of transmission rights. As part of the filing, Virginia Power attached an analysis of the company's generation market power for installed and uncommitted capacity that illustrates Virginia Power is within the parameters previously found by the Commission to establish a lack of generation dominance. Virginia In the proceeding before the Virginia Commission involving an increase in Virginia Power's recovery of fuel expenses, on June 11, 1997, the Commission approved the requested increase in the fuel factor from 1.299 cents to 1.322 cents per kilowatt-hour North Carolina On June 19, 1997, the North Carolina Commission issued an Order requiring the company to offer long-term (5,10 and 15 year) levelized capacity payments to hydroelectric and certain landfill and waste facilities contracting for up to 5 MW; a 5-year levelized rate option to other QFs contracting for up to 100 KW; and optional long-term levelized energy payments for QFs rated at 100 KW or less capacity. DOMINION RESOURCES, INC. PART II. - OTHER INFORMATION (CONTINUED) Sources of Energy Used and Fuel Costs Purchases And Sales Of Power In reference to the principles of agreement reached between Virginia Power and Old Dominion Electric Cooperative (ODEC) in November 1996 providing for Virginia Power's continued supply of ODEC's supplemental capacity needs through 2005, on July 29, 1997, the parties executed a revised agreement in keeping with those principles of agreement. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 10(i)*- Employment Agreement date June 20, 1997 between Dominion Resources, Inc. and Thos. E. Capps (filed herewith). 10(ii)* - Dominion Resources, Inc. Retirement Benefit Restoration Plan as adopted effective January 1, 1991 and amended and restated September 1, 1996 (filed herewith). 10(iii)*- Dominion Resources, Inc. Retirement Benefit Funding Plan effective June 29, 1990 and amended and restated September 1, 1996 filed herewith). 10(iv)*- Dominion Resources, Inc. Executive Supplemental Retirement Plan effective January 1, 1981 as amended and restated September 1, 1996 (filed herewith). 11 - Statement re: computation of per share earnings (included in this Form 10-Q on page 3). 27 - Financial Data Schedule (filed herewith). *Indicates management contract or compensatory plan or arrangement. (b) Reports on Form 8-K None. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DOMINION RESOURCES, INC. Registrant BY JAMES L. TRUEHEART James L. Trueheart Vice President and Controller (Principal Accounting Officer) August 12, 1997 EX-27 2
UT 1,000,000 6-MOS DEC-31-1997 JUN-30-1997 PER-BOOK 11,115 3,728 1,700 2,800 0 19,423 3,564 16 1,467 5,032 180 509 8,083 584 0 0 569 0 2 0 4,464 19,423 3,490 118 2,819 2,937 553 13 566 296 270 21 249 237 0 466 1.35 1.35
EX-10 3 Exhibit 10(i)* EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (the "Agreement") is made as of June 20, 1997, between DOMINION RESOURCES, INC. (the "Company") and THOS. E. CAPPS (the "Executive"). RECITALS: The Board of Directors of the Company (the "Board of Directors") recognizes that outstanding management of the Company is essential to advancing the best interests of the Company, its shareholders and its subsidiaries. The Board of Directors has and continues to believe that it is particularly important to have stable, excellent management. The Board of Directors has and continues to believe that this objective may be achieved by giving key management employees assurances of financial security for a period of time, so that they will not be distracted by personal risks and will continue to devote their full time and best efforts to the performance of their duties. To accomplish this purpose, the Company and the Executive entered into an agreement as of April 12, 1995, which was amended as of September 15, 1995 (the "1995 Employment Agreement"). The Board of Directors wishes to foster an atmosphere of cooperation among the key management employees of the Company and its subsidiaries, and provide an incentive for such employees to continue to contribute to the future growth and success of the Company and its subsidiaries. To accomplish this objective, the Organization and Compensation Committee of the Board of Directors (the "Committee") has recommended, and the Board of Directors has approved, entering into a new employment agreement with the Executive, which shall replace the Executive's 1995 Employment Agreement. The Company acknowledges that the Executive's contributions to the past and future growth and success of the Company have been and will continue to be substantial. The Company and the Executive are entering into this Agreement to induce the Executive to remain an employee of the Company and to continue to devote his full energy to the Company's affairs. The Executive has agreed to continue to be employed by the Company under the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the foregoing and the mutual undertakings contained in this Agreement, the parties agree as follows: 1. Employment. The Company will employ the Executive, and the Executive will continue in the employment of the Company, as Chief Executive Officer and President of the Company for the period beginning on the date of this Agreement and ending December 31, 2002 (the "Term of this Agreement"), according to the terms of this Agreement. 2. Duties. The Company and the Executive agree that, during the Term of this Agreement, the Executive will be Chief Executive Officer of the Company and will report directly to the Board of Directors. During the Term of this Agreement, the Executive will continue to exercise such authority and perform such executive duties as are commensurate with his position as Chief Executive Officer. The Executive (i) will devote his knowledge, skill and best efforts on a full-time basis to performing his duties and obligations to the Company (with the exception of absences on account of illness or vacation in accordance with the Company's policies and civic and charitable commitments not involving a conflict with the Company's business), and (ii) will comply with the directions and orders of the Board of Directors of the Company with respect to the performance of his duties. The Executive shall also be President of the Company and will perform such executive duties as are commensurate with his position as President. 3. Effect on Other Agreements. This Agreement sets forth the entire understanding of the parties with respect to the terms of the Executive's employment with the Company and its subsidiaries. This Agreement supersedes and replaces the Executive's 1995 Employment Agreement, which will terminate as of the date on which this Agreement is executed. This Agreement supersedes and replaces all agreements that were superseded and replaced by the 1995 Employment Agreement, including the Executive's Employment Continuity Agreement, the letter dated April 21, 1994 to the Executive from James F. Betts, the employment agreement between the Executive and the Company dated August 12, 1994 (the "1994 Employment Agreement"), and any other employment agreements between the Executive and the Company or a subsidiary (collectively, the "Prior Agreements"). The term "employment agreement" as used in the preceding sentence does not include any retirement, incentive or benefit plan or program in which the Executive participates or the credited service agreement described in Section 5(c). The Executive and the Company agree that the Executive's Prior Agreements are null and void. 4. Compensation and Benefits. (a) During the Term of this Agreement, while the Executive is employed by the Company, the Company will pay to the Executive the following salary and incentive awards for services rendered to the Company: (i) The Company will pay to the Executive an annual salary in an amount not less than the base salary in effect for the Executive as of the date on which this Agreement is executed. The Board of Directors will evaluate the Executive's performance at least annually and will consider annual increases in the Executive's salary based on the Executive's performance. (ii) The Executive will be entitled to receive incentive awards based on the Executive's job performance, if and to the extent that the Board of Directors determines that the Executive's performance merits payment of an award. The Board of Directors will make its determination consistent with the methodology used by the Board of Directors for compensating its senior management employees. (b) During the Term of this Agreement, while the Executive is employed by the Company, the Executive will be eligible to participate in a similar manner as other senior executives of the Company in retirement plans, cash and stock incentive plans, fringe benefit plans and other employee benefit plans and programs provided by the Company for its senior management employees from time to time. 5. Completion Benefits. (a) The Executive will be entitled to receive the following additional benefits upon his termination of employment with the Company: (i) The Executive's retirement benefits under the Company's Retirement Plan and Benefit Restoration Plan will be computed using compensation based on the Executive's highest rate of annual salary in effect at any time during his employment. The supplemental benefit to be provided under this subsection (i) will be provided as a supplemental benefit under this Agreement and will not be provided directly from the Retirement Plan. (ii) The Executive's "Final Compensation" under the Company's Executive Supplemental Retirement Plan (the "SRP") will be determined by computing the "Incentive Compensation Amount" as if the Executive's short-term incentive compensation target award was the unreduced percentage (which will be at least 45%) of his salary midpoint as approved by the Committee for the year (for example, for 1993 and 1994, the unreduced percentage was 45% of his salary midpoint, as compared to the reduced target that was used for 1993 and 1994 in order to make long-term compensation a larger part of the Executive's incentive compensation for those years). (iii) The benefit under the SRP will continue to be computed as an equal periodic payment for 120 months, according to the SRP document. However, this periodic payment will be payable for the Executive's life (or for 120 payments, if longer). (iv) All restricted stock held by the Executive as of the date of termination of his employment, including the restricted stock awarded to the Executive under the Restricted Stock Award Agreement dated as of February 20, 1995, will become fully vested (that is, transferable and nonforfeitable) as of the date of termination of his employment. (v) The Company will pay to the Executive a single lump sum payment equal to nine hundred fifty thousand dollars ($950,000) on the day following the date of termination of his employment. (b) In addition to the foregoing, the Executive will receive upon his termination of employment with the Company a single lump sum cash payment equal to the present value of the annual base salary and annual cash incentive awards (computed as described below) that the Executive is projected to receive for employment in the period from January 1, 2002 to December 31, 2002. The lump sum will be computed as follows: (i) For purposes of this calculation, the annual base salary that the Executive is projected to receive for employment from January 1, 2002 to December 31, 2002, will be calculated at the highest annual base salary rate in effect for the Executive during the three-year period ending on December 31, 2001. For purposes of this calculation, the annual cash incentive awards that the Executive is projected to receive for employment from January 1, 2002 to December 31, 2002 will be calculated at a rate equal to the highest annual cash incentive award paid to the Executive during the three-year period ending on December 31, 2001. Salary and bonus that the Executive elected to defer will be taken into account for purposes of this Agreement without regard to the deferral. (ii) The salary and incentive award for any partial year in the Term of this Agreement will be a pro-rated portion of the annual amount. (iii) If the Executive has not yet received an annual cash incentive award for the year in which his employment terminates, the lump sum payment will be increased to include a pro-rated award for the portion of the year preceding the Executive's termination of employment. If the Executive has not yet received payment of his annual cash incentive award for the year preceding his termination of employment, the lump sum payment will be increased to include an award for the year preceding the Executive's termination of employment. The incentive award for the year or portion of the year preceding the Executive's termination of employment will be determined according to clause (i) above, unless the Board of Directors made a good faith final determination of the amount of the applicable incentive award pursuant to Section 4(a)(ii) before the Executive's termination of employment. If the Board of Directors made such a determination, the applicable incentive award will be computed according to the Board of Directors' determination. (iv) Present value will be computed by the Company as of the date of the Executive's termination of employment, based on a discount rate equal to the applicable Federal short-term rate, as determined under Section 1274(d) of the Internal Revenue Code of 1986, as amended (the "Code"), compounded monthly, in effect on the date on which the present value is determined. (v) The lump sum payment will be paid within 30 days after the Executive's termination of employment. (c) As set forth in the existing credited service agreement between the Executive and the Company, the Executive will be credited with a total of 30 years of service for purposes of the Company's retirement plans. 6. Termination of Employment. (a) During the Term of this Agreement, the Company may terminate the Executive's employment only for Cause. During the Term of this Agreement, the Executive may voluntarily terminate employment under the circumstances described in clauses (i)-(v) of this subsection (a). After July 31, 1998, the Executive may voluntarily terminate employment under the circumstance described in clause (vi) of this subsection (a). If the Executive's employment is terminated for Cause, or if the Executive voluntarily terminates employment pursuant to this Section 6(a), the Executive will be entitled to receive the benefits described in subsection (b). Subject to the provisions of this subsection (a), the Executive may voluntarily terminate employment after (i) the Executive's base salary is reduced, (ii) the Executive is not in good faith considered for incentive awards as described in Section 4(a)(ii), (iii) the Company fails to provide benefits as required by Section 4(b), (iv) the Executive's place of employment is relocated to a location further than 30 miles from Richmond, Virginia, (v) the Executive's working conditions or management responsibilities are substantially diminished (other than on account of the Executive's disability, as defined in Section 7 below), or (vi) the Executive voluntarily terminates employment on or after August 1, 1998 upon 90 days prior written notice to the Company and the Committee consents in writing to such termination. In order for clause (i), (ii), (iii), (iv) or (v) of this subsection (a) to be effective: (1) the Executive must give written notice to the Company indicating that the Executive intends to terminate employment under this subsection (a), (2) the Executive's voluntary termination under this subsection must occur within 60 days after an event described in clause (i), (ii), (iii), (iv) or (v) of the preceding sentence, or within 60 days after the last in a series of such events, and (3) the Company must have failed to remedy the event described in clause (i), (ii), (iii), (iv) or (v), as the case may be, within 30 days after receiving the Executive's written notice. If the Company remedies the event described in clause (i), (ii), (iii), (iv) or (v), as the case may be, within 30 days after receiving the Executive's written notice, the Executive may not terminate employment under this subsection (a) on account of the event specified in the Executive's notice. (b) In accordance with the provisions of Section 6(a), the Executive will be entitled to receive the following benefits determined as of the date of his termination of employment: (i) The Executive will receive the benefits described in Section 5(a)(i), (ii), (iii), (iv) and (v) above as of the date of his termination of employment. In addition, the Executive will receive the single lump sum cash payment described in Section 5(b) of this Agreement if such payment is not otherwise payable under the terms of Section 5(b). (ii) The Executive will be credited with a total of 30 years of service and will be considered to have attained age 60 (if he has not already done so) for purposes of the Company's retirement plans. (iii) The Executive will be credited with age and service credit through the end of the Term of this Agreement for purposes of computing benefits under the Company's medical and other welfare benefit plans, and the Company will continue the Executive's coverage under the Company's welfare benefit plans as if the Executive remained employed through the end of the Term of this Agreement. Notwithstanding the foregoing, if the Company determines that giving such age and service credit or continued coverage could adversely affect the tax qualification or tax treatment of a benefit plan, or otherwise have adverse legal ramifications, the Company may pay the Executive a lump sum cash amount that reasonably approximates the after-tax value to the Executive of such age and service credit and continued coverage through the end of the Term of this Agreement, in lieu of giving such credit and continued coverage. (c) The amounts under this Agreement will be paid in lieu of severance benefits under any severance plan or program maintained by the Company. The amounts payable under this Agreement will not be reduced by any amounts earned by the Executive from a subsequent employer or otherwise. If the Executive voluntarily terminates employment prior to the end of the Term of this Agreement for a reason not described in subsection (a) above or Section 7 below, this Agreement will immediately terminate and the Executive shall be entitled to the payment of the benefits under Sections 5(a), 5(b) and 5(c). 7. Disability or Death. If the Executive becomes disabled (as defined below) during the Term of this Agreement while he is employed by the Company, the Executive shall be entitled to receive the benefits described in Sections 5(a)(i), 5(a)(ii), 5(a)(iii), 5(a)(iv), 5(a)(v), 5(b), and 6(b)(ii) of this Agreement as of the date on which he is determined by the Company to be disabled. If the Executive dies during the Term of this Agreement while he is employed by the Company, the benefits described in Sections 5(a)(i), 5(a)(ii), 5(a)(iii), 5(a)(iv), 5(a)(v), 5(b), and 6(b)(ii) will be provided to the Executive's beneficiary designated under the terms of the applicable benefit plan. The foregoing benefits will be provided in addition to any death, disability and other benefits provided under Company benefit plans in which the Executive participates. Except to the extent provided in this Section 7, the provisions of Sections 1, 2, 4, 5 and 6 of this Agreement will terminate upon the Executive's death or disability. The term "disability" means a condition, resulting from bodily injury or disease, that renders, and for a six consecutive month period has rendered, the Executive unable to perform any and every duty pertaining to his employment with the Company. A return to work of less than 14 consecutive days will not be considered an interruption in the Executive's six consecutive months of disability. Disability will be determined by the Company on the basis of medical evidence satisfactory to the Company. 8. Cause. For purposes of this Agreement, the term "Cause" means (i) material misappropriation with respect to the business or assets of the Company, (ii) persistent refusal or wilful failure of the Executive materially to perform his duties and responsibilities to the Company, which continues after the Executive receives notice of such refusal or failure, (iii) conviction of a felony involving moral turpitude, or (iv) the use of drugs or alcohol that interferes materially with the Executive's performance of his duties. The foregoing acts or events will constitute "Cause" for purposes of this Agreement only to the extent that they were committed on or after September 15, 1995 (i.e., the date on which the 1995 Employment Agreement was amended). 9. Parachute Tax. If the Company determines that any amounts payable under this Agreement would be subject to the excise tax imposed under Code Section 4999 on "excess parachute payments", the Company will compute the after-tax amount that would be payable to the Executive if the total amounts that are payable to the Executive by the Company, an affiliate, or a plan of the Company or an affiliate and are considered "parachute payments" for purposes of Code Section 280G ("Parachute Payments") were limited to the maximum amount that may be paid to the Executive under Code Sections 280G and 4999 without imposition of the excise tax (this after-tax amount is referred to as the "Capped Amount"). The Company will also compute the after-tax amount that would be payable to the Executive if the total Parachute Payments were payable without regard to the Code Sections 280G and 4999 limit (this after-tax amount is referred to as the "Uncapped Amount"). Notwithstanding anything in this Agreement to the contrary, if the Capped Amount is greater than or equal to 97% of the Uncapped Amount, then the total benefits and other amounts that are considered Parachute Payments and are payable to the Executive under this Agreement will be reduced to the largest amount that will result in no portion of any such payment being subject to the excise tax imposed by Code Section 4999. Tax counsel selected by mutual consent of the Company and the Executive will determine the amount of any such reduction in good faith. The determination will be made before the payments are due and payable to the Executive, to the extent possible. The Executive will determine which payments will be reduced, subject to approval by the Company (which approval may not be unreasonably withheld). The Executive will have no right to receive Parachute Payments under this Agreement in excess of the reduced amount. The calculations under this Section will be made in a manner consistent with the requirements of Code Sections 280G and 4999, as in effect at the time the calculations are made. 10. Indemnification. The Company will pay all reasonable fees and expenses, if any, (including, without limitation, legal fees and expenses) that are incurred by the Executive to enforce this Agreement and that result from a breach of this Agreement by the Company. 11. Form of Payment. All amounts payable under this Agreement (other than restricted stock, which will be paid according to the terms of the Company's Long-Term Incentive Plan and Incentive Compensation Plan) will be paid in cash, subject to required income and payroll tax withholdings. 12. Administration. The Committee will be responsible for the administration and interpretation of this Agreement on behalf of the Company. If for any reason a benefit under this Agreement is not paid when due, the Executive may file a written claim with the Committee. If the claim is denied or no response is received within 90 days after the filing (in which case the claim is deemed to be denied), the Executive may appeal the denial to the Board of Directors within 60 days of the denial. The Executive may request that the Board of Directors review the denial, the Executive may review pertinent documents, and the Executive may submit issues and comments in writing. A decision on appeal will be made within 60 days after the appeal is made, unless special circumstances require that the Board of Directors extend the period for another 60 days. If the Company defaults in an obligation under this Agreement, the Executive makes a written claim pursuant to the claims procedure described above, and the Company fails to remedy the default within the claims procedure period, then all amounts payable to the Executive under this Agreement will become due and owing. 13. Assignment. The rights and obligations of the Company under this Agreement will inure to the benefit of and will be binding upon the successors and assigns of the Company. If the Company is consolidated or merged with or into another corporation, or if another entity purchases all or substantially all of the Company's assets, the surviving or acquiring corporation will succeed to the Company's rights and obligations under this Agreement. The Executive's rights under this Agreement may not be assigned or transferred in whole or in part, except that the personal representative of the Executive's estate (or other beneficiary designated under the terms of the applicable benefit plan) will receive any amounts payable under this Agreement after the death of the Executive. 14. Rights Under the Agreement. The right to receive benefits under the Agreement will not give the Executive any proprietary interest in the Company or any of its assets. Benefits under the Agreement will be payable from the general assets of the Company, and there will be no required funding of amounts that may become payable under the Agreement. The Executive will for all purposes be a general creditor of the Company. The interest of the Executive under the Agreement cannot be assigned, anticipated, sold, encumbered or pledged and will not be subject to the claims of the Executive's creditors. 15. Notice. For purposes of this Agreement, notices and all other communications must be in writing and are effective when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the Executive or his personal representative at his last known address. All notices to the Company must be directed to the attention of the Chairman of the Committee. Such other addresses may be used as either party may have furnished to the other in writing. Notices of change of address are effective only upon receipt. 16. Miscellaneous. This instrument contains the entire agreement of the parties. To the extent not governed by federal law, this Agreement will be construed in accordance with the laws of the Commonwealth of Virginia, without reference to its conflict of laws rules. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and the writing is signed by the Executive and the Company. A waiver of any breach of or compliance with any provision or condition of this Agreement is not a waiver of similar or dissimilar provisions or conditions. The invalidity or unenforceability of any provision of this Agreement will not affect the validity or enforceability of any other provision of this Agreement, which will remain in full force and effect. This Agreement may be executed in one or more counterparts, all of which will be considered one and the same agreement. WITNESS the following signatures. DOMINION RESOURCES, INC. By:/s/ K. A. RANDALL Kenneth A. Randall, Chairman, Organization and Compensation Committee Dated: 6/20/97 /s/ THOS. E. CAPPS Thos. E. Capps Dated: 6/20/97 EX-10 4 Exhibit 10(ii)* DOMINION RESOURCES, INC. RETIREMENT BENEFIT RESTORATION PLAN As Adopted Effective January 1, 1991 and Amended and Restated September 1, 1996 DOMINION RESOURCES, INC. RETIREMENT BENEFIT RESTORATION PLAN Purpose The Board of Directors of Dominion Resources, Inc. and the Board of Directors of Virginia Electric and Power Company ("Virginia Power") determined that the adoption of the Retirement Benefit Restoration Plan will assist it in attracting and retaining those employees whose judgment, abilities and experience will contribute to its continued progress. The Plan is intended to be a plan that is unfunded and maintained primarily for the purpose of providing deferred compensation for a "select group of management or highly compensated employees" (as such phrase is used in the Employee Retirement Income Security Act of 1974). The Plan must be administered and construed in a manner that is consistent with that intent. The Plan was amended, as of September 1, 1996, to coordinate payments with changes in the Funding Plan. Article I Definitions As defined herein, the following phrases or terms shall have the indicated meanings: 1.1. "Administrative Benefit Committee" means the Administrative Benefit Committee, as appointed under the Funding Plan, which shall manage and administer the Plan in accordance with the provisions of Article X. 1.2. "Affiliate" means any entity that is (i) a member of a controlled group of corporations as defined in Section 1563(a) of the Internal Revenue Code of 1986, as amended (the "Code"), determined without regard to Code Sections 1563(a)(4) and 1563(e)(3)(C), of which Dominion Resources, Inc. is a member according to Code Section 414(b); (ii) an unincorporated trade or business that is under common control with Dominion Resources, Inc., as determined according to Code Section 414(c); or (iii) a member of an affiliated service group of which Dominion Resources, Inc. is a member according to Code Section 414(m). 1.3. "Beneficiary" means the person, persons, entity, entities or the estate of a Participant which, in accordance with the provisions of the Retirement Plan, is entitled to receive a benefit under the Retirement Plan on account of the Participant's death. If no person is entitled to receive a benefit under the Retirement Plan on account of the Participant's death, the Participant may designate another person, persons, entity, entities or his estate as Beneficiary under the Plan. 1.4. "Benefit Restoration Account" means the Benefit Restoration Account established under the Funding Plan on behalf of a Participant who also participates in the Funding Plan. 1.5. "Change in Control" means the occurrence of any of the following events: (i) any person, including a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934 becomes the owner or beneficial owner of Dominion Resources, Inc. securities having 20% or more of the combined voting power of the then outstanding Dominion Resources, Inc. securities that may be cast for the election of Dominion Resources, Inc.'s directors (other than as a result of an issuance of securities initiated by Dominion Resources, Inc., or open market purchases approved by Dominion Resources, Inc.'s Board of Directors, as long as the majority of Dominion Resources, Inc.'s Board of Directors approving the purchases is also the majority at the time the purchases are made); (ii) as the direct or indirect result of, or in connection with, a cash tender or exchange offer, a merger or other business combination, a sale of assets, a contested election, or any combination of these transactions, the persons who were directors of Dominion Resources, Inc. before such transactions cease to constitute a majority of Dominion Resources, Inc.'s Board of Directors, or any successor's board, within two years of the last of such transactions; or (iii) with respect to a particular Participant, an event occurs with respect to the Company that employs that Participant such that, after the event, the employing Company is no longer an Affiliate of the Dominion Resources, Inc. 1.6. "Code" means the Internal Revenue Code of 1986, as amended. 1.7. "Company" means Dominion Resources, Inc., its predecessor, a subsidiary or an Affiliate. 1.8. "Control Change Date" means the date on which a Change in Control event occurs. If a Change in Control occurs on account of a series of transactions, the Control Change Date is the date of the last of such transactions. 1.9. "Eligible Employee" means an individual (i) who is employed by Dominion Resources, Inc. or an Affiliate, (ii) who is a member of management or a highly compensated employee, and (iii) whose Retirement Plan benefit is reduced or limited by Code Section 401(a)(17), Code Section 415, or both. 1.10. "Funding Plan" means the Dominion Resources, Inc. Retirement Benefit Funding Plan. 1.11 "O&C Committee" means (i) the Organization and Compensation Committee of the Board of Directors of Dominion Resources, Inc. with respect to an Eligible Employee who is employed by Dominion Resources, Inc., Dominion Capital, Inc., Dominion Lands, Inc. or Dominion Energy, Inc. or any other Affiliate which is not subject to regulation as a public service corporation by the State Corporation Commission of Virginia ("DRI O&C Committee"); and (ii) the Organization and Compensation Committee of the Board of Directors of Virginia Electric and Power Company with respect to an Eligible Employee who is employed by Virginia Electric and Power Company or any of its subsidiaries ("Virginia Power O&C Committee"). 1.12. "Participant" means an Eligible Employee who is designated by the appropriate O&C Committee. A "DRI Participant" is an Eligible Employee designated by the DRI O&C Committee. A "Virginia Power Participant" is an Eligible Employee designated by the Virginia Power O&C Committee. An individual shall remain a Participant only so long as the individual remains an Eligible Employee and his designation as a Participant has not been revoked or rescinded. 1.13. "Plan" means the Dominion Resources, Inc. Retirement Benefit Restoration Plan. 1.14. "Retirement" and "Retire" mean severance from employment with the Company on or after attaining a vested or nonforfeitable interest in the portion of his Retirement Plan benefit attributable to Company contributions; except as provided in Article VI of the Plan. 1.15. "Retirement Plan" means the Dominion Resources, Inc. Retirement Plan. 1.16. "Totally and Permanently Disabled" means a condition, determined on the basis of medical evidence satisfactory to a physician designated by the Administrative Benefit Committee, rendering a Participant, due to bodily injury or disease, unable to perform services as follows: (i) during the first two years of such disability (measured from the commencement of such disability rather than the commencement of benefit payments) such Participant is unable to perform any and every duty pertaining to his employment with the Company; and (ii) thereafter, such Participant is unable to engage in any occupation or perform any work for compensation or profit for which he is or may become reasonably fitted by education, training or experience. In no event shall such condition be deemed to exist during any period that the Participant is not under the regular care and attendance of a legally qualified physician during any period that he engages in any occupation or performs any work for compensation or profit. Article II Participation An Eligible Employee who is designated to participate in the Plan by the appropriate O&C Committee shall become a Participant in the Plan as of the date specified by the appropriate O&C Committee. A Participant shall continue to participate in the Plan until such date as the appropriate O&C Committee may declare that he is no longer a Participant or until the date that he is no longer an Eligible Employee. Article III Benefits Except as provided in Article IV and subject to the limitations set forth in Articles VI and VII, the benefits of a Participant and his Beneficiary shall be as follows: 3.1. Upon Retirement a Participant shall be entitled to a monthly Retirement benefit equal to the difference between (a) and (b) below where: (a) = the monthly benefit that would have been payable to the Participant under the Retirement Plan but for the application of the limits set forth in Code Sections 401(a)(17) and 415; and (b) = the monthly benefit that the Participant is entitled to receive under the Retirement Plan. The payment of the benefit under this Section 3.1 shall begin as of the same date that the Participant's retirement benefit under the Retirement Plan is scheduled to commence. The benefit payable under this Section 3.1 also shall be determined as of the date that the Participant's retirement benefit under the Retirement Plan is scheduled to commence. Except as provided below, the benefit payable under this Section 3.1 shall be computed and paid in the same form as the Participant's retirement benefit under the Retirement Plan; provided, however, that upon the Participant's death no further benefit shall be payable under this Plan except as provided in Section 3.3. In lieu of receiving the same form of retirement benefit as under the Retirement Plan, a Participant may elect to receive an actuarial equivalent of said benefit as a single lump sum payment. The Participant must make the election at least six (6) months prior to the commencement of the receipt of benefits. The Participant must make the election of a single lump sum payment either (i) at least six (6) months prior to the commencement of the receipt of benefits or (ii) at least one (1) month prior to the commencement of the receipt of benefits if the election is approved by the Administrative Benefit Committee or the appropriate O&C Committee in its absolute discretion. Upon the denial of a Participant's election, the Participant shall receive the benefits provided under the Plan in the form that is otherwise payable absent the election. The actuarial equivalent of the benefit payable under this Section 3.1 shall be computed using the actuarial factors used for calculation of lump sum benefit payments under the Retirement Plan as of the date that the Participant's retirement benefit under the Retirement Plan is scheduled to commence. In lieu of receiving the same form of retirement benefit as under the Retirement Plan, a Participant who is not eligible to elect a survivor benefit form of payment under the Retirement Plan also may elect to receive an actuarial equivalent of said benefit in any form of survivor benefit otherwise provided under the Retirement Plan with the survivor benefit payable to the Participant's Beneficiary under the Plan. 3.2. If the Participant becomes Totally and Permanently Disabled prior to his Retirement and during his employment with the Company, he shall be entitled to receive a benefit calculated and paid in the manner set forth in Section 3.1. 3.3. (a) Upon the Participant's death if the Beneficiary is entitled to a benefit under the Retirement Plan, the Beneficiary shall be entitled to a monthly benefit under this Plan equal to the difference between (x) and (y) where: (x) = the monthly benefit that would have been payable to the Beneficiary but for the application of Code Sections 401(a) 17 and 415 in the calculation of the Participant's accrued benefit under the Retirement Plan; and (y) = the monthly benefit that the Beneficiary is entitled to receive under the Retirement Plan. The payment of the benefit under this Section 3.3(a) shall begin as of the same date that the Beneficiary's benefit under the Retirement Plan is scheduled to commence. The amount payable under this Section 3.3 also shall be determined as of the date that the Beneficiary's benefit under the Retirement Plan is scheduled to commence. The benefit payable under this Section 3.3(a) shall be computed and paid in the same form as the benefit payable to the Beneficiary under the Retirement Plan. (b) Upon the Participant's death before the commencement of benefits to the Participant, if the Beneficiary is not entitled to a benefit under the Retirement Plan, the Beneficiary shall be entitled to a monthly benefit under this Plan equal to fifty percent (50%) of the actuarial present value of the Participant's benefit payable under Section 3.1 (determined under the actuarial factors used for calculation of lump sum benefit payments under the Retirement Plan). The payment of the benefit under this Section 3.3(b) shall be made as soon as administratively possible after the Participant's death. The amount payable under this Section 3.3(b) shall be determined as of the date of the Participant's death. The benefit payable under this Section 3.3(b) shall be computed and paid in the form of a lump sum payment. (c) Upon the Participant's death after the commencement of benefits to the Participant, if the Beneficiary is not entitled to a benefit under the Retirement Plan, the Beneficiary shall be entitled to the continuation of the form of benefit elected by the Participant under Section 3.1, if the form of benefit provides for payment of a benefit after the Participant's death. The payment of the benefit under this Section 3.3(c) shall begin as of the date of the Participant's death. Article IV Coordination of Benefits The amount payable in any month to a Participant or a Beneficiary under the Plan shall be reduced, but not below zero, by the Pre-Tax Value of the amount payable for the month in question from the Participant's Benefit Restoration Account in the Funding Plan. The Pre-Tax Value of the payments from the Participant's Benefit Restoration Account shall be the amount that, after payment of any applicable federal, state, and local income and employment taxes, would yield the amount of the payment from the Benefit Restoration Account, taking into consideration the extent to which, if any, that the payment from the Benefit Restoration Account is taxable to the Participant. The determination of the Pre-Tax Value shall be made on the basis of a policy or guidelines adopted by the appropriate O&C Committee using the maximum rates of federal, state, and local income and employment taxes that are applicable to the Participant or Beneficiary. Benefits payable under the Plan shall not be reduced by any payment to a Participant under Section 6.05 of the Funding Plan. Article V Guarantees Dominion Resources, Inc. and Virginia Power have only a contractual obligation to make payments of the benefits described in Article III. All benefits are to be satisfied solely out of the general corporate assets of Dominion Resources, Inc. or Virginia Power which shall remain subject to the claims of its creditors. No assets of Dominion Resources, Inc. or Virginia Power will be segregated or committed to the satisfaction of its obligations to any Participant or Beneficiary under this Plan. If Dominion Resources, Inc., in its sole discretion, or Virginia Power, in its sole discretion, elects to purchase life insurance on the life of a Participant in connection with the Plan, the Participant must submit to a physical examination, if required by the insurer, and otherwise cooperate in the issuance of such policy or his rights under the Plan will be forfeited. Article VI Termination of Employment 6.1. The Plan does not in any way limit the right of the Company at any time and for any reason to terminate the Participant's employment or such Participant's status as an Eligible Employee. In no event shall the Plan, by its terms or by implication, constitute an employment contract of any nature whatsoever between the Company and a Participant. 6.2. A Participant who ceases to be an Eligible Employee or whose employment with the Company is terminated either with or without cause, for reasons other than death, Retirement or Total and Permanent Disability shall immediately cease to be a Participant under this Plan and shall forfeit all rights under this Plan. Further, in no event shall an individual who was a Participant but is not a Participant at the time of such individual's death, Retirement or Total and Permanent Disability, be entitled to any benefit under the Plan. A Participant on authorized leave of absence from the Company shall not be deemed to have terminated employment or lost his status as an Eligible Employee for the duration of such leave of absence. 6.3. Notwithstanding any contrary Plan provision, in the event the employment of a Participant who is in the employ of a Company on a Control Change Date relating to that Company is terminated (for reasons other than death, Retirement, Total and Permanent Disability, or as a result of acts of theft, embezzlement, fraud, or moral turpitude) before the end of the period commencing on the Control Change Date and ending on the third anniversary of such date, and whether or not he is a Participant at such time, he shall be fully vested in a benefit payable under Article III as of the date his employment is terminated. During this same period, a Participant who voluntarily terminates employment within sixty (60) days after (i) he does not receive salary increases, bonuses, and incentive awards comparable to the increases, bonuses and awards that he received in prior years or that other executives in comparable positions receive in the current year; or (ii) his compensation or employment-related benefits are reduced; or (iii) his status, title(s), or management responsibilities are diminished (other than changes in reporting or management responsibilities to reflect sound practices commonly followed by enterprises comparable to the Company employing Participant or required by applicable federal or state law) or within sixty days after the last in a series of such events will be deemed to have terminated under circumstances requiring full vesting under this Section 6.3. 6.4. A Participant who ceases to be an employee of the Company and who is subsequently reemployed by the Company shall not accrue any additional benefits on account of such later service for periods in which he is not a Participant. Article VII Termination, Amendment or Modification of Plan 7.1. Except as otherwise specifically provided, Dominion Resources, Inc. reserves the right to terminate, amend or modify this Plan, wholly or partially, at any time and from time to time as to DRI Participants. Such right to terminate, amend or modify the Plan shall be exercised for Dominion Resources, Inc. by its Board of Directors. Except as otherwise specifically provided, Virginia Power reserves the right to terminate, amend or modify this Plan, wholly or partially, at any time and from time to time as to Virginia Power Participants. Such right to terminate, amend or modify the Plan shall be exercised for Virginia Power by its Board of Directors. Notwithstanding the preceding, with respect to an affected Participant, the Plan and Section 6.3 may not be amended, modified or terminated after a Control Change Date before the end of the period specified in that section unless the affected Participant agrees to such amendment, modification or termination in writing. 7.2. Section 7.1 notwithstanding, no action to terminate the Plan shall be taken except upon written notice to each Participant to be affected thereby, which notice shall be given not less than thirty (30) days prior to such action. 7.3. Any notice which shall be or may be given under the Plan shall be in writing and shall be mailed by United States mail, postage prepaid. If notice is to be given to Dominion Resources, Inc. or Virginia Power, such notice shall be addressed to their respective corporate offices; addressed to the attention of the Corporate Secretary. If notice is to be given to a Participant, such notice shall be addressed to the Participant's last known address. 7.4. The rights of Dominion Resources, Inc. and Virginia Power set forth in Section 7.1 are subject to the condition that its Board of Directors shall take no action to terminate the Plan or decrease the benefit that would become payable or is payable, as the case may be, with respect to a Participant who has earned a vested or nonforfeitable interest in the portion of his Retirement Plan benefit attributable to Company contributions. 7.5. Except as provided in Section 6.3, 7.1, and 7.4, upon the termination of this Plan as to Dominion Resources, Inc. by its Board of Directors, the Plan shall no longer be of any further force or effect as to DRI Participants, and neither Dominion Resources, Inc. nor any DRI Participant shall have any further obligation or right under this Plan. Except as provided in Section 6.3, 7.1, and 7.4, upon the termination of this Plan as to Virginia Power by its Board of Directors, the Plan shall no longer be of any further force or effect as to Virginia Power Participants, and neither Virginia Power nor any Virginia Power Participant shall have any further obligation or right under this Plan. Likewise, the rights of any individual who was a Participant and whose designation as a Participant is revoked or rescinded by the appropriate O&C Committee shall cease upon such action. Article VIII Other Benefits and Agreements Except as provided in Article IV, the benefits provided for a Participant and his Beneficiary under the Plan are in addition to any other benefits available to such Participant under any other plan or program of the Company for its employees, and, except as may otherwise be expressly provided for, the Plan shall supplement and shall not supersede, modify or amend any other plan or program of the Company in which a Participant is participating. Article IX Restrictions on Transfer of Benefits No right or benefit under the Plan shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or charge, and any attempt to do so shall be void. No right or benefit hereunder shall in any manner be liable for or subject to the debts, contracts, liabilities, or torts of the person entitled to such benefit. If any Participant or Beneficiary under the Plan should become bankrupt or attempt to anticipate, alienate, sell, assign, pledge, encumber or charge any right to a benefit hereunder, then such right or benefit, in the discretion of the appropriate O&C Committee, shall cease and terminate, and, in such event, the appropriate O&C Committee may hold or apply the same or any part thereof for the benefit of such Participant or Beneficiary, his or her spouse, children, or other dependents, or any of them, in such manner and in such portion as the appropriate O&C Committee may deem proper. Article X Administration of the Plan 10.1. The Plan shall be administered by the Administrative Benefit Committee. Subject to the provisions of the Plan, the Administrative Benefit Committee may adopt such rules and regulations as may be necessary to carry out the purposes hereof. The Administrative Benefit Committee's interpretation and construction of any provision of the Plan shall be final and conclusive. 10.2. Dominion Resources, Inc. and Virginia Power shall indemnify and save harmless each member of the Administrative Benefit Committee and each member of its own O&C Committee against any and all expenses and liabilities arising out of his membership on such Committee, excepting only expenses and liabilities arising out of his own willful misconduct. Expenses against which a member of an O&C Committee or the Administrative Benefit Committee shall be indemnified hereunder shall include without limitation, the amount of any settlement or judgment, costs, counsel fees, and related charges reasonably incurred in connection with a claim asserted, or a proceeding brought or settlement thereof. The foregoing right of indemnification shall be in addition to any other rights to which any such member may be entitled. 10.3. In addition to the powers hereinabove specified, the Administrative Benefit Committee shall have the power to compute and certify the amount and kind of benefits from time to time payable to Participants and their Beneficiaries under the Plan, to authorize all disbursements for such purposes, and to determine whether a Participant is entitled to a benefit under Section 3.2. 10.4. To enable the Administrative Benefit Committee to perform its functions, the Company shall supply full and timely information to the Administrative Benefit Committee on all matters relating to the compensation of all Participants, their retirement, death or other cause for termination of employment, and such other pertinent facts as the appropriate O&C Committee may require. Article XI Miscellaneous 11.1. The Plan shall be binding upon Dominion Resources, Inc. and its successors and assigns and Virginia Power and its successors and assigns; subject to the powers set forth in Article VII, and upon a Participant, his Beneficiary, and either of their assigns, heirs, executors and administrators. 11.2. To the extent not preempted by federal law, the Plan shall be governed and construed under the laws of the Commonwealth of Virginia as in effect at the time of their adoption and execution, respectively. 11.3. Masculine pronouns wherever used shall include feminine pronouns and the use of the singular shall include the plural. IN WITNESS WHEREOF, this instrument has been executed this 12th day of May, 1997. DOMINION RESOURCES, INC. By /s/LINWOOD R. ROBERTSON Linwood R. Robertson Executive Vice President and Chief Financial Officer VIRGINIA ELECTRIC AND POWER COMPANY By /s/T. J. O'NEIL T. J. O'Neil Vice President, Human Resources EX-10 5 Exhibit 10(iii)* DOMINION RESOURCES, INC. RETIREMENT BENEFIT FUNDING PLAN Effective June 29, 1990 and Amended and Restated September 1, 1996 TABLE OF CONTENTS Article Page INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . .1 ARTICLE I - DEFINITIONS. . . . . . . . . . . . . . . . . . . . .2 1.1 Account . . . . . . . . . . . . . . . . . . . . .2 1.2 Administrative Benefit Committee. . . . . . . . .2 1.3 Administrative and Investment Benefit Committee .2 1.4 Affiliate . . . . . . . . . . . . . . . . . . . .2 1.5 After-Tax Value . . . . . . . . . . . . . . . . .2 1.6 Alternate Payee . . . . . . . . . . . . . . . . .2 1.7 Beneficiary . . . . . . . . . . . . . . . . . . .2 1.8 Benefit Restoration Plan. . . . . . . . . . . . .3 1.9 Code. . . . . . . . . . . . . . . . . . . . . . .3 1.10 DRI . . . . . . . . . . . . . . . . . . . . . . .3 1.11 DRI Board . . . . . . . . . . . . . . . . . . . .3 1.12 DRI O&C Committee . . . . . . . . . . . . . . . .3 1.13 DRI Participant . . . . . . . . . . . . . . . . .3 1.14 Employer. . . . . . . . . . . . . . . . . . . . .3 1.15 ERISA . . . . . . . . . . . . . . . . . . . . . .3 1.16 ESRP. . . . . . . . . . . . . . . . . . . . . . .3 1.17 Investment Manager. . . . . . . . . . . . . . . .3 1.18 Nonregulated Subsidiary . . . . . . . . . . . . .3 1.19 Participant . . . . . . . . . . . . . . . . . . .3 1.20 Plan. . . . . . . . . . . . . . . . . . . . . . .3 1.21 Plan Year . . . . . . . . . . . . . . . . . . . .3 1.22 Qualified Domestic Relations Order. . . . . . . .3 1.23 Special Trust . . . . . . . . . . . . . . . . . .4 1.24 Trust . . . . . . . . . . . . . . . . . . . . . .4 1.25 Trustee . . . . . . . . . . . . . . . . . . . . .4 1.26 Trust Fund. . . . . . . . . . . . . . . . . . . .4 1.27 Valuation Date. . . . . . . . . . . . . . . . . .4 1.28 Virginia Power. . . . . . . . . . . . . . . . . .4 1.29 Virginia Power Board. . . . . . . . . . . . . . .4 1.30 Virginia Power O&C Committee. . . . . . . . . . .4 1.31 Virginia Power Participant. . . . . . . . . . . .4 ARTICLE II - PARTICIPATION . . . . . . . . . . . . . . . . . . .4 ARTICLE III - CONTRIBUTIONS. . . . . . . . . . . . . . . . . . .4 3.1 Employer Contributions. . . . . . . . . . . . . .4 3.2 Transfer Contributions. . . . . . . . . . . . . .5 3.3 General Provisions on Contributions . . . . . . .5 3.4 Contributions For Income Taxes. . . . . . . . . .5 ARTICLE IV - ALLOCATIONS . . . . . . . . . . . . . . . . . . . .5 4.1 Participants' Accounts. . . . . . . . . . . . . .5 4.2 Allocation of Contributions and Transfers . . . .5 4.3 Schedule of Contributions . . . . . . . . . . . .6 4.4 Other Allocations . . . . . . . . . . . . . . . .6 4.5 Subaccount Recordkeeping. . . . . . . . . . . . .6 ARTICLE V - VESTING. . . . . . . . . . . . . . . . . . . . . . .7 ARTICLE VI - DISTRIBUTIONS . . . . . . . . . . . . . . . . . . .7 6.1 Periodic Distributions. . . . . . . . . . . . . .7 6.2 Separation from Service . . . . . . . . . . . . .7 6.3 Participants in Pay Status. . . . . . . . . . . .8 6.4 Death Benefits. . . . . . . . . . . . . . . . . .9 6.5 Special Distribution. . . . . . . . . . . . . . .9 ARTICLE VII - APPOINTMENTS AND ALLOCATIONOF FIDUCIARY RESPONSIBILITY9 7.1 Sponsor, Named Fiduciary. . . . . . . . . . . . .9 7.2 Accountant. . . . . . . . . . . . . . . . . . . .9 7.3 Insurer . . . . . . . . . . . . . . . . . . . . 10 7.4 Investment Manager. . . . . . . . . . . . . . . 10 7.5 Trustee . . . . . . . . . . . . . . . . . . . . 10 7.6 Allocation of Responsibility. . . . . . . . . . 10 7.7 General . . . . . . . . . . . . . . . . . . . . 10 7.8 Fiduciary Discretion. . . . . . . . . . . . . . 11 ARTICLE VIII - COMMITTEES. . . . . . . . . . . . . . . . . . . 11 8.1 General . . . . . . . . . . . . . . . . . . . . 11 8.2 Duties. . . . . . . . . . . . . . . . . . . . . 12 8.3 Agents. . . . . . . . . . . . . . . . . . . . . 12 ARTICLE IX - ADMINISTRATIVE OF THE PLAN. . . . . . . . . . . . 12 9.1 Duties of Participants and Beneficiaries. . . . 12 9.2 General . . . . . . . . . . . . . . . . . . . . 12 9.3 Disclosure. . . . . . . . . . . . . . . . . . . 13 9.4 Annual Accountings. . . . . . . . . . . . . . . 13 9.5 Expenses - Compensation . . . . . . . . . . . . 13 9.6 Directions to Trustee, Insurers and Investment Managers14 9.7 Claims Procedure. . . . . . . . . . . . . . . . 14 ARTICLE X - OBLIGATIONS OF EMPLOYER. . . . . . . . . . . . . . 15 10.1 No Contract or Inducement . . . . . . . . . . . 15 10.2 No right to Employment. . . . . . . . . . . . . 15 10.3 Obligation for Benefits . . . . . . . . . . . . 15 ARTICLE XI - AMENDMENT AND TERMINATION OF PLAN . . . . . . . . 15 11.1 Amendment of the Plan . . . . . . . . . . . . . 15 11.2 Termination of the Plan . . . . . . . . . . . . 16 ARTICLE XII - GENERAL PROVISIONS . . . . . . . . . . . . . . . 16 12.1 Interpretation. . . . . . . . . . . . . . . . . 16 12.2 Merger, Consolidation and Transfers of Assets or Liabilities . . . . . . . . . . . . . . . . . . 16 12.3 Limitation on Assignment. . . . . . . . . . . . 16 12.4 Discharge of Liability. . . . . . . . . . . . . 17 12.5 Payments to Minors and Incompetents . . . . . . 17 12.6 Unclaimed Benefits. . . . . . . . . . . . . . . 17 12.7 Headings and Subheadings. . . . . . . . . . . . 17 12.8 Use of Masculine and Feminine, Singular and Plural17 12.9 Governing Law . . . . . . . . . . . . . . . . . 17 12.10 Errors and Omissions . . . . . . . . . . . 17 EXECUTION. . . . . . . . . . . . . . . . . . . . . . . . . . . 18 INTRODUCTION Dominion Resources, Inc., Virginia Electric and Power Company, the Affiliates, and the Nonregulated Subsidiaries have made various benefit promises and commitments to certain of their current and former elected officers. The Board of Directors of Dominion Resources, Inc. and the Board of Directors of Virginia Electric and Power Company determined that the adoption of the Dominion Resources, Inc. Retirement Benefit Funding Plan, which is designed to permit the funding of certain benefits promised to Participants, would assist them in attracting and retaining those employees whose judgment, abilities, and experience will contribute to the continued success of Dominion Resources, Inc. and Virginia Electric and Power Company. The Plan is intended to be an employee pension benefit plan within the meaning of Section 3(2) of ERISA. The Plan and Trust shall be administered and interpreted in accordance with these intentions. Due to changes in the Federal income tax laws and for other reasons, Dominion Resources, Inc. and Virginia Electric and Power Company have determined to cease contributions to the Plan to provide additional benefits to Participants and to cease making new Participants in the Plan effective in 1996. The Plan and Trust shall be administered and interpreted in accordance with all current tax laws and regulations until all funds have been paid from the Plan in accordance with its terms. ARTICLE I - DEFINITIONS 1.1 Account means the separate account that is established for each Participant. A Participant's Account is comprised of three subaccounts: the ESRP Account, the Benefit Restoration Account and the Credited Service Account. 1.2 Administrative Benefit Committee means the committee comprised of the individuals appointed by the Administrative and Investment Benefit Committee in accordance with Section 8.1. 1.3 Administrative and Investment Benefit Committee means the committee comprised of the individuals appointed by the DRI Board and the Virginia Power Board in accordance with Section 8.1. 1.4 Affiliate means an employer, whether or not incorporated, which with Virginia Power is treated as a single employer under Code section 414(b), 414(c), 414(m) or 414(n) as determined before the application of the provisions of Code section 414(r), excluding DRI and the Nonregulated Subsidiaries. 1.5 After-Tax Value means the amount that, after payment of any applicable federal, state, and local income and employment taxes, would yield the amount of the payment in question, taking into consideration the extent to which, if any, that the payment from the Funding Plan is taxable to the Participant. The determination of the After-Tax Value shall be made on the basis of a policy or guidelines adopted by the DRI O&C Committee with respect to DRI Participants or the Virginia Power O&C Committee with respect to Virginia Power Participants, using the maximum rates of federal, state, and local income and employment taxes that are applicable to the Participant, Beneficiary, or beneficiary of a Beneficiary. 1.6 Alternate Payee means a Participant's spouse, former spouse, child or other dependent who is recognized in a Qualified Domestic Relations Order as having, or who is assigned, a right to receive all or a portion of the benefit payable to a Participant under the Plan. 1.7 Beneficiary means an individual or entity that is entitled to receive any benefits that may be payable under the Plan on or after a Participant's death. The Participant's Beneficiary shall be determined in accordance with the following subsections. (a) The Beneficiary shall be the Participant's surviving spouse unless such spouse has consented in writing to the Participant's designation of a different Beneficiary. The surviving spouse's consent must be in writing, must acknowledge the effect of the Participant's election, and must be witnessed by a Plan representative or notary public. With the consent of the surviving spouse, the provisions in subsection (b) are effective for that Participant. The provisions of subsection (b) also shall be effective with respect to a Participant if the Administrative Benefit Committee is satisfied that the consent of the surviving spouse cannot be obtained because the Participant has no spouse, because the spouse cannot be located, or because such other circumstances are applicable regulations may provide. (b) Except as provided in subsections (a) and (c), the Beneficiary shall be the individual or entity designated by the Participant. In the absence of an effective designation and if subsections (a) and (c) are not applicable, the Beneficiary shall be the surviving spouse, if any, then the Participant's descendants, per stirpes, and if none, the Participant's estate. (c) To the extent provided in a Qualified Domestic Relations Order, the Beneficiary shall be the Alternate Payee recognized by the order as having a right to receive all or a portion of the benefits payable under the Plan on behalf of the Participant following the Participant's death. 1.8 Benefit Restoration Plan means the Dominion Resources, Inc. Retirement Benefit Restoration Plan. 1.9 Code means the Internal Revenue Code of 1986, as amended. 1.10 DRI means Dominion Resources, Inc. 1.11 DRI Board means the Board of Directors of DRI. 1.12 DRI O&C Committee means the Organization and Compensation Committee of the DRI Board. 1.13 DRI Participant means an individual who is or was an elected officer of DRI or a Nonregulated Subsidiary and who has been designated to participate in the Plan in accordance with Article II. 1.14 Employer means DRI, Virginia Power, each Affiliate that, with the approval of the Virginia Power Board, and each Nonregulated Subsidiary that, with the approval of the DRI Board, has elected to contribute to the Plan on behalf of one or more employees. 1.15 ERISA means the Employee Retirement Income Security Act of 1974, as amended. 1.16 ESRP means the Dominion Resources, Inc. Executive Supplemental Retirement Plan. 1.17 Investment Manager means a fiduciary who satisfies the requirements of ERISA section 3(38) and who is appointed by the Administrative Benefits Committee to manage, acquire, or dispose of Trust Fund assets. 1.18 Nonregulated Subsidiary means Dominion Capital, Inc., Dominion Energy, Inc., Dominion Lands, Inc. or another corporation (i) in which DRI owns stock possessing at least 50 percent of the combined voting power of all classes of stock, (ii) which is not subject to regulation as a public service corporation by the State Corporation Commission of Virginia and (iii) which is not an Affiliate. 1.19 Participant means an individual who satisfies the requirements of Article II and includes the DRI Participants and the Virginia Power Participants. 1.20 Plan means the Dominion Resources, Inc. Retirement Benefit Funding Plan. 1.21 Plan Year means the calendar year. 1.22 Qualified Domestic Relations Order means a judgment, decree, order, or approval of a property settlement that satisfies the requirements of ERISA section 206(d)(3)(B). 1.23 Special Trust means the Dominion Resources, Inc. Special Trust Agreement between DRI and Mellon Bank, N.A. and effective as of December 1, 1986. 1.24 Trust means the entity created pursuant to the agreement among DRI, Virginia Power and the Trustee relating to the Plan. 1.25 Trustee means Mellon Bank, N.A. 1.26 Trust Fund means the assets of the Plan that are held in the Trust. 1.27 Valuation Date means the last business day of each calendar quarter. 1.28 Virginia Power means Virginia Electric and Power Company. 1.29 Virginia Power Board means the Board of Directors of Virginia Power. 1.30 Virginia Power O&C Committee means the Organization and Compensation Committee of the Virginia Power Board. 1.31 Virginia Power Participant means an individual who is or was an elected officer of Virginia Power and who has been designated to participate in the Plan in accordance with Article II. ARTICLE II - PARTICIPATION An individual who is or was an elected officer of Virginia Power or an Affiliate and who is designated by the Virginia Power Board to participate in the Plan shall be a Participant. An individual who is or was an elected officer of DRI or a Nonregulated Subsidiary and who is designated by the DRI Board to participate in the Plan shall be a Participant. The Administrative Benefit Committee shall notify each individual upon his qualification to become a Participant in the Plan. Participation in the Plan ceases when a Participant's entire Account in the Plan has been distributed. No individual shall become a Participant after December 31, 1996. ARTICLE III - CONTRIBUTIONS 3.1 Employer Contributions. In each Plan Year, each Employer shall contribute to the Trust Fund the amount, if any, that the Employer determines in its discretion to be its contribution for the Plan Year. An Employer's contribution shall be made only from its current or accumulated profits, as determined on the basis of its financial statements and in accordance with its standard and customary accounting practices for financial reporting. If an Employer is prevented from making a contribution for any Plan Year because it lacks sufficient current or accumulated profits, that Employer's contribution may be made, but is not required to be made, by one or more other Employers. Notwithstanding the foregoing, all Employer contributions on behalf of Virginia Power Participants are subject to the approval of the Virginia Power Board and all contributions on behalf of DRI Participants are subject to the approval of the DRI Board. Contributions to the Trust Fund for allocation to Participants' Accounts shall cease as of December 31, 1996, except to the extent contributions are made to the Trust Fund pursuant to Section 3.4. 3.2 Transfer Contributions. In lieu of or in addition to a contribution pursuant to Section 3.1, an Employer may direct that an amount be transferred to the Trust from the Special Trust. All such transfers on behalf of Virginia Power Participants shall be subject to the approval of the Virginia Power Board and all such transfers on behalf of DRI Participants shall be subject to the approval of the DRI Board. In addition, all such transfers shall be in accordance with the terms of the Special Trust. 3.3 General Provisions on Contributions. (a) The Trustee is not required to collect Employer contributions or transfer contributions pursuant to Section 3.2 and is responsible only for assets received in its capacity as Trustee. Subject to the approval of the Virginia Power O&C Committee (with respect to Virginia Power Participants) or the DRI O&C Committee (in the case of DRI Participants), an Employer may cause each Plan Year's Employer contributions or transfers pursuant to Section 3.2 to be paid to the Trust in installments and on the dates that it selects. (b) Unless allocated as of an earlier date, any contributions made to the Plan by an Employer or transferred pursuant to Section 3.2 after the first day of a Plan Year may be held by the Trustee and invested as a segregated account, commingled with the Trust Fund, and allocated to Participants' Accounts as of the last day of the Plan Year. The Trustee shall maintain such records as may be necessary to assure that such contributions and amounts attributable to such contributions are allocated to the proper Participants' Accounts as otherwise provided by the Plan. 3.4 Contributions For Income Taxes. For each Plan Year beginning after December 31, 1996, DRI in its discretion may contribute to the Trust Fund the amount, if any, that the Trustee informs DRI is the allocable portion of any income taxes imposed on the Trust Fund with respect to Accounts of DRI Participants. For each Plan Year beginning after December 31, 1996, Virginia Power in its discretion may contribute to the Trust Fund the amount, if any, that the Trustee informs Virginia Power is the allocable portion of any income taxes imposed on the Trust Fund with respect to Accounts of Virginia Power Participants. ARTICLE IV - ALLOCATIONS 4.1 Participants' Accounts. The Administrative Benefit Committee shall cause an Account to be established and maintained in the name of each Participant. Each Participant's Account shall be comprised of up to three subaccounts: an ESRP Account, a Benefit Restoration Account, and a Credited Service Account. Each Participant's Accounts shall be credited with the Participant's share of amounts contributed or transferred to the Trust pursuant to Article III, as well as a proportionate share of the net earnings, gains, or losses of the Trust Fund and any distributions from the Account. 4.2 Allocation of Contributions and Transfers. Amounts contributed or transferred to the Trust pursuant to Article III, if any, shall be allocated among Participants' Accounts as of the date specified by the Virginia Power O&C Committee (in the case of Virginia Power Participants) or the DRI O&C Committee (in the case of DRI Participants) or, if no date is specified, the last day of the Plan Year. Amounts contributed to the Trust pursuant to Section 3.4 shall be allocated among Participants' Accounts as of the date received by the Trustee. 4.3 Schedule of Contributions. At least annually, the Administrative Benefit Committee shall furnish the Trustee a schedule showing as to each Participant the amount, if any, of contributions or transfers pursuant to Article III to be allocated to each Participant's Account. The Administrative Benefit Committee also shall provide to the Trustee a schedule showing the amount of any such contribution or transfer that is to be allocated to the ESRP Account, the Benefit Restoration Account, and the Credited Service Account of each Participant. For amounts contributed to the Trust pursuant to Section 3.4, the Administrative Benefit Committee shall furnish the Trustee a schedule showing the amount to be allocated to each Participant's Account and, within such Account, to such Participant's ESRP Account, Benefit Restoration Account and Credited Service Account. 4.4 Other Allocations. (a) As of each Valuation Date, before crediting any amounts allocated to a Participant's Account under Section 4.2, the Trustee shall revalue the net assets of the Trust Fund at their then current market value to reflect any increase or decrease in the value of the investments of the Trust Fund as of that date as compared with the total value of the Trust Fund on the last preceding Valuation Date. (b) As of each Valuation Date, after revaluing the assets of the Trust Fund as provided in subsection (a) and before crediting any amounts allocated to a Participant's Account under Section 4.2, the Trustee shall apportion among the separate Accounts of all Participants the net income or loss earned by the Trust Fund during the period following the preceding Valuation Date. Such income or loss shall be apportioned on the basis of the Account balances of the Participants as of the beginning of such Plan Year. (c) If any interim contributions or transfers have been held in a segregated account as provided in Section 3.3(b), any income attributable to such contributions shall be allocated to the appropriate Account of each Participant to whom such contributions or transfers are allocated. 4.5 Subaccount Recordkeeping. Allocations to a Participant's Account pursuant to Sections 4.2 and 4.4 shall be further allocated between each Participant's ESRP Account, Benefit Restoration Account, and Credited Service Account. The further allocation of amounts allocated pursuant to Section 4.2 shall be made on the basis of the Employer's direction, as approved by the Virginia Power O&C Committee (in the case of Virginia Power Participants) or the DRI O&C Committee (in the case of DRI Participants), and as reflected in the schedule described in Section 4.3. The further allocation of amounts allocated pursuant to Section 4.4 shall be made on the basis of the relative value of the Participant's ESRP Account, the Benefit Restoration Account, and the Credited Service Account as of the immediately preceding Valuation Date. ARTICLE V - VESTING Each Participant shall at all times have a fully vested and nonforfeitable interest in his Account. ARTICLE VI - DISTRIBUTIONS 6.1 Periodic Distributions. As soon as practicable after an amount is allocated to a Participant's Account under Section 4.2, but in any event before the April 15 of the Plan Year following the Plan Year in which the allocation was made, a distribution shall be made from the Account of each Participant as provided in the following sentences. The amount to be distributed shall be the amount that the Virginia Power O&C Committee (in the case of Virginia Power Participants) or the DRI O&C Committee (in the case of DRI Participants) determines is required by the Participant to satisfy the federal, state, and local income tax liability attributable to the allocation. The amount distributed pursuant to this Section shall be charged to the Participant's ESRP Account, Benefit Restoration Account, and Credited Service Account in proportion to the contributions or transfers allocated to such subaccounts for the Plan Year. No distribution shall be made from an Account to a Participant with respect to any amount contributed pursuant to Section 3.4 that is allocated to a Participant's Account. 6.2 Separation from Service. (a) A Participant who separates from the service of DRI, Virginia Power, any Affiliate or any Nonregulated Subsidiary after June 29, 1990, shall be entitled to the benefits that may be provided by his Account balance as of the Valuation Date coincident with or immediately preceding such date, plus any amounts that are subsequently allocated to his Account pursuant to Article IV. Benefits shall be distributed to the Participant in accordance with the following subsection (b) or (c). (b) The Participant's ESRP Account shall be paid in the same form as the Participant elects for his benefit payments under the ESRP. The amount distributable from the Participant's ESRP Account shall be the After-Tax Value of the amount required to satisfy fully the obligation of DRI and Virginia Power to the Participant under the ESRP. The Participant's Credited Service Account shall be paid in the form and at the times provided in any contractual agreement related to the Participant's years of credited service for employee benefit plan purposes. The amount distributable from the Participant's Credited Service Account shall be the After-Tax Value of the amount required to satisfy fully the obligation of DRI and Virginia Power to the Participant under any contractual agreement related to the Participant's years of credited service for employee benefit plan purposes. The Participant's Benefit Restoration Account shall be paid in the same form as provided for the Participant in the Benefit Restoration Plan. The amount distributable from the Participant's Benefit Restoration Account shall be the After-Tax Value of the amount required to satisfy fully the obligation of DRI and Virginia Power to the Participant under the Benefit Restoration Plan. (c) Distributions under Section 6.2(b) shall begin on the first day of the month next following the day that the Participant separates from the service of DRI, Virginia Power, an Affiliate, or a Nonregulated Subsidiary. The payments to the Participant shall end when the entire value of his Account has been distributed and the final payment to the Participant shall equal his remaining balance in his Account. If there is any balance in the Participant's Account when the Participant is no longer entitled to payments under the ESRP, the Benefit Restoration Plan, or any contractual agreement related to the Participant's years of credited service for employee benefit plan purposes, the remaining balance in the Participant's Account shall be paid to the Participant in a single lump sum. 6.3 Participants in Pay Status. (a) A Participant who separated from the service of DRI, Virginia Power, an Affiliate, or a Nonregulated Subsidiary on or before June 29, 1990, shall be entitled to receive his benefits as provided in the following sentences. The value of the Account of a Participant described in the preceding sentence may be segregated and, by way of example and not of limitation, may be invested in a savings account, money market fund, or other interest-bearing investment medium. The Administrative Benefit Committee shall determine the projected Trust Fund earnings allocable to the Participant's Account (based on the value of the Account as of the applicable Valuation Date) during the period beginning with the Participant's selection as a Participant and ending with the last month for which a benefit is payable to the Participant under Dominion Resources, Inc. Executive Supplemental Retirement Plan. The amount payable to the Participant each month shall be the amount that, based on the Administrative Benefit Committee's determination of projected earnings, will provide equal monthly payments to the Participant during the period described in the preceding sentence. Notwithstanding the foregoing, the amount distributable from the Participant's ESRP Account shall not be greater than the amount required to fully satisfy the obligation of Virginia Power and DRI to the Participant under the Dominion Resources, Inc. Executive Supplemental Retirement Plan and the amount distributable from the Participant's Credited Service Account shall not be greater than the amount required to fully satisfy the obligation of Virginia Power and DRI to the Participant under any contractual agreement related to the Participant's years of credited service for employee benefit plan purposes. The payments to the Participant shall end when the entire value of his Account has been distributed and the final payment to the Participant shall equal his remaining balance in his Account. The payments under this Section shall begin on the first day of the month next following the day that the Participant is selected to participate in the Plan. (b) A Participant who is receiving payments from the Plan as of January 1, 1997 shall be subject to the provisions of this Section 6.3(b). Effective January 1, 1997, the amount distributable from the Participant's ESRP Account shall be the After-Tax Value of the amount required to satisfy fully the obligation of DRI and Virginia Power to the Participant under the ESRP. Effective January 1, 1997, the amount distributable from the Participant's Credited Service Account shall be the After-Tax Value of the amount required to satisfy fully the obligation of DRI and Virginia Power to the Participant under any contractual agreement related to the Participant's years of credited service for employee benefit plan purposes. Effective January 1, 1997, the amount distributable from the Participant's Benefit Restoration Account shall be the After-Tax Value of the amount required to satisfy fully the obligation of DRI and Virginia Power to the Participant under the Benefit Restoration Plan. The payments to the Participant shall end when the entire value of his Account has been distributed and the final payment to the Participant shall equal his remaining balance in his Account. If there is any balance in the Participant's Account when the Participant is no longer entitled to payments under the ESRP, the Benefit Restoration Plan, or any contractual agreement related to the Participant's years of credited service for employee benefit plan purposes, the remaining balance in the Participant's Account shall be paid to the Participant in a single lump sum. 6.4 Death Benefits. (a) If a Participant dies after the commencement of benefit payments under Section 6.2 or 6.3 but before he has received his entire interest in his Account, the remainder of the Participant's interest in his Account shall be paid to the Participant's Beneficiary in the same manner that the Participant was receiving benefits before his death. (b) If a Participant dies before the commencement of benefit payments under Section 6.2 or 6.3, the value of his Account shall be paid to his Beneficiary in the manner described in Section 6.2(b) or 6.3, as applicable. (c) A Beneficiary who is receiving benefits under this Section may designate a beneficiary who will be entitled to receive any benefits that remain to be paid to the Beneficiary after the Beneficiary's death. Such designation shall be made in the same manner as the Participant's designation of a Beneficiary. 6.5 Special Distribution As of January 1, 1997, the Administrative Benefit Committee shall determine which Participants have Accounts that are valued at $10,000 or less. For such Participants, the Administrative Benefit Committee shall distribute the entire value of each such Participant's Account to the Participant in a single lump sum as of January 1, 1997. Any Participant who receives a distribution under this Section 6.5 shall not be entitled to any further benefits under the Plan. A distribution under this Section 6.5 shall not reduce the amount which any Participant is entitled to under the ESRP, the Benefit Restoration Plan, or any contractual agreement related to the Participant's years of credited service for employee benefit plan purposes. ARTICLE VII - APPOINTMENTS AND ALLOCATION OF FIDUCIARY RESPONSIBILITY 7.1 Sponsor, Named Fiduciary. DRI is hereby designated and appointed the sponsor and named fiduciary of the Plan as to DRI Participants and Virginia Power is hereby designated and appointed the sponsor and named fiduciary of the Plan as to Virginia Power Participants. 7.2 Accountant. To the extent required by law, the Administrative Benefit Committee shall designate as accountant for the Plan a person recognized by the Secretary of Labor as an independent qualified public accountant or a firm which maintains on its staff at least one such person. Such entity shall be engaged by the Administrative Benefit Committee to perform (to the extent required by law) in accordance with generally accepted accounting principles the examination of the financial statements and other books and records of the Plan that are necessary to enable it to form and render an opinion as to whether the financial statements and schedules required by law to be included in the annual report of the Plan are presented fairly and in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding year and to render such other opinions and perform such other services with regard to the Plan as may be necessary or desirable. 7.3 Insurer. The Administrative Benefit Committee may designate one or more insurance companies licensed to do business in Virginia to invest or insure part or all of the assets of the Plan. 7.4 Investment Manager. The Administrative Benefit Committee, acting as a named fiduciary for this purpose, may appoint an Investment Manager to manage all or a designated part of the assets of the Trust Fund. An Investment Manager shall have complete control and authority over all matters concerning the investment of assets under its direction and control, including brokerage transactions. When an Investment Manager has been appointed and has accepted its fiduciary responsibility to the Plan in writing, the Trustee shall be under no obligation to invest the portion of the Trust Fund under the control of the Investment Manager and shall not incur any liability with respect to that portion of the Trust Fund unless it shall knowingly participate in or knowingly conceal another party's breach of its fiduciary responsibilities with respect to that portion of the Trust Fund. Nothing herein, however, shall relieve the Trustee of responsibility for its acts or omissions as Trustee. 7.5 Trustee. The DRI Board and the Virginia Power Board must jointly appoint a Trustee. A Trustee may resign at any time upon 60 days' written notice to DRI and Virginia Power or such other period as may be agreed upon in writing by DRI and Virginia Power and the Trustee. The DRI Board and the Virginia Power Board may jointly act to remove a Trustee at any time upon like notice to the Trustee. In either event, the DRI Board and the Virginia Power Board may jointly appoint a successor Trustee or Trustees. Any successor Trustee shall become vested with all the estate, rights, powers, discretion and duties of a Trustee hereunder. 7.6 Allocation of Responsibility. The DRI Board and the Virginia Power Board, through this document, have delegated certain fiduciary responsibilities to the DRI O&C Committee, the Virginia Power O&C Committee, the Administrative and Investment Benefit Committee and the Administrative Benefit Committee. The DRI Board and the Virginia Power Board (or any committee to which either has delegated a function hereunder) shall have the power to further allocate fiduciary responsibilities among other fiduciaries and to designate fiduciaries and nonfiduciaries to carry out other responsibilities in order to provide for the orderly operation and administration of the Plan. Any allocation, delegation, or other assignment of duties with regard to the Plan shall continue until it is revoked, modified, or altered. To the extent allowed by law, each fiduciary's responsibility is limited to the duties allocated or assigned to the fiduciary. Fiduciaries serving under the Plan may serve in more than one fiduciary capacity. 7.7 General. A person or entity serving in a fiduciary capacity to the Plan may employ one or more persons to render advice as to his or its responsibilities hereunder. Any person employed by DRI who is serving under the Plan without compensation may, with the approval of the DRI O&C Committee, have his reasonable expenses incurred in serving hereunder reimbursed from the Trust Fund. Any person employed by Virginia Power who is serving under the Plan without compensation may, with the approval of the Virginia Power O&C Committee, have his reasonable expenses incurred in serving hereunder reimbursed from the Trust Fund. 7.8 Fiduciary Discretion. In discharging the duties assigned to it under the Plan, each fiduciary has the discretion to interpret the Plan; adopt, amend, and rescind rules and regulations pertaining to his or its duties under the Plan; and to make all other determinations necessary or advisable for the discharge of his or its duties under the Plan. Each fiduciary's discretionary authority is absolute and exclusive if exercised in a uniform and nondiscriminatory manner with respect to all similarly situated individuals. The express grant in the Plan of any specific power to a fiduciary with respect to any duty assigned to him or it under the Plan must not be construed as limiting any power or authority of the fiduciary to discharge him or its duties. ARTICLE VIII - COMMITTEES 8.1 General. One or more committees may be established to carry out various functions relating to the Plan. The committees currently constituted, how they are appointed and their specific responsibilities are as follows: (a) Virginia Power O&C Committee. The Virginia Power O&C Committee is a committee of and appointed by the Virginia Power Board. It is responsible for recommending to the Virginia Power Board: contributions or transfers pursuant to Article III on behalf of Virginia Power Participants, allocations to Virginia Power Participants' Accounts, and amendments to the Plan or the Trust as to Virginia Power Participants. The Virginia Power O&C Committee is also responsible for establishing a funding policy for the Plan with respect to Virginia Power Participants. (b) DRI O&C Committee. The DRI O&C Committee is a committee of and appointed by the DRI Board. It is responsible for recommending to the DRI Board: contributions or transfers pursuant to Article III on behalf of DRI Participants, allocations to DRI Participants' Accounts, and amendments to the Plan or the Trust as to DRI Participants. The DRI O&C Committee is also responsible for establishing a funding policy for the Plan with respect to DRI Participants. (c) Administrative and Investment Benefit Committee. The Administrative and Investment Benefit Committee is appointed by the DRI Board and the Virginia Power Board. This committee is responsible for establishing an investment policy for the Plan. This committee also appoints the Administrative Benefit Committee. (d) Administrative Benefit Committee. This committee is responsible for: selecting an accountant and Investment Managers; communicating the Plan's investment policy (established by the Administrative and Investment Benefit Committee) to the Trustee and any Investment Manager; the review of the Trust Fund's investment performance; assuring that established investment policies are carried out; supervising administration; determining benefits; and maintaining records. 8.2 Duties. Each committee shall have control of the duties set out in Section 8.1 or specifically allocated to it under Article VII or which are delegated to it by the Virginia Power Board or the DRI Board, as practicable, and shall have all necessary powers to carry out its duties. Any delegation of authority by the Virginia Power Board or the DRI Board to a committee shall be made in writing and specify the nature and scope of such delegation. In exercising its duties hereunder, each committee shall at all times act in a uniform, equitable and nondiscriminatory manner. Notwithstanding its powers granted hereunder, no committee shall have the power to modify any provision of the Plan in any way. 8.3 Agents. Each committee may engage agents to assist it in its duties, and may consult with counsel, who may be counsel for DRI or Virginia Power, with respect to the meaning or construction of this document and its obligations hereunder, or with respect to any action, proceeding, or question of law related thereto. ARTICLE IX - ADMINISTRATION OF THE PLAN 9.1 Duties of Participants and Beneficiaries. Each Participant and Beneficiary shall furnish to the Administrative Benefit Committee any information or proof requested of him and reasonably required to administer the Plan. 9.2 General. (a) The Administrative Benefit Committee, or such persons as it may designate, shall be responsible for the operation and administration of the Plan, except to the extent its duties are allocated to or assumed by other persons or entities hereunder. (b) The Administrative Benefit Committee shall establish rules and procedures to be followed by the Participants and Beneficiaries in filing applications for benefits and for furnishing and verifying proofs necessary to establish any matters required in order to establish their rights to benefits under the terms of the Plan. (c) The Administrative Benefit Committee shall supply such full and timely information on all matters relating to the Plan as (1) the Trustee, (2) the accountant, (3) any insurance company and (4) any Investment Manager may require for the effective discharge of their respective duties and responsibilities. (d) It shall be the duty of the Administrative Benefit Committee to handle the day-to-day operations of the Plan, including distributing booklets, notices and other information regarding the Plan; maintaining Beneficiary designation forms; explaining the optional form of benefit payout which may be elected by a Participant under the Plan; and communicating all other matters relating to participation and entitlement to benefits to (1) the Trustee and (2) the accountant as may be necessary to enable them to discharge their duties and responsibilities. The Administrative Benefit Committee shall carry out these duties in a uniform, equitable and nondiscriminatory manner with regard to all Participants and Beneficiaries under similar circumstances. 9.3 Disclosure. (a) The Administrative Benefit Committee shall see that descriptions of the Plan are prepared as necessary for filing with the Department of Labor and shall make available to Participants and Beneficiaries receiving benefits under the Plan a summary of the Plan at such place and at such times as may be required by federal statutes and regulations issued thereunder. (b) The Administrative Benefit Committee shall arrange for the preparation and filing of such annual reports, including financial statements of the Plan's assets and liabilities, schedules, receipts and disbursements and changes in financial position in such form, at such place and at such times as may be required by federal statutes and regulations. The Administrative Benefit Committee shall furnish annually as required by law to all Participants and Beneficiaries receiving benefits under the Plan a copy of a summary of the financial statements of the Plan's assets and liabilities and schedules of receipts and disbursements and such other material as is necessary to fairly summarize the latest annual report at such times as may be required by federal statutes and regulations. (c) The Administrative Benefit Committee shall make available copies of the Plan, copies of any contracts relating to the Plan, descriptions of the Plan, and annual reports at its principal office for examination by any Participant and any Beneficiary receiving benefits under the Plan. (d) Upon written request of any Participant or any Beneficiary receiving benefits under the Plan, the Administrative Benefit Committee shall furnish him a copy of the latest updated summary plan description, plan description, latest annual report and a copy of the Plan. The Administrative Benefit Committee may make a reasonable charge for the costs of furnishing such copies. 9.4 Annual Accountings. To the extent required by law, the Administrative Benefit Committee shall select and engage, on behalf of all Participants, an independent qualified public accountant to certify and render an opinion that the financial statements and schedules prepared in conjunction with the Plan are presented fairly and are in conformity with generally accepted accounting principles consistently applied; provided, however, that where assets are held under a contract with an insurance company or in trust by a bank supervised and subject to periodic examination by a state or federal agency and such insurance company or bank prepares statements concerning such assets and certifies that such statements are accurate and the statements are made a part of the annual report, the accountant may rely on such statements as accurate. 9.5 Expenses - Compensation. As permitted by ERISA, the reasonable expenses incurred in the administration of the Plan may be paid by the Trustee or an insurance company out of the Trust Fund. By way of example and not of limitation, the following expenses may be paid out of the Trust Fund: the compensation of the Trustee and any Investment Manager, fees for actuarial and accounting services, and financial statement preparation and benefit processing fees. Any expenses that are paid out of the Trust Fund shall be charged to the Account of each Participant in the same proportion that the value of each Account bears to the total value of the Trust Fund. To the extent that such expenses are not paid by the Trustee or an insurance company, they shall be paid by Virginia Power (to the extent that the expenses are attributable or allocable to Virginia Power Participants) and DRI (to the extent that the expenses are attributable or allocable to DRI Participants). Notwithstanding the foregoing, no employee of DRI, Virginia Power, an Affiliate, or a Nonregulated Subsidiary shall be entitled to compensation from the Trust Fund for services rendered to the Plan. 9.6 Directions to Trustee, Insurers and Investment Managers. All directions from DRI, Virginia Power or a committee to the Trustee, an insurer or an Investment Manager shall be in writing from the chief executive officer, the secretary or chairman of a committee, or such person or persons as such individuals may designate in writing. Any Trustee, insurer or Investment Manager may rely on directions from such persons and shall act in accordance therewith, unless it knows or should know that the directions constitute a breach of such person's or its own obligations under the Plan. 9.7 Claims Procedure. (a) All claims for benefits under the Plan shall be submitted to the Administrative Benefit Committee, who shall have the initial responsibility for determining the eligibility of any Participant or Beneficiary for benefits. All claims for benefits shall be made in writing and shall set forth the facts which such Participant or Beneficiary believes to be sufficient to entitle him to the benefit claimed. If a claim for benefits is denied in whole or in part, the Administrative Benefit Committee shall give the claimant written notice of the decision within 90 days of the date the claim was submitted. Such written notice shall set forth in a manner calculated to be understood by the claimant (1) the specific reason or reasons for the denial; (2) specific reference to pertinent Plan provisions on which the denial is based; (3) a description of any additional material or information necessary for the claimant to perfect the claim, along with an explanation of why such material or information is necessary; and (4) appropriate information about the steps to be taken if the claimant wishes to submit the claim for review of the denial. If special circumstances require an extension of time for processing the initial claim, a written notice of the extension and the reason therefor shall be furnished to the claimant before the end of the initial ninety-day period. In no event shall such extension exceed 90 days. (b) If the initial claim for benefits is denied in whole or in part, or if the claimant has had no response to such claim within 90 days of its submission (in which case the claim for benefits shall be deemed to be denied), the claimant or his duly authorized representative, at the claimant's sole expense, may appeal the denial to the Virginia Power O&C Committee (if the claim is related to the participation of a Virginia Power Participant) or the DRI O&C Committee (if the claim is related to the participation of a DRI Participant). Notice of the appeal must be received by the appropriate committee within 60 days of receipt of written notice of the denial of the claim or 60 days from the date such claim is deemed to be denied. In pursuing his appeal, the claimant or his duly authorized representative: (1) may request in writing that the appropriate O&C Committee review the denial; (2) may review pertinent documents; and (3) may submit issues and comments in writing. The decision on review shall be made within 60 days of receipt of the request for review, unless special circumstances require an extension of time for processing, in which case a decision shall be rendered as soon as possible, but not later than 120 days after receipt of the request for review. If such an extension of time is required, written notice of the extension shall be furnished to the claimant before the end of the original 60-day period. The decision on review shall be made in writing, shall be written in a manner calculated to be understood by the claimant, and shall include specific references to the provisions of the Plan on which the denial is based. If the decision on review is not furnished within the time specified above, the claim shall be deemed denied on review. ARTICLE X - OBLIGATIONS OF EMPLOYER 10.1 No Contract or Inducement. The Plan shall not be deemed to be a contract between DRI, Virginia Power, any Affiliate or any Nonregulated Subsidiary and any Participant or Beneficiary or to be a consideration or an inducement for the employment of any Participant. 10.2 No right to Employment. Nothing contained in the Plan shall be deemed to give any Participant the right to be retained in employment by DRI, Virginia Power, any Affiliate or any Nonregulated Subsidiary or to interfere with the right of DRI, Virginia Power, any Affiliate or any Nonregulated Subsidiary to discharge, layoff, or suspend any Participant at any time without regard to the effect which such discharge, layoff, or suspension shall have upon his rights or the rights of any Beneficiary under this Plan. 10.3 Obligation for Benefits. The Trust Fund shall be the sole source of benefits under this Plan, and each Participant and Beneficiary shall be entitled to look only to the Trust Fund for payment of benefits. None of DRI, Virginia Power, any Affiliate or any Nonregulated Subsidiary shall have any liability to make or continue from its own funds the payment of any benefit under the Plan. ARTICLE XI - AMENDMENT AND TERMINATION OF PLAN 11.1 Amendment of the Plan. Virginia Power shall have the right by action of the Virginia Power Board to modify, alter or amend the Plan in whole or in part as to Virginia Power Participants and DRI shall have the right by action of the DRI Board to modify, alter or amend the Plan in whole or in part as to DRI Participants; provided that the duties, powers and liabilities of a Trustee, insurance company or Investment Manager shall not be increased without its written consent; and provided further that any such action shall not, in any way, affect adversely the rights of Participants with respect to amounts credited to their Accounts as of the date the Plan is amended. No amendment, modification or alteration shall have the effect of revesting in DRI, Virginia Power, any Affiliate or any Nonregulated Subsidiary any part of the principal or income of the Trust Fund. Notwithstanding the above, nothing herein shall prevent the Virginia Power Board or the DRI Board from modifying or eliminating any form of benefit, subsidy, or payment option to the extent allowed by law so long as the benefit provided as a result of such amendment or alteration is an actuarial equivalent of the benefit otherwise payable to the Participant or Beneficiary determined as of the effective date of such amendment or alteration. 11.2 Termination of the Plan. While Virginia Power and DRI expect to continue the Plan indefinitely, the continuance of the Plan is not assumed as a contractual obligation. Virginia Power reserves the right to discontinue its contributions and to terminate the Plan at any time as to Virginia Power Participants by action of the Virginia Power Board. DRI reserves the right to discontinue its contributions and to terminate the Plan at any time as to DRI Participants by action of the DRI Board. In the event of a termination of the Plan, no further contributions may be made to the Plan for the participants of the party which has terminated the Plan. ARTICLE XII - GENERAL PROVISIONS 12.1 Interpretation. This Plan has been created for the exclusive purpose of providing benefits to Participants and their Beneficiaries and defraying reasonable expenses of administering the Plan. The Plan shall be interpreted in a manner consistent with applicable provisions of ERISA and as in effect from time to time. Under no circumstances shall any funds contributed or transferred to this Plan, any assets attributable to this Plan or income relating to such assets, revert to DRI, Virginia Power, any Affiliate or any Nonregulated Subsidiary, nor shall any such funds, assets or income ever be used or diverted to purposes other than the exclusive benefit of the Participants and their Beneficiaries. 12.2 Merger, Consolidation and Transfers of Assets or Liabilities. No merger or consolidation with, or transfer of assets or liabilities to this Plan or from this Plan to any other plan shall be made, unless each Participant would receive immediately after such event a benefit which is equal to or greater than the benefit he would have been entitled to receive under the Plan immediately before such event had the Plan terminated at that time. 12.3 Limitation on Assignment. Except as allowed by ERISA section 206 with respect to Qualified Domestic Relations Orders, Plan benefits may not be anticipated, assigned (either at law or in equity), alienated, or be subject to attachment, garnishment, levy, execution, or other legal or equitable process. If a Participant dies before the date that a Qualified Domestic Relations Order directs that payments begin to an Alternate Payee, the Alternate Payee shall be entitled to a payment from the Plan only if the Qualified Domestic Relations Order requires the payment of such benefits. The Administrative Benefit Committee shall establish reasonable written procedures for determining the qualified status of a domestic relations order and for administering distributions to an Alternate Payee. The Administrative Benefit Committee must promptly notify the Participant and each Alternative Payee of the receipt of a domestic relations order and of the procedures for determining its qualified status. 12.4 Discharge of Liability. Any payment to a person or entity entitled to payment under the Plan, or to the representative of such person or entity, shall be, to the extent of the payment, in full satisfaction of all claims under the Plan against the Trustee, the Administrative Benefit Committee, and the Employers. As a prerequisite to the receipt of any such payment, the Trustee, the Administrative Benefit Committee, and any Employer may require that such person execute a receipt and release in such form as shall be determined by the Trustee, the Administrative Benefit Committee, or an Employer, as the case may be. 12.5 Payments to Minors and Incompetents. If any Plan benefit is payable to a Participant or Beneficiary who is a minor or who, in the opinion of the Administrative Benefit Committee, is not legally capable of giving valid receipt and discharge for such payments, that payment may be made for the benefit of the Participant or Beneficiary to such person as the Administrative Benefit Committee, in its discretion, designates. Such payments, to the extent made, shall be deemed a complete discharge of any liability for such payment under the Plan, and the Trustee may make the payment without obligation to require bond or to see to the further application of the payments. 12.6 Unclaimed Benefits. If the Trustee cannot make payments of any amount to a Participant or Beneficiary within seven years after the amount becomes payable because the person's identity or whereabouts cannot be determined by the end of the seven year period, all amounts that would have been payable to that Participant or Beneficiary must be segregated and dealt with by the Trustee in accordance with the applicable state law pertaining to abandoned intangible personal property held in a fiduciary capacity. 12.7 Headings and Subheadings. The headings and subheadings in this Plan have been inserted for convenience of reference only and are to be ignored in any construction of the provisions hereof. 12.8 Use of Masculine and Feminine, Singular and Plural. In the construction of the Plan, the masculine shall include the feminine and the singular the plural in all cases where such meanings are indicated by the context. 12.9 Governing Law. Except as otherwise may be required by the controlling law of the United States, the Plan shall be construed, administered, and enforced in accordance with the laws of the Commonwealth of Virginia. 12.10 Errors and Omissions. It shall be the responsibility of those individuals and entities charged with the administration of the Plan to see that it is administered in accordance with its terms so long as it is not in conflict with ERISA. If an innocent error or omission is discovered in the Plan's operation or administration which is not correctable under normal administrative procedures, and the Administrative Benefit Committee determines that (i) it would cost more to correct the error than is warranted and (ii) the error did not cause an excise tax problem, then the Administrative Benefit Committee may authorize any equitable adjustment it deems necessary or desirable to correct the error or omission, including but not limited to the authorization (with the approval of the Virginia Power Board or the DRI Board, as appropriate), of additional Employer contributions designed, in a manner consistent with the goodwill intended to be engendered by the Plan, to put Participants or their Beneficiaries in the same relative position they would have been in but for such error or omission. Any contribution made pursuant to this section is an additional discretionary contribution. EXECUTION IN WITNESS WHEREOF, this instrument has been executed this 12th day of May, 1997. DOMINION RESOURCES, INC. By /s/LINWOOD R. ROBERTSON Linwood R. Robertson Executive Vice President and Chief Financial Officer VIRGINIA ELECTRIC AND POWER COMPANY By /s/T. J. O'NEIL T. J. O'Neil Vice President, Human Resources EX-10 6 Exhibit 10(iv)* DOMINION RESOURCES, INC. EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN As Amended and Restated September 1, 1996 DOMINION RESOURCES, INC. EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN Purpose The Board of Directors of Virginia Electric and Power Company determined that adoption of the Executive Supplemental Retirement Plan would assist it in attracting and retaining those employees whose judgment, abilities and experience will contribute to its continued progress. On May 19, 1983, Virginia Electric and Power Company became a wholly-owned subsidiary of Dominion Resources, Inc. The Plan was amended to reflect the reorganization of Virginia Electric and Power Company and the Plan was adopted by Dominion Resources, Inc. The Plan was amended further, effective as of October 21, 1983, to require sixty (60) months of service to be eligible for retirement benefits and to assure Participants who have attained age fifty-five (55) and who have sixty (60) months of service with the Company, or who die or become Totally and Permanently Disabled, of their benefits, so long as they remain elected officers at the time of their separation from service. The Plan was amended further, effective as of September 1, 1996, to add a vesting schedule for Participants under age 55, to change the form and timing of benefit payments, and to coordinate payments with changes in the Funding Plan. Article I Definitions As defined herein, the following phrases or terms shall have the indicated meanings: 1.1. "Administrative Benefit Committee" means the Administrative Benefit Committee appointed to manage and administer the Plan in accordance with the provisions of Article X hereof. 1.2. "Affiliate" means any entity that is (i) a member of a controlled group of corporations as defined in Section 1563(a) of the Internal Revenue Code of 1986, as amended (the "Code"), determined without regard to Code Sections 1563(a)(4) and 1563(e)(3)(c), of which Dominion Resources, Inc. is a member according to Code Section 414(b); (ii) an unincorporated trade or business that is under common control with Dominion Resources, Inc., as determined according to Code Section 414(c); or (iii) a member of an affiliated service group of which Dominion Resources, Inc. is a member according to Code Section 414(m). 1.3. "Beneficiary" means the person, persons, entity, entities or the estate of a Participant which, in accordance with the provisions of Article V, is entitled to receive benefits, if any, upon the Participant's death. 1.4. "Cash Incentive Plan" means the Dominion Resources, Inc. Cash Incentive Plan as in effect from time to time and any successor thereto. 1.5. "Change in Control" means the occurrence of any of the following events: (i) any person, including a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934 becomes the owner or beneficial owner of Dominion Resources, Inc. securities having 20% or more of the combined voting power of the then outstanding Dominion Resources, Inc. securities that may be cast for the election of Dominion Resources, Inc.'s directors (other than as a result of an issuance of securities initiated by Dominion Resources, Inc., or open market purchases approved by Dominion Resources, Inc.'s Board of Directors, as long as the majority of Dominion Resources, Inc.'s Board of Directors approving the purchases is also the majority at the time the purchases are made); (ii) as the direct or indirect result of, or in connection with, a cash tender or exchange offer, a merger or other business combination, a sale of assets, a contested election, or any combination of theses transactions, the persons who were directors of Dominion Resources, Inc. before such transactions cease to constitute a majority of Dominion Resources, Inc.'s Board of Directors, or any successor's board, within two years of the last of such transactions; or (iii) with respect to a particular Participant, an event occurs with respect to the Company that employs that Participant such that, after the event, the employing Company is no longer an Affiliate of Dominion Resources, Inc. 1.6. "Company" means Dominion Resources, Inc., its predecessor, a subsidiary or an Affiliate. 1.7. "Control Change Date" means the date on which a Change in Control event occurs. If a Change in Control occurs on account of a series of transactions, the Control Change Date is the date of the last of such transactions. 1.8. "DRI Participant" means a Participant who is an elected officer of Dominion Resources, Inc., Dominion Capital, Inc., Dominion Energy, Inc., Dominion Lands, Inc. and any other corporation (i) in which Dominion Resources, Inc. or an Affiliate owns stock possessing at least 50 percent of the combined voting power of all classes of stock, (ii) which is not subject to regulation as a public service corporation by the State Corporation Commission of Virginia, and (iii) which is not a subsidiary of Virginia Power. 1.9. "ESRP Account" means the ESRP Account established under the Funding Plan on behalf of a Participant who also participates in the Funding Plan. 1.10 "Final Compensation", with respect to a Participant, means, as of any date, the sum of (i) the Participant's annual base salary and (ii) the Participant's Incentive Compensation Amount. For purposes of this section, all components of Final Compensation are calculated without regard to any elections by the Participant to defer any amount that otherwise would have been paid to the Participant for the relevant period. 1.11 "Funding Plan" means the Dominion Resources, Inc. Retirement Benefit Funding Plan. 1.12. "Incentive Compensation Amount" means the amount that may be paid under the Success Sharing Plan, the Cash Incentive Plan or any other incentive compensation plan designated by the appropriate O&C Committee and that the appropriate O&C Committee (at the time each year that the goals and other criteria for such plans are established), determines should be taken into account under the Plan. If a Participant participates in more than one incentive compensation plan during a year, his "Incentive Compensation Amount" is the greatest of the amounts designated by the appropriate O&C Committee under any plan for that year. 1.13. "O&C Committee" means (i) the Organization and Compensation Committee of Dominion Resources, Inc. with respect to DRI Participants and (ii) the Organization and Compensation Committee of Virginia Power with respect to Virginia Power Participants. 1.14. "Participant" means an elected officer of Dominion Resources, Inc., Virginia Power, and such other subsidiaries or Affiliates of Dominion Resources, Inc. that are designated by the Board of Directors of Dominion Resources, Inc. or the Board of Directors of Virginia Power. An individual shall remain a Participant only so long as the individual remains an elected officer of one or more of such designated entities. 1.15. "Plan" means the Dominion Resources, Inc. Executive Supplemental Retirement Plan. 1.16. "Retirement" and "Retire" mean severance from employment with the Company at or after the attainment of fifty-one (51) years of age and the completion of sixty (60) months of service with the Company. 1.17. "Success Sharing Plan" means the Success Sharing Plan of Virginia Electric and Power Company as in effect from time to time and any successor thereto. 1.18. "Totally and Permanently Disabled" means a condition, determined on the basis of medical evidence satisfactory to a physician designated by the Administrative Benefit Committee, rendering a Participant, due to bodily injury or disease, unable to perform services as follows: (i) during the first two years of such disability (measured from the commencement of such disability rather than the commencement of benefit payments) such Participant is unable to perform any and every duty pertaining to his employment with the Company; and (ii) thereafter, such Participant is unable to engage in any occupation or perform any work for compensation or profit for which he is or may become reasonably fitted by education, training or experience. In no event shall such condition be deemed to exist during any period that the Participant is not under the regular care and attendance of a legally qualified physician during any period that he engages in any occupation or performs any work for compensation or profit. 1.19 "Virginia Power" means Virginia Electric and Power Company. 1.20. "Virginia Power Participant" means a Participant who is an elected officer of Virginia Power or of any designated subsidiary of Virginia Power. Article II Participation All elected officers of Dominion Resources, Inc., Virginia Power, and such other subsidiaries and Affiliates of Dominion Resources, Inc. or Virginia Power as may be designated by the Board of Directors of Dominion Resources, Inc. or Virginia Power on, and subsequent to, January 1, 1981, will become Participants in the Plan. An individual shall remain a Participant only so long as the individual remains an elected officer of one or more of such designated entities. The appropriate Board may change its designation of any such subsidiary or Affiliate at any time. Article III Benefits Except as provided in Article IV and subject to the limitations set forth in Articles VII and VIII, the benefits of a Participant and his Beneficiary shall be as follows: 3.1. (a) If a Participant continues in the employ of the Company beyond age fifty-five (55) and after completing sixty (60) months of service, upon Retirement, he shall be entitled to an annual Retirement benefit equal to Twenty-five percent (25%) of his Final Compensation, payable in equal monthly installments for a period of one hundred twenty (120) months. (b) In the event a Participant becomes Totally and Permanently Disabled prior to Retirement, regardless of his age or months of service, he shall be entitled to receive a benefit equal to the amount described in Subsection 3.1(a). (c) If a Participant dies prior to the commencement of his Retirement benefit, regardless of his age or months of service, his Beneficiary will receive a benefit equal to the amount described in Subsection 3.1(a). If a Participant dies after Retirement or disability benefits have commenced under Subsection 3.1(a) or 3.1(b) but before he has received one hundred twenty (120) payments, the remainder of such payments will be made monthly to the Participant's Beneficiary in accordance with Article V. (d) If a Participant has completed sixty (60) months of service, upon his severance from employment with the Company at or after the attainment of fifty-one (51) years of age but before the attainment of fifty-five (55) years of age, the Participant shall be entitled to a percentage of the benefits provided under Subsection 3.1(a) in accordance with the following schedule: Age Percentage 51 20% 52 40% 53 60% 54 80% The actuarial equivalent of the benefit under this Subsection 3.1(d) shall be paid in a single lump sum payment. The actuarial equivalent shall be determined as provided in Section 3.2. Payment shall be made on the first day of the month following the severance from employment with the Company of the Participant or as soon thereafter as administratively possible. 3.2. (a) In lieu of the benefits described in Subsections 3.1(a) and 3.1(b), a Participant may elect to receive an actuarial equivalent of said benefit (i) over a period certain which is not less than ten (10) years nor greater than sixteen (16) years, or (ii) as a single lump sum payment. The actuarial equivalent of the benefit provided under Subsection 3.1(a) or 3.1(b) shall be computed using an interest rate equal to the yield of that certain nondiscount, noncall U.S. Treasury obligations which on the date benefits are to commence have a maturity date closest to the date such payments are scheduled to cease. A Participant who participates in the Funding Plan may not make an election under this Subsection unless he elects to have his Funding Plan benefit paid in the same manner as his election under this Subsection. In the event a Participant makes the election provided for in this Section and if the Participant dies prior to receiving the total actuarial equivalent of the benefits described in Subsection 3.1(a) or 3.1(b), the balance of such actuarial equivalent shall be paid monthly to the Participant's Beneficiary in accordance with Article V. (b) The Participant must make the election under Subsection 3.2(a) either (i) at least six (6) months prior to the commencement of the receipt of benefits or (ii) at least one (1) month prior to the commencement of the receipt of benefits if the election is approved by the Administrative Benefit Committee or the appropriate O&C Committee in its absolute discretion. Upon the denial of a Participant's election, the Participant shall receive the benefits provided under the Plan in the form that is otherwise payable absent the election. 3.3. A Beneficiary receiving benefits described in Section 3.1 or Section 3.2 may designate a beneficiary who will be entitled to receive the remaining benefits due the Beneficiary after his death; provided, however, that if the Beneficiary is entitled to receive any benefits under the Funding Plan, the beneficiary designated by the Beneficiary must be the same person or entity appointed by the Beneficiary under the Funding Plan. Such designation shall be in accordance with Article V of the Plan. 3.4. Payment of the benefits described in Sections 3.1 and 3.2 shall commence on the first day of the month next following the Retirement or death of the Participant, whichever is applicable; provided, however, that payment of the benefit described in Subsection 3.1(b) shall commence on the first day of the month next following the Administrative Benefit Committee's determination of the Participant's Total and Permanent Disability. Article IV Coordination of Benefits The amount payable in any month to a Participant, a Beneficiary, or the beneficiary of a Beneficiary under the Plan shall be reduced, but not below zero, by the Pre-Tax Value of the amount payable for the month in question from the Participant's ESRP Account in the Funding Plan. The Pre-Tax Value of the payments from the Participant's ESRP Account shall be the amount that, after payment of any applicable federal, state, and local income and employment taxes, would yield the amount of the payment from the ESRP Account, taking into consideration the extent to which, if any, that the payment from the ESRP Account is taxable to the Participant. The determination of the Pre- Tax Value shall be made on the basis of a policy or guidelines adopted by the appropriate O&C Committee using the maximum rates of federal, state, and local income and employment taxes that are applicable to the Participant, Beneficiary, or beneficiary of a Beneficiary. Benefits payable under the Plan shall not be reduced by any payment to a Participant under Section 6.05 of the Funding Plan. Article V Designation of Beneficiary 5.1. (a) The Beneficiary of a Participant who participates in the Funding Plan shall be the person or entity that is entitled to receive the benefit, if any, payable under the Funding Plan following the Participant's death. (b) A Participant who is not a participant in the Funding Plan may designate a Beneficiary to receive benefits due under the Plan, if any, upon the Participant's death. Designation of a Beneficiary may be made by execution of a form approved or accepted by the Administrative Benefit Committee which must be witnessed by a member of the Administrative Benefit Committee or its designee. In the absence of an effective Beneficiary designation, a Participant's surviving spouse, if any, his descendants, per stirpes, and if none, the Participant's estate, will be the Beneficiary. 5.2. A Participant may change a prior Beneficiary designation under Subsection 5.1(b) by a subsequent execution of a Beneficiary designation form. The change in Beneficiary will be effective if, and at such time as, it is witnessed by a member of the Administrative Benefit Committee or its designee. 5.3. A beneficiary designation or a change in beneficiary designation by a Beneficiary pursuant to Section 3.3 shall be governed by Sections 5.1 and 5.2 as if "Beneficiary" was substituted for "Participant" and "beneficiary" was substituted for "Beneficiary" therein. Article VI Guarantees Dominion Resources, Inc. and Virginia Power have only a contractual obligation to make payments of the benefits described in Article III. All benefits are to be satisfied solely out of the general corporate assets of Dominion Resources, Inc. or Virginia Power which shall remain subject to the claims of its creditors. No assets of Dominion Resources, Inc. or Virginia Power will be segregated or committed to the satisfaction of its obligations to any Participant or Beneficiary under this Plan. If Dominion Resources, Inc., in its sole discretion, or Virginia Power, in its sole discretion, elects to purchase life insurance on the life of a Participant in connection with the Plan, the Participant must submit to a physical examination, if required by the insurer, and otherwise cooperate in the issuance of such policy or his rights under the Plan will be forfeited. Article VII Termination of Employment 7.1. The Plan does not in any way limit the right of the Company at any time and for any reason to terminate the Participant's employment or such Participant' status as an officer of the Company. In no event shall the Plan, by its terms or by implication, constitute an employment contract of any nature whatsoever between the Company and a Participant. 7.2. A Participant who is removed or not reelected as an officer or whose employment with the Company is terminated either with or without cause, for reasons other than death, Retirement or Total and Permanent Disability shall immediately cease to be a Participant under this Plan and shall forfeit all rights under this Plan. Further, in no event shall an individual who was a Participant but is not an officer of a designated employer at the time of such individual's death, Retirement or Total and Permanent Disability, be entitled to any benefit under the Plan. A Participant on authorized leave of absence from the Company shall not be deemed to have terminated employment for the duration of such leave of absence. 7.3. Notwithstanding any contrary Plan provision, in the event the employment of a Participant who is in the employ of a Company on a Control Change Date relating to that Company is terminated (for reasons other than death, Retirement, Total and Permanent Disability, or as a result of acts of theft, embezzlement, fraud, or moral turpitude) before the end of the period commencing on the Control Change Date and ending on the earlier of the third anniversary of such date or the Participant's attainment of age fifty-five (55) and completion of sixty (60) months of service and whether or not he is an elected officer of the Company at such time, he shall be fully vested in a benefit payable at age fifty-five (55) based on his Final Compensation as of his date of termination and assuming he had attained age fifty-five(55) and completed sixty (60) months of service as of the date his employment is terminated. During this same period, a Participant who voluntarily terminates employment within sixty (60) days after (i) he does not receive salary increases, bonuses, and incentive awards comparable to the increases, bonuses and awards that he received in prior years or that other executives in comparable positions receive in the current year; or (ii) his compensation or employment-related benefits are reduced; or (iii) his status, title(s), offices, places of employment, working conditions, or management responsibilities are diminished (other than changes in reporting or management responsibilities to reflect sound practices commonly followed by enterprises comparable to the Company employing Participant or required by applicable federal or state law) or within sixty days after the last in a series of such events will be deemed to have terminated under circumstances requiring full vesting under this Section 7.3. Article VIII Termination, Amendment or Modification of Plan 8.1. Except as otherwise specifically provided, Dominion Resources, Inc. reserves the right to terminate, amend or modify this Plan, wholly or partially, at any time and from time to time as to DRI Participants. Such right to terminate, amend or modify the Plan shall be exercised for Dominion Resources, Inc. by its Board of Directors. Except as otherwise specifically provided, Virginia Power reserves the right to terminate, amend or modify this Plan, wholly or partially, at any time and from time to time as to Virginia Power Participants. Such right to terminate, amend or modify the Plan shall be exercised for Virginia Power by its Board of Directors. Notwithstanding the preceding, with respect to an affected Participant, the Plan and Section 7.3 may not be amended, modified or terminated after a Control Change Date before the end of the period specified in that section unless the affected Participant agrees to such amendment, modification or termination in writing. 8.2. Section 8.1 notwithstanding, no action to terminate the Plan shall be taken except upon written notice to each Participant to be affected thereby, which notice shall be given not less than thirty (30) days prior to such action. 8.3. Any notice which shall be or may be given under the Plan shall be in writing and shall be mailed by United States mail, postage prepared. If notice is to be given to Dominion Resources, Inc. or Virginia Power, such notice shall be addressed to their respective corporate office; addressed to the attention of the Corporate Secretary. If notice is to be given to a Participant, such notice shall be addressed to the Participant's last known address. 8.4. The rights of Dominion Resources, Inc. and Virginia Power set forth in Section 8.1 are subject to the condition that its Board of Directors shall take no action to terminate the Plan or decrease the benefit that would become payable or is payable, as the case may be, with respect to a Participant who has attained age fifty-one (51) and completed sixty (60) months of service with the Company, so long as such individual remains an elected officer of a designated employer or a Participant or Beneficiary following the date such Participant or Beneficiary commences receiving benefits described in Article III. 8.5. Except as provided in Sections 7.3, 8.1, and 8.4, upon the termination of this Plan as to Dominion Resources, Inc. by its Board of Directors, the Plan shall no longer be of any further force or effect as to DRI Participants, and neither Dominion Resources, Inc. nor any DRI Participant shall have any further obligation or right under this Plan. Except as provided in Sections 7.3, 8.1, and 8.4, upon the termination of this Plan as to Virginia Power by its Board of Directors, the Plan shall no longer be of any further force or effect as to Virginia Power Participants, and neither Virginia Power nor any Virginia Power Participant shall have any further obligation or right under this Plan. Likewise, the rights of any individual who was a Participant and who is removed or not reelected as an officer of a designated employer shall cease upon such action. Article IX Other Benefits and Agreements Except as provided in Article IV, the benefits provided for a Participant and his Beneficiary under the Plan are in addition to any other benefits available to such Participant under any other plan or program of the Company for its employees, and, except as may otherwise be expressly provided for, the Plan shall supplement and shall not supersede, modify or amend any other plan or program of the Company in which a Participant is participating. Article X Administration of the Plan 10.1. The Plan shall be administered by the Administrative Benefit Committee. Subject to the provisions of the Plan, the Administrative Benefit Committee may adopt such rules and regulations as may be necessary to carry out the purposes hereof. The Administrative Benefit Committee's interpretation and construction of any provision of the Plan shall be final and conclusive. 10.2. Dominion Resources, Inc. and Virginia Power shall indemnify and save harmless each member of the Administrative Benefit Committee and each member of its own O&C Committee against any and all expenses and liabilities arising out of his membership on such committee, excepting only expenses and liabilities arising out of his own willful misconduct. Expenses against which a member of the Administrative Benefit Committee or an O&C Committee shall be indemnified hereunder shall include without limitation, the amount of any settlement or judgment, costs, counsel fees, and related charges reasonably incurred in connection with a claim asserted, or a proceeding brought or settlement thereof. The foregoing right of indemnification shall be addition to any other rights to which any such member may be entitled. 10.3. In addition to the powers hereinabove specified, the Administrative Benefit Committee shall have the power to compute and certify the amount and kind of benefits from time to time payable to Participants and their Beneficiaries under the Plan, to authorize all disbursements for such purposes, and to determine whether a Participant is entitled to the benefit provided in Subsection 3.1(b). 10.4. To enable the Administrative Benefit Committee to perform its functions, the Company shall supply full and timely information to the Administrative Benefit Committee on all matters relating to the compensation of all Participants, their retirement, death or other cause for termination of employment, and such other pertinent facts as the Administrative Benefit Committee may require. Article XI Miscellaneous 11.1. The Plan shall be binding upon Dominion Resources, Inc., Virginia Power, their successors and assigns; subject to the powers set forth in Article VIII, and upon a Participant, his Beneficiary, and either of their assigns, heirs, executors and administrators. 11.2. To the extent not preempted by federal law, the Plan shall be governed and construed under the laws of the Commonwealth of Virginia as in effect at the time of their adoption and execution, respectively. 11.3. Masculine pronouns wherever used shall include feminine pronouns and the use of the singular shall include the plural. IN WITNESS WHEREOF, this instrument has been executed this 12th day of May, 1997. DOMINION RESOURCES, INC. By /s/LINWOOD R. ROBERTSON Linwood R. Robertson Executive Vice President and Chief Financial Officer VIRGINIA ELECTRIC AND POWER COMPANY By /s/T. J. O'NEIL T. J. O'Neil Vice President, Human Resources -----END PRIVACY-ENHANCED MESSAGE-----