-----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, Ii8uqUmlv4mlf0p0jN/OheVSvNw4OBOaJ90dKywCtl1Nz4DqatIpDBj1gTPc0/R8 /DPz78+33FjW+6ERRH2IZw== 0000916641-96-000146.txt : 19960903 0000916641-96-000146.hdr.sgml : 19960903 ACCESSION NUMBER: 0000916641-96-000146 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960312 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DOMINION RESOURCES INC /VA/ CENTRAL INDEX KEY: 0000715957 STANDARD INDUSTRIAL CLASSIFICATION: 4911 IRS NUMBER: 541229715 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-08489 FILM NUMBER: 96534055 BUSINESS ADDRESS: STREET 1: 901 E BYRD ST STREET 2: P O BOX 26532 CITY: RICHMOND STATE: VA ZIP: 23219 BUSINESS PHONE: 8047755700 10-K405 1 DOMINION RESOURCES, INC 10K-405 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) ( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-8489 DOMINION RESOURCES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) VIRGINIA 54-1229715 (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 901 EAST BYRD STREET RICHMOND, VIRGINIA 23219-4072 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(804) 775-5700 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED Common Stock, no par value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE: (TITLE OF CLASS) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of voting stock held by nonaffiliates of the registrant was $6,974,930,066 at February 29, 1996, based on the closing price of the Common Stock on such date, as reported on the composite tape by The Wall Street Journal. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. CLASS OUTSTANDING AT FEBRUARY 29, 1996 Common Stock, no par value 176,580,508
DOCUMENTS INCORPORATED BY REFERENCE: (a) Portions of the 1995 Annual Report to Shareholders for the fiscal year ended December 31, 1995 are incorporated by reference in Parts I, II and IV hereof. (b) Portions of the 1996 Proxy Statement, dated March 11, 1996, are incorporated by reference in Part III hereof. DOMINION RESOURCES, INC.
ITEM PAGE NUMBER NUMBER PART I 1. Business The Company............................................................................................... 1 Regulation................................................................................................ 2 Capital Requirements and Financing Program................................................................ 4 Capital Requirements...................................................................................... 4 Construction and Nuclear Fuel Expenditures................................................................ 4 Financing Program......................................................................................... 4 Rates..................................................................................................... 5 Virginia.................................................................................................. 5 North Carolina............................................................................................ 6 Virginia Power Sources of Power........................................................................... 7 Virginia Power Sources of Energy Used and Fuel Costs...................................................... 7 Interconnections.......................................................................................... 9 Future Sources of Power................................................................................... 9 Competition and Strategic Initiatives..................................................................... 10 Conservation and Load Management.......................................................................... 12 2. Properties................................................................................................ 12 3. Legal Proceedings......................................................................................... 12 4. Submission of Matters to a Vote of Security Holders....................................................... 13 Executive Officers of the Registrant...................................................................... 13 PART II 5. Market for the Registrant's Common Equity and Related Stockholder Matters................................. 15 6. Selected Financial Data................................................................................... 15 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..................... 15 8. Financial Statements and Supplementary Data............................................................... 15 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...................... 15 PART III 10. Directors and Executive Officers of the Registrant........................................................ 15 11. Executive Compensation.................................................................................... 15 12. Security Ownership of Certain Beneficial Owners and Management............................................ 15 13. Certain Relationships and Related Transactions............................................................ 15 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......................................... 16
PART I ITEM 1. BUSINESS THE COMPANY Dominion Resources, Inc. (Dominion Resources), organized in 1983, has its principal office at 901 East Byrd Street, Richmond, Virginia 23219-4072, telephone (804) 775-5700. The principal assets of Dominion Resources are its investments in its subsidiaries. At December 31, 1995, Dominion Resources owned all of the outstanding common stock of its subsidiaries: Dominion Capital, Inc. (Dominion Capital); Dominion Energy, Inc. (Dominion Energy) and Virginia Electric and Power Company (Virginia Power), its largest subsidiary. Dominion Capital, established as a subsidiary of Dominion Resources in 1985, is a diversified investment and financial services company. The principal assets of Dominion Capital are its joint venture with Household Commercial Financial Services, Inc., First Source Financial, LLP, a middle market commercial lender; a 50% limited partnership interest in a Louisiana hydroelectric project; Dominion Lands, Inc., a subsidiary involved in planned community real estate development and management; investments in marketable securities and fixed income instruments; and Rincon Securities, Inc., a subsidiary which holds a diversified portfolio of preferred stocks. Dominion Capital also has investments in affordable housing and a commercial real estate management company. Dominion Energy, established as a subsidiary of Dominion Resources in 1987, is active in a number of partnerships to develop nonutility electric power generation projects outside the territory served by Virginia Power. Dominion Energy is involved in projects in six states, Argentina, Bolivia and Belize, which total approximately 2,156 Mw. Projects in operation throughout 1995 in which Dominion Energy has an interest include three gas-fueled projects totaling 990 Mw owned by Enron/Dominion Cogen Corporation, two geothermal projects in California, a solar project in California, four small hydro- electric projects in New York, a waste coal-fueled project in West Virginia, a wood- and coal-fueled project in Maine, a hydroelectric and a gas-fired project in Argentina and two gas-fired projects in California. In August 1995, Dominion Energy acquired two hydroelectric facilities in Bolivia totaling 126 Mw. During 1991, Dominion Energy announced its plans to develop a 25 Mw run-of-river hydroelectric project in Belize which began construction in 1992. On November 1, 1995, this facility began commercial operation. Dominion Energy also participates in partnerships to acquire and develop natural gas reserves. In 1995, it added 57 billion cubic feet (BCFE) of natural gas reserves. Production from company holdings in 1995 totaled 37 BCFE. By the end of 1995, Dominion Energy held 345 BCFE in natural gas reserves. For additional information on the nonutility businesses, see NONUTILITY ISSUES under FUTURE ISSUES in MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS on page 25 of the 1995 Annual Report to Shareholders. Dominion Resources is currently exempt from registration as a holding company under the Public Utility Holding Company Act of 1935 (the 1935 Act). Virginia Electric and Power Company, incorporated in 1909, Dominion Resources' largest subsidiary, is a regulated public utility engaged in the generation, transmission, distribution and sale of electric energy within a 30,000 square mile area in Virginia and northeastern North Carolina. It transacts business under the name VIRGINIA POWER in Virginia and under the name NORTH CAROLINA POWER in North Carolina. It sells electricity to retail customers (including governmental agencies) and to wholesale customers such as rural electric cooperatives and municipalities. The Virginia service area comprises about 65% of Virginia's total land area but accounts for over 80% of its population. As used herein, the term "Virginia Power" shall be deemed to refer to the entirety of Virginia Electric and Power Company, including, without limitation, its Virginia and North Carolina operations and all of its subsidiaries. Virginia Power has franchises or permits for electric operations in substantially all cities and towns now served. It also has certificates of convenience and necessity from the Virginia State Corporation Commission (the Virginia Commission) for service in all territory served at retail in Virginia. The North Carolina Utilities Commission (the North Carolina Commission) has assigned territory to Virginia Power for substantially all of its retail service outside certain municipalities in North Carolina. Virginia Power strives to operate its generating facilities in accordance with prudent utility industry practices and in conformity with applicable statutes, rules and regulations. Like other electric utilities, Virginia Power's generating facilities are subject to unanticipated or extended outages for repairs, replacements or modifications of equipment or otherwise to comply with regulatory requirements. Such outages may involve significant expenditures not previously budgeted, including replacement energy costs. 1 Dominion Resources and its subsidiaries had 10,592 full-time employees as of December 31, 1995. Except for the historical information contained herein, the matters discussed in this annual report on Form 10-K are forward-looking statements which involve risks and uncertainties, including but not limited to regulatory, economic, competitive, governmental and technological factors affecting Dominion Resources and its subsidiaries operations, rates, markets, products, services and prices, and other factors discussed herein and in the company's other filings with the Securities and Exchange Commission. REGULATION GENERAL In a wide variety of matters in addition to rates, Virginia Power is presently subject to regulation by the Virginia Commission and the North Carolina Commission, the Environmental Protection Agency (EPA), Department of Energy (DOE), Nuclear Regulatory Commission (NRC), Federal Energy Regulatory Commission (FERC), the Army Corps of Engineers, and other federal, state and local authorities. Compliance with numerous laws and regulations increases the Company's operating and capital costs by requiring, among other things, changes in the design and operation of existing facilities and changes or delays in the location, design, construction and operation of new facilities. The commissions regulating the Company's rates have historically permitted recovery of such costs. Virginia Power may not construct, or incur financial commitments for construction of, any substantial generating facilities or large capacity transmission lines without the prior approval of state and federal governmental agencies having jurisdiction over various aspects of its business. Such approvals relate to, among other things, the environmental impact of such activities, the relationship of such activities to the need for providing adequate utility service and the design and operation of proposed facilities. On January 11, 1996, the Virginia Commission granted interim approval for limited affiliate services between Virginia Power and a subsidiary, A&C Enercom, Inc., in connection with the purchase by the subsidiary of certain assets of two energy services businesses. On March 12, 1996, Virginia Power filed an amendment to its application seeking approval of additional services and asset transfers between it and the subsidiary. The City of Falls Church, Virginia has indicated it intends to pursue the establishment of a municipal electric system and sent Virginia Power a formal Request for Transmission Service pursuant to Sections 211 and 213 of the Federal Power Act on January 11, 1995. Virginia Power has approximately 4,100 customers in the City. Megawatt-hour sales by customer class in Falls Church are: Residential - 36,000; Commercial - 67,000; Industrial - 0; and Other - 5,000. Virginia Power denied the request and filed a Petition for Declaratory Judgment against the City with the Virginia Commission. The Commission has ruled that Falls Church must seek approval from the Commission prior to implementing plans to condemn Virginia Power facilities within the City. Revenues from retail sales within the City of Falls Church account for less than .2% of Virginia Power's total revenues. As a result, Virginia Power will not experience a material loss of revenues or net income should a municipal system be created. No other municipality has communicated to Virginia Power any interest in forming a municipal electric system. On September 18, 1995, the Virginia Commission established a proceeding to review and consider its policy regarding restructuring of, and competition in, the electric utility industry. The Commission directed its Staff to investigate the emerging issues in the industry and prepare a report of its findings and recommendations on or before March 29, 1996. All interested parties may file written comments and requests for oral argument in response to the Staff Report on or before May 30, 1996. Various provisions of the Energy Policy Act of 1992 (the Energy Act) that could affect Virginia Power include those provisions encouraging the development of non-utility generation, giving FERC authority to order transmission access for wholesale transactions, requiring higher energy efficiency and alternative fuels use, restructuring of nuclear plant licensing procedures and requiring state regulatory authorities to give full rate treatment for the effects of conservation and demand management programs, including the effects of reduced sales. While the full impact of the Energy Act on Virginia Power cannot at this time be quantified, it is likely, over time, to be significant. FERC On March 29, 1995, FERC issued a Notice of Proposed Rulemaking that would require all FERC jurisdictional utilities to provide open access to the interstate transmission system. Crucial elements of the Commission's proposal included the 2 following: all jurisdictional utilities must file non-discriminatory open access transmission tariffs; utilities must take service under the open access tariffs for their own wholesale sales and purchases of electric energy; and utilities will be allowed the opportunity to recover stranded costs. Virginia Power filed its comments on August 7, 1995 and supported the Commission's objective of promoting comparable open-access transmission service. However, Virginia Power urged the Commission to reconsider its proposal to draft generic tariffs for the electric industry. Virginia Power also challenged FERC's authority to impose tariffs of general applicability and urged the adoption of principles of comparability that it will apply to evaluate terms and conditions of tariffs filed by utilities. Virginia Power urged that any pro forma tariffs included in the final rule should provide for comparable service at rates that permit the utility to recover all its costs of service. See COMPETITION AND STRATEGIC INITIATIVES below and COMPETITION in UTILITY ISSUES in FUTURE ISSUES under MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS on pages 23 and 24 of the 1995 Annual Report to Shareholders. ENVIRONMENTAL From time to time, Virginia Power may be identified as a potentially responsible party (PRP) with respect to a Superfund site. EPA (or a state) can either (a) allow such a party to conduct and pay for a remedial investigation, feasibility study and remedial action or (b) conduct the remedial investigation and action and then seek reimbursement from the parties. Each party can be held jointly, severally and strictly liable for all costs, but the parties can then bring contribution actions against each other and seek reimbursement from their insurance companies. As a result of the Superfund Act or other laws or regulations regarding the remediation of waste, Virginia Power may be required to expend amounts on remedial investigations and actions. Although Virginia Power is not currently aware of any sites or events, including those sites currently identified likely to result in significant liabilities, such amounts, in the future, could be significant. Permits under the Clean Water Act and state laws have been issued for all of Virginia Power's steam generating stations now in operation. Such permits are subject to reissuance and continuing review. Virginia Power is subject to the Clean Air Act (the Air Act), which provides the statutory basis for ambient air quality standards. In order to maintain compliance with such standards and reduce the impact of emissions on ambient air quality, Virginia Power may be required to incur significant additional expenditures in constructing new facilities or in modifying existing facilities. Virginia Power has completed its compliance plan for Phase II of the Air Act, with the exception of some additional studies concerning Phase II nitrogen oxide (NOx) controls. The plan will involve switching to lower sulfur coal, purchase of emission allowances and additional NOx and sulfur dioxide (SO2) controls. Maximum flexibility and least-cost compliance will be maintained through annual studies. Capital expenditures on the Air Act compliance over the next five years are projected to be approximately $61 million. Changes in the regulatory environment, availability of allowances, and emission control technology could substantially impact the timing and magnitude of compliance expenditures. Virginia Power continues to work with the West Virginia Office of Air Quality concerning opacity requirements applicable to the Mt. Storm Power Station. For additional information on ENVIRONMENTAL MATTERS, see Note P to NOTES TO CONSOLIDATED FINANCIAL STATEMENTS of the 1995 Annual Report to Shareholders. NUCLEAR All aspects of the operation and maintenance of Virginia Power's nuclear power stations are regulated by the NRC. Operating licenses issued by the NRC are subject to revocation, suspension or modification, and operation of a nuclear unit may be suspended if the NRC determines that the public interest, health or safety so requires. From time to time, the NRC adopts new requirements for the operation and maintenance of nuclear facilities. In many cases, these new regulations require changes in the design, operation and maintenance of existing nuclear facilities. If the NRC adopts such requirements in the future, it could result in substantial increases in the cost of operating and maintaining Virginia Power's nuclear generating units. On July 18, 1995, the Virginia Commission instituted an investigation regarding spent nuclear fuel disposal. It directed interested parties to provide comments on legal and public policy issues related to spent nuclear fuel storage and disposal, including, but not limited to, whether to allow utilities to recover from ratepayers some or all money paid to the Nuclear Waste Fund established by the Nuclear Policy Act of 1982, whether to establish an escrow account for spent nuclear fuel storage and/or disposal, and whether utilities should develop their own plans for storage and disposal of spent nuclear fuel. 3 The Commission's Order Establishing Investigation recites that Virginia Power has paid $343.6 million to the Nuclear Waste Fund through 1994, including $44.8 million in 1994, and that future payments could exceed $400 million assuming its North Anna and Surry reactors continue to operate through the end of their existing operating licenses. Virginia Power and others filed comments on October 31, 1995. On February 27, 1996, the Virginia Commission Staff filed its Report recommending that adoption of a definitive policy on the spent nuclear fuel disposal fee be delayed until (1) a ruling is forthcoming on pending litigation which seeks to impose an obligation on the federal government to begin acceptance of spent nuclear fuel no later than January 31, 1998, (2) the outcome of proposed legislation which would amend the Nuclear Waste Policy Act to require the development of a centralized interim storage facility has been determined, and (3) a vision of the likely outcome of the electric utility industry's restructuring efforts has been more fully conceptualized. CAPITAL REQUIREMENTS AND FINANCING PROGRAM CAPITAL REQUIREMENTS See MANAGEMENT'S DISCUSSION AND ANALYSIS OF CASH FLOWS AND FINANCIAL CONDITION on pages 29 and 30 of the 1995 Annual Report to Shareholders. CONSTRUCTION AND NUCLEAR FUEL EXPENDITURES Virginia Power's estimated construction and nuclear fuel expenditures, including Allowance for Funds Used During Construction (AFC), for the three-year period 1996-1998, total $1.6 billion. It has adopted a 1996 budget for construction and nuclear fuel expenditures as set forth below:
ESTIMATED 1996 EXPENDITURES (MILLIONS) New Generating Facilities: Clover Unit 2....................................................................... $ 14 Other Production: Clean Air Act....................................................................... 19 Other............................................................................... 60 General Support Facilities............................................................ 88 Transmission.......................................................................... 42 Distribution.......................................................................... 262 Nuclear Fuel.......................................................................... 84 Total Construction Requirements and Nuclear Fuel.................................... 569 AFC.............................................................................. 5 Total Expenditures.................................................................. $574
FINANCING PROGRAM See MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS and MANAGEMENT'S DISCUSSION AND ANALYSIS OF CASH FLOWS AND FINANCIAL CONDITION on pages 21 through 30 of the 1995 Annual Report to Shareholders. 4 RATES Virginia Power was subject to rate regulation in 1995 as follows:
1995 PERCENT PERCENT OF OF REVENUES KWH SALES Virginia retail: Non-Governmental customers.................... Virginia Commission 78% 73% Governmental customers........................ Negotiated Agreements 10 12 North Carolina retail........................... North Carolina Commission 5 4 Wholesale: Requirements -- Sales for Resale.............. FERC 5 7 Non-Requirements -- Sales for Resale.......... FERC 2 4 100% 100%
Substantially all of Virginia Power's electric sales are subject to recovery of changes in fuel costs either through fuel adjustment factors or periodic adjustments to base rates, each of which requires prior regulatory approval. Each of these jurisdictions has the authority to disallow recovery of costs it determines to be excessive or imprudently incurred. Various cost items may be reviewed on occasion, including costs of constructing or modifying facilities, on-going purchases of capacity or providing replacement power during generating unit outages. The principal rate proceedings in which Virginia Power was involved in 1995 are described below by jurisdiction. Rate relief obtained by Virginia Power is frequently less than requested. VIRGINIA On January 13, 1995, the Supreme Court of Virginia affirmed a decision of the Virginia Commission in Virginia Power's 1992 rate case that disallowed rate recovery of the gross receipts tax component of certain purchased power costs. On March 3, 1995, the Court denied the motions of Virginia Power and certain industrial cogenerators for a rehearing, and on October 2, 1995, the United States Supreme Court denied the Writ of Certiorari sought by those cogenerators. On April 20, 1995, the Virginia Commission declined to approve Virginia Power's proposed Schedule DEF -- Dispersed Energy Facility, a rate schedule that would have allowed Virginia Power to respond to the request of an industrial or commercial customer to build and operate a generating facility at its business location and to sell to that customer all of the electricity and associated steam from that facility under a long-term contract. The Commission stated that the scope of the proposal was not an appropriate experiment under Virginia law, and that, without a specific construction proposal before it, the Commission could not approve the concept. The Commission stated, however, that upon a proper record it would consider the public interest of allowing a DEF-type facility to be constructed. Virginia Power subsequently negotiated a specific DEF arrangement with Chesapeake Paper Products Company, and on December 18, 1995, it applied to the Virginia Commission for the approvals required for that arrangement. (See COMPETITION AND STRATEGIC INITIATIVES below). The Staff of the Virginia Commission has, in Virginia Power's Annual Informational Filing proceeding for 1994, recommended that there be imputed to Virginia Power for ratemaking purposes income reflecting (a) the estimated value of credit support that Dominion Resources' nonutility subsidiaries allegedly receive from Virginia Power and (b) the income earned by Dominion Resources on the invested proceeds of its unallocated equity for which Virginia Power provides the funds for payment of dividends. Virginia Power filed a response opposing these recommendations. The Staff's reply agreed with Virginia Power that no decision on these issues is required in the pending proceeding. On February 23, 1996, the Virginia Commission issued its Order finding that Virginia Power did not earn outside of its authorized range for the calendar year 1994, and indicating that it will investigate the described issues further in a subsequent proceeding. The Commission Order also approved higher collection levels for decommissioning of nuclear plants. On April 20, 1995, the Virginia Commission authorized Virginia Power to implement a pilot program providing a real time pricing (RTP) option for its industrial customers with loads in excess of 10 Mw. Under this option, all or a portion of an industrial customer's load growth would be supplied at projected incremental hourly production costs, adjusted for line losses 5 and taxes, plus a margin of 0.6 cents per Kwh. Additionally, a marginal cost-based Generation Capacity Adder and a Transmission Capacity Adder would be applicable during those hours when the Virginia Power system is approaching its forecasted annual peak demand. Up to 20% of an industrial customer's existing load could be served on an RTP basis if the customer executes a five-year contract for such service. On September 19, 1995, Virginia Power filed an application to revise its annual fuel factor. Virginia Power proposed that the present fuel factor be decreased by $97.1 million. The Staff of the Virginia Commission proposed certain adjustments, which Virginia Power did not oppose, resulting in a recommended reduction of $107.3 million. On October 31, 1995, the Virginia Commission approved the reduction of $107.3 million, effective November 1, 1995. NORTH CAROLINA On February 13, 1995, the Supreme Court of North Carolina denied Virginia Power's motion for rehearing of the appeal of its 1992 North Carolina rate case, which disallowed recovery of certain capacity costs paid to a cogenerator and a portion of the compensation of certain Company officers. On May 15, 1995, Virginia Power filed with the United States Supreme Court a Petition for a Writ of Certiorari asking the Court to reverse the North Carolina Court's decision as to the recovery of capacity costs. On January 22, 1996, the United States Supreme Court denied the Writ of Certiorari sought by the Company. On June 27, 1995, the North Carolina Commission approved a Self-Generation Deferral Rate that is a part of an Energy Agreement between the company and Weyerhaeuser. The agreement involves the use of a negotiated pricing structure which will result in the deferral of the installation of additional self-generation facilities by Weyerhaeuser. The rate to be charged must be prefiled each year, and the company is prohibited from recovering from other customers the difference between the new rate and the rate that Weyerhaeuser would otherwise have been charged. On September 15, 1995, Virginia Power filed an application with the North Carolina Commission for approval of a $1.3 million annual increase in fuel rates. On December 8, 1995, the Commission approved an increase of $.8 million reflecting a disallowance of $.5 million by reason of resolution of issues surrounding the renegotiation of a coal transportation contract with CSX Transportation, Inc. 6 VIRGINIA POWER SOURCES OF POWER VIRGINIA POWER GENERATING UNITS
TYPE SUMMER YEARS OF CAPABILITY NAME OF STATION, UNITS AND LOCATION INSTALLED FUEL MW Nuclear: Surry Units 1 & 2, Surry, Va..................................................... 1972-73 Nuclear 1,602 North Anna Units 1 & 2, Mineral, Va.............................................. 1978-80 Nuclear 1,790(a) Total nuclear stations........................................................ 3,392 Fossil Fuel: Steam: Bremo Units 3 & 4, Bremo Bluff, Va. .......................................... 1950-58 Coal 227 Chesterfield Units 3-6, Chester, Va. ......................................... 1952-69 Coal 1,250 Clover Unit 1, Clover, Va. ................................................... 1995 Coal 416(b) Mt. Storm Units 1-3, Mt. Storm, W. Va. ....................................... 1965-73 Coal 1,587 Chesapeake Units 1-4, Chesapeake, Va. ........................................ 1953-62 Coal 595 Possum Point Units 3 & 4, Dumfries, Va. ...................................... 1955-62 Coal 322 Yorktown Units 1 & 2, Yorktown, Va. .......................................... 1957-59 Coal 326 Possum Point Units 1, 2, & 5, Dumfries, Va. .................................. 1948-75 Oil 929 Yorktown Unit 3, Yorktown, Va. ............................................... 1974 Oil & Gas 818 North Branch Unit 1, Bayard, W. Va. .......................................... 1994 Waste Coal 74(c) Combustion Turbines: 35 units (8 locations)........................................................... 1967-90 Oil & Gas 1,019 Combined Cycle: Chesterfield Units 7 & 8, Chester, Va. .......................................... 1990-92 Oil & Gas 397 Total fossil stations......................................................... 7,960 Hydroelectric: Gaston Units 1-4, Roanoke Rapids, N.C. .......................................... 1963 Conventional 225 Roanoke Rapids Units 1-4, Roanoke Rapids, N.C. .................................. 1955 Conventional 96 Other............................................................................ 1930-87 Conventional 3 Bath County Units 1-6, Warm Springs, Va. ........................................ 1985 Pumped Storage 1,260(d) Total hydro stations.......................................................... 1,584 Total Company generating unit capability...................................... 12,936 NET UTILITY PURCHASES.............................................................. 1,030 NON-UTILITY GENERATION............................................................. 3,295 Total Capability.............................................................. 17,261
(a) Includes an undivided interest of 11.6 percent (208 Mw) owned by Old Dominion Electric Cooperative (ODEC). (b) Includes an undivided interest of 50 percent (208 Mw) owned by ODEC. (c) Effective January 25, 1996, unit was placed in a cold reserve status. (d) Reflects Virginia Power's 60 percent undivided ownership interest in the 2,100 Mw station. A 40 percent undivided interest in the facility is owned by Allegheny Generating Company, a subsidiary of Allegheny Power System, Inc. (APS). Virginia Power's highest one-hour integrated service area summer peak demand was 14,003 Mw on August 2, 1995, and a new all-time high one-hour integrated winter peak demand of 14,910 Mw was reached on February 5, 1996. VIRGINIA POWER SOURCES OF ENERGY USED AND FUEL COSTS The average fuel cost of system energy output is shown below:
MILLS PER KILOWATT-HOUR 1995 1994 1993 Nuclear............................. 4.92 4.89 4.60 Coal................................ 14.44 14.61 14.69 Oil................................. 25.11 23.00 26.55 Purchased power, net................ 22.50 23.99 24.54 Other............................... 23.82 25.46 24.35 Average fuel cost................... 13.73 14.02 14.42
7 System energy output is shown below:
ESTIMATED ACTUAL 1996 1995 1994 1993 Nuclear(*).......................... 33% 32% 34% 31% Coal(**)............................ 40 39 36 39 Oil................................. 1 1 3 3 Purchased power, net................ 23 25 23 23 Other............................... 3 3 4 4 100% 100% 100% 100%
(*) Excludes ODEC's 11.6 percent ownership interest in the North Anna Power Station (**) Excludes ODEC's 50 percent ownership interest in the Clover Power Station NUCLEAR OPERATIONS AND FUEL SUPPLY In 1995, Virginia Power's four nuclear units achieved a combined capacity factor of 85.4 percent. The North Anna Unit 2 steam generator replacement project was completed in 1995 at a total company cost of $96 million. Virginia Power utilizes both long-term contracts and spot purchases to support its needs for nuclear fuel. Virginia Power's nuclear fuel supply and related services are expected to be adequate to support current and planned nuclear generation requirements. Virginia Power continually evaluates worldwide market conditions in order to obtain an adequate nuclear fuel supply. Current agreements, inventories and market availability should support planned fuel cycles throughout the remainder of the 1990s. On-site spent nuclear fuel storage at the Surry Power Station is adequate for Virginia Power's needs through 1998 when, in accordance with the Nuclear Waste Policy Act, the DOE is to begin acceptance of spent fuel for disposal. Should acceptance be delayed, incremental dry storage facilities will be added under the existing storage license. North Anna Power Station will require an interim spent fuel storage facility in the late 1990's. Virginia Power submitted a license application to the NRC in May 1995 for such a facility at North Anna. For details regarding nuclear insurance and certain related contingent liabilities as well as a NRC rule that requires proceeds from certain insurance policies to be used first to pay stabilization and decontamination expenses, see Note P to the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS in the 1995 Annual Report to Shareholders. FOSSIL OPERATIONS AND FUEL SUPPLY The commercial operation of Clover Power Station Unit 1 began on October 7, 1995. The summer capability of Unit 1 is 416 Mw. Virginia Power's fossil fuel mix consists of coal, oil and natural gas. In 1995, Virginia Power consumed approximately 11.0 million tons of coal. As with nuclear fuel, Virginia Power utilizes both long-term contracts and spot purchases to support its needs. Virginia Power presently anticipates that sufficient coal supplies at reasonable prices will be available for the remainder of the 1990s. Current projections for an adequate supply of oil remain favorable, barring unusual international events or extreme weather conditions which could affect both price and supply. Virginia Power uses natural gas as needed throughout the year for two combined cycle units and at several combustion turbine units. For winter usage at the combined cycle sites, gas is purchased and stored during the summer and fall and consumed during the colder months when gas supplies are not available at favorable prices. Virginia Power has firm transportation contracts for the delivery of gas to the combined cycle units. Current projections indicate gas supplies will be available for the next several years. PURCHASES AND SALES OF POWER Virginia Power relies on purchases of power to meet a portion of its capacity requirements. Virginia Power also makes economy purchases of power from other utility systems when it is available at a cost lower than Virginia Power's own generation costs. 8 Under contracts effective January 1, 1985, Virginia Power agreed to purchase 400 Mw of electricity annually through 1999 from Hoosier Energy Rural Electric Cooperative, Inc. (Hoosier), and agreed to purchase 500 Mw of electricity annually during 1987-99 from certain operating units of American Electric Power Company, Inc. (AEP). On November 26, 1991, Virginia Power and ODEC signed an agreement whereby the Company will provide 100 Mw of firm capacity and associated energy until the commercial operation of Clover Unit 2 (currently scheduled for April 1996) or December 31, 1996, whichever occurs first. Virginia Power has a diversity exchange agreement with APS under which APS delivers 200 Mw to Virginia Power in the summer and Virginia Power delivers 200 Mw to APS in the winter. Virginia Power also has 67 non-utility power purchase contracts with a combined dependable summer capacity of 3,493 Mw. Of this amount, 3,295 Mw were operational at the end of 1995 with the balance scheduled to come on-line through 1998 (see VIRGINIA POWER NON-UTILITY GENERATION under FUTURE SOURCES OF POWER and Note P to the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS in the 1995 Annual Report to Shareholders). Early in 1995, a wholesale power group was formed within Virginia Power. Its sole focus is the purchase and sale of wholesale electric power in the open market. The wholesale power group has expanded the company's trading range beyond the geographic limits of the Virginia Power service territory, and has recently developed trading relationships with utilities in Illinois, Missouri, Indiana, Kentucky, Ohio, Vermont, Michigan, and Tennessee in addition to most states in the Mid-Atlantic area. INTERCONNECTIONS Virginia Power maintains major interconnections with Carolina Power and Light Company, AEP, APS and the utilities in the Pennsylvania-New Jersey-Maryland Power Pool. Through this major transmission network, Virginia Power has arrangements with these utilities for coordinated planning, operation, emergency assistance and exchanges of capacity and energy. Virginia Power and Appalachian Power Company (Apco) (an operating unit of AEP) have each sought approval from the Virginia Commission to construct interconnecting transmission facilities. Apco proposes to construct 116 miles of 765 Kv line to connect with Virginia Power's proposed 102 miles of 500 Kv line. Virginia Power does not intend to build its facility unless the Apco facility, which requires approval in West Virginia as well as Virginia, is also approved and built. Approval of both facilities has been recommended by a Virginia Commission Hearing Examiner. On December 13, 1995, the Virginia Commission issued an Interim Order in the Apco case in which it found that additional transmission capacity is needed but directed Apco to provide further information as to routing, mitigation of visual impact, and uses of the line. FUTURE SOURCES OF POWER With the expiration of long-term purchases, on December 31, 1999, with Hoosier (400Mw) and with AEP (900 Mw) and continued system load growth, Virginia Power presently anticipates adding 1,400 Mw of short-term (three-year) purchases through the year 2000. Virginia Power has and will pursue capacity acquisition plans to provide that capacity and maintain a high degree of service reliability. This capacity may be owned and operated by others and sold to Virginia Power or may be built by Virginia Power if it determines it can build capacity at a lower overall cost. Virginia Power also pursues conservation and demand-side management (see CONSERVATION AND LOAD MANAGEMENT below and CAPITAL REQUIREMENTS under MANAGEMENT'S DISCUSSION AND ANALYSIS OF CASH FLOWS AND FINANCIAL CONDITION on page 29 of the 1995 Annual Report to Shareholders). In May 1990, Virginia Power entered into an agreement with ODEC, under which Virginia Power purchased a 50 percent undivided ownership interest in a 832 Mw coal-fired power station to be constructed near Clover, Virginia in Halifax County. Construction of Unit 1 is complete and it achieved commercial operation on October 7, 1995. Virginia Power's 50 percent share of costs incurred through December 31, 1995 amounted to $500.7 million. Construction of Unit 2 is on schedule for completion in April 1996. Virginia Power expects that completion costs for Unit 2 will total $14 million. 9 In March 1995, the Virginia Supreme Court upheld the May 1994 approval by the Virginia Commission for a 75 mile 500 Kv transmission line from the Clover Power Station to the Carson Substation in Dinwiddie County, Virginia. The transmission line is now under construction and is scheduled for completion in April 1996. VIRGINIA POWER OWNED GENERATION Virginia Power's continuing program to meet future capacity requirements is summarized in the following table: VIRGINIA POWER OWNED GENERATION
SUMMER CAPABILITY EXPECTED NAME OF UNITS MW IN-SERVICE DATE Clover Power Station: Unit 2 416* April 1996
* Includes the 50 percent undivided ownership interest of ODEC. VIRGINIA POWER NON-UTILITY GENERATION
NUMBER OF PROJECTS MW Projects Operational 66 3,295 Projects Financed 1 198 Unfinanced Projects 0 0 Total Contracts 67 3,493
For additional information, see Note P to the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS in the 1995 Annual Report to Shareholders. COMPETITION AND STRATEGIC INITIATIVES In light of existing and potential threats and opportunities brought about by increased competition in the wholesale and retail markets for electricity, Virginia Power has undertaken cost-cutting measures to maintain its position as a low-cost producer of electricity, engaged in re-engineering efforts of its core business processes, and pursued a strategic planning initiative, called Vision 2000, to encourage innovative approaches to serving traditional markets and to prepare appropriate methods by which to service future markets. In furtherance of these initiatives, Virginia Power has established separate business units for its nuclear operations, fossil and hydroelectric operations, commercial operations as well as its energy services business. It has gained regulatory approval of innovative pricing proposals for industrial loads in Virginia and North Carolina, entered into an energy partnership with a key industrial customer, executed long term contracts with wholesale customers, increased its presence in a broader geographic market for wholesale sales of electricity, and acquired an existing energy services business to enhance its national participation in that market. See Note O to the NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS in the 1995 Annual Report to Shareholders. WHOLESALE COMPETITION Virginia Power has established long-term contractual service arrangements with terms of several years in length with all of its major wholesale cooperatives and municipalities. These contracts contain multi-year notice provisions. To date, Virginia Power has not experienced any material loss of load revenue or net income due to competition for its traditional wholesale customers. In 1995 a wholesale power group was formed within Virginia Power to engage in the purchase and sale of wholesale electric power. The group has expanded Virginia Power's trading range beyond the geographic limits of Virginia Power's service territory and has developed trading relationships with utilities throughout the eastern United States. Virginia Power has filed comments in the FERC's Notice of Proposed Rulemaking on Open Access Transmission and will be subject to the final outcome of the rulemaking proceeding. 10 RETAIL COMPETITION At present, competition for retail customers is limited. It arises primarily from the ability of certain business customers to relocate among utility service territories, to substitute other energy sources for electric power and to generate their own electricity. While the Energy Policy Act bans federal orders of transmission service to ultimate customers, broader retail competition that would allow customers to choose among electric suppliers is the subject of intense debate in federal and state forums, both legislative and regulatory. A Retail Energy Services group was formed in July 1995 and has begun developing non-traditional products and services to offer to customers both inside and outside the service territory. These products and services include fuel procurement and risk management services, electrical equipment maintenance, power quality control, on-site turnkey industrial power plant construction, and energy conservation systems. In December 1995, Virginia Power launched the name EVANTAGE(SM) for the retail energy services division to establish a national brand identity for the business. In December 1995, Virginia Power entered into an agreement with a key industrial customer, Chesapeake Paper Products Company, to facilitate the design, construction, and financing of a 38 Mw cogeneration plant, in order to meet Chesapeake's energy requirements for its industrial processes and applied to the Virginia Commission for the necessary approval of these arrangements. To expand the offering of a range of energy services, Virginia Power, in January 1996, acquired two divisions of A&C Enercom of Atlanta, Georgia from Heartland Development Corporation of Madison, Wisconsin. Virginia Power has formed a non-regulated subsidiary, A&C Enercom, Inc., which will provide marketing, program planning and design, customer engineering and energy services consulting to the utility industry. The new subsidiary has approximately 230 employees in 15 offices located in 13 states. In September 1995, the Virginia Commission launched an extensive investigation into restructuring of and competition in the electric utility industry. The scope of the investigation includes consideration of reliability, continuity and stability of rates, fairness to all customers, fairness to investors, and whether truly competitive markets that are in the public interest can be developed. The outcome of the investigation could impact the extent to which retail competition will exist within Virginia. In July 1995, the North Carolina Commission declined to conduct an adversarial proceeding into the question of whether retail competition should be allowed in North Carolina. Instead, it is conducting an informal proceeding to gather information. Virginia Power has initiated new programs aimed at meeting retail customers' needs for increased flexibility and control of their electric costs. Virginia Power has implemented a real time pricing rate experiment for a five year period. The voluntary rate is available to industrial customers with loads in excess of 10 Mw and allows a customer to move up to 20% of its existing load, plus any load growth, to the hourly pricing rate. In 1995 Virginia Power also implemented a self-generation deferral rate for a North Carolina industrial customer, Weyerhauser. As a result of the rate being approved, Virginia Power will serve approximately 25-30 Mw of new load through at least May 1, 1999. The Virginia Commission entered its Final Order on November 27, 1995 in the Company's Petition for Declaratory Judgment against the City of Falls Church. The Petition had been filed in light of Falls Church's municipalization proposal and request for transmission service under Sections 211 and 213 of the Federal Power Act. The Commission ruled that it has jurisdiction over the City and that the City must seek approval from the Commission prior to implementing plans to condemn Company facilities within the City. No other city has communicated to the Company any interest in forming a municipal electric system. CORPORATE RE-ENGINEERING The Vision 2000 strategic planning initiative has generated efforts aimed at improving shareholder value as competitive threats intensify. Re-engineering and remissioning efforts have included reducing the number of operating divisions, consolidating district offices and closing business offices as work practices have been reengineered to reduce costs and promote flexibility. A review of Corporate Center functions has identified several activities that were not core business functions and which were subsequently outsourced to service providers. The Fossil and Hydroelectric Business Unit completed a redesign effort in 1995. Re-engineering and restructuring efforts will continue in the Corporate Center, Commercial Operations Business Unit, and Nuclear Business Unit in an effort to improve Virginia Power's competitive capabilities. 11 REGULATORY/LEGISLATIVE STRATEGY Consistent with implementation of other Vision 2000 efforts, Virginia Power has developed a regulatory/legislative strategy intended to establish an orderly transition to a more competitive environment. The regulatory/legislative proposals are aimed at achieving greater flexibility on the part of Virginia Power and the Virginia Commission in setting overall rate levels as well as in setting rates for individual customers. At this time, Dominion Resources is unable to predict how changing industry conditions may affect future results and it is possible that in order to address changing conditions in ways that are designed to improve the ability of Dominion Resources and Virginia Power to compete and to serve the goal of preserving and enhancing shareholder value, it may be necessary to effect structural changes either within Virginia Power or with respect to the holding company structure, or both. CONSERVATION AND LOAD MANAGEMENT Virginia Power is committed to integrated resource planning and has developed a detailed analysis procedure in which effective demand-side and supply-side options are both considered in order to determine the least cost method to satisfy the customers' needs. Demand-side programs are selected annually at Virginia Power through an integrated resource planning process which directly compares the stream of costs and benefits from supply-side and demand-side options. This process ensures the ultimate selection of a demand-side package which reduces the need for additional capacity while efficiently using Virginia Power's existing generation facilities. ITEM 2. PROPERTIES Dominion Resources owns the building at One James River Plaza, Richmond, Virginia, in which Virginia Power has its principal offices. Dominion Resources' other assets consist primarily of its investments in its subsidiaries, which invest in various enterprises and assets, as described in THE COMPANY under Item 1. BUSINESS above. See also VIRGINIA POWER GENERATING UNITS under VIRGINIA POWER SOURCES OF POWER under Item 1. BUSINESS. ITEM 3. LEGAL PROCEEDINGS From time to time, Virginia Power may be in violation of or in default under orders, statutes, rules or regulations relating to protection of the environment, compliance plans imposed upon or agreed to by Virginia Power or permits issued by various local, state and federal agencies for the construction or operation of facilities. There may be pending from time to time administrative proceedings involving violations of state or federal environmental regulations that Virginia Power believes are not material with respect to it and for which its aggregate liability for fines or penalties will not exceed $100,000. There are no material agency enforcement actions or citizen suits pending or, to Virginia Power's present knowledge, threatened against Virginia Power. Doswell Limited Partnership (Doswell) brought suit against Virginia Power in the Circuit Court of the City of Richmond alleging breach of contract and actual and constructive fraud and seeking damages of not less than $75 million arising out of a disagreement on the calculation of a Fixed Fuel Transportation Charge to be paid to Doswell under a purchased power contract. The issues of actual and constructive fraud were dismissed with prejudice, and on March 6, 1995, the Court entered its opinion in favor of Virginia Power. On March 1, 1996, the Supreme Court of Virginia affirmed the decision of the Circuit Court. On March 8, 1996, Doswell filed notice of its intent to seek a re-hearing. On December 13, 1995, a civil action was instituted in the United States District Court for the Eastern District of Virginia, Norfolk Division, against the City of Norfolk and Virginia Power by a landowner who alleges that his property has been contaminated by toxic pollutants originating on an adjacent property now owned by the city and formerly owned by Virginia Power. The plaintiff seeks compensatory damages of $10 million and punitive damages of $5 million from Virginia Power. Virginia Power and prior owners operated a gas manufacturing plant on the property until 1968, when the plant was closed and dismantled. Virginia Power sold the property to the city in 1970. Virginia Power filed its answer denying liability on January 10, 1996. In reference to the lawsuit filed by Dominion Energy and Dominion Cogen D.C., Inc. (DCDC) and others against the District of Columbia and officials thereof, on August 4, 1995, the court dismissed the complaint against the individual defendants. As a result, the case is proceeding only against the District of Columbia. On August 18, 1995, the District of Columbia served a counterclaim consisting of six counts on Dominion Energy, DCDC and the other plaintiffs. One count alleges damages in restitution of $2.2 million, and each of the other counts alleges compensatory damages of $500,000 and 12 punitive damages of $20 million. On September 11, 1995, Dominion Energy and DCDC and other plaintiffs moved to dismiss all of the counterclaim. That motion has been fully briefed by both sides and is waiting a ruling by the court. On January 26, 1996, the defendant moved to dismiss the plaintiffs' claim that the District of Columbia violated their constitutionally protected contract rights, and the plaintiffs have filed a memorandum opposing this motion. A dispute over corporate governance issues between Dominion Resources and Virginia Power arose in 1994, and the Virginia Commission instituted a proceeding concerning the holding company structure and the relationship between the two companies. This proceeding was continued generally and has been inactive since August 1994, when a related proceeding of broader scope was initiated by the Commission. On February 20, 1995, Dominion Resources, Virginia Power and the Commission Staff consented to an order in this proceeding under which Dominion Resources must obtain the Commission's approval before taking steps such as acting in the place of Virginia Power's Board of Directors or officers, removing Virginia Power's Board members or officers or changing Virginia Power's Articles of Incorporation or Bylaws. The order remains effective until July 2, 1996. On April 12, 1995, the Staff of the Commission and its consultants filed a Final Report, which contains a summary of the proceedings and numerous recommendations by the consultants pertaining to the relationship between the two companies, including recommendations relating to corporate governance issues, operating relationships, including overhead allocations and financial controls, affiliate service arrangements and transactions, compensation to Virginia Power for credit support perceived by the consultants to flow to Dominion Resources and its other subsidiaries, and possible regulatory tools for the Commission. In September 1995, Dominion Resources and Virginia Power each filed responses to the matters addressed in the Final Report. The Staff is scheduled to file its final response by March 15, 1996. At this time, Dominion Resources is unable to predict the ultimate resolution of these matters or their effect on the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. EXECUTIVE OFFICERS OF THE REGISTRANT
NAME AND AGE BUSINESS EXPERIENCE PAST FIVE YEARS Thos. E. Capps (60) Chairman of the Board of Directors, President and Chief Executive Officer from September 1, 1995 to date; Chairman of the Board of Directors and Chief Executive Officer from August 16, 1994 to September 1, 1995; Chairman of the Board of Directors, President and Chief Executive Officer of Dominion Resources from December 30, 1992 to August 16, 1994; President and Chief Executive Officer of Dominion Resources and Vice Chairman of the Virginia Electric and Power Company Board of Directors prior to December 30, 1992. James T. Rhodes (54) President and Chief Executive Officer of Virginia Electric and Power Company. Paul J. Bonavia (44) Senior Vice President-Corporate July 1, 1995 to date; Senior Vice President and General Counsel from January 1, 1995 to July 1, 1995; Vice President and General Counsel of Dominion Resources from February 1, 1994 to January 1, 1995; Vice President-Regulation of Virginia Power from September 1, 1992 to February 1, 1994; Vice President and General Counsel of Dominion Resources from June 3, 1991 to September 1, 1992; Partner in the law firm of Steel, Hector and Davis, Miami, Florida, prior to June 3, 1991.
13
NAME AND AGE BUSINESS EXPERIENCE PAST FIVE YEARS Thomas N. Chewning (50) Senior Vice President from October 1, 1994 to date; Vice President of Dominion Resources from November 15, 1992 to October 1, 1994; Vice President, Treasurer and Corporate Secretary of Virginia Power from October 1, 1991 to November 15, 1992; Vice President and Treasurer, Dominion Energy, Inc.; Vice President and Treasurer, Dominion Lands, Inc. and Vice President-Administration, Dominion Capital, Inc., prior to October 1, 1991. David L. Heavenridge (49) Senior Vice President of Dominion Resources from March 1, 1994 to date; Senior Vice President and Controller of Dominion Resources from April 1, 1992 to March 1, 1994; Vice President and Controller of Dominion Resources prior to April 1, 1992. Linwood R. Robertson (56) Senior Vice President-Finance, Treasurer and Corporate Secretary, January 1, 1995 to date; Vice President-Finance and Treasurer of Dominion Resources from March 1, 1994 to January 1, 1995; Vice President, Treasurer and Assistant Corporate Secretary of Dominion Resources prior to March 1, 1994. Thomas F. Farrell, II (41) Vice President and General Counsel from July 1, 1995 to date; Partner in the law firm of McGuire, Woods, Battle & Boothe, L.L.P. prior to July 1, 1995. Donald T. Herrick, Jr. (52) Vice President of Dominion Resources. Elizabeth A. Martin (36) Vice President-Planning and Investment Analysis of Dominion Resources from July 1, 1995 to date; Vice President-Adminsitration of Dominion Energy from February 1, 1994 to July 1, 1995; Counsel-Dominion Energy from July 1, 1992 to February 1, 1994; Associate in the law firm of Hunton & Williams, Richmond, Virginia prior to July 1, 1992. Everard Munsey (62) Vice President Public Policy of Dominion Resources. James L. Trueheart (44) Vice President and Controller of Dominion Resources from March 1, 1994 to date; Assistant Controller of Dominion Resources from March 15, 1991 to March 1, 1994; Assistant Controller of Virginia Power prior to March 15, 1991.
14 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Dominion Resources common stock is listed on the New York Stock Exchange and at December 31, 1995 there were 233,496 registered common shareholders of record. Quarterly information concerning stock prices and dividends is contained on page 44 of the 1995 Annual Report to Shareholders, for the fiscal year ended December 31, 1995, in Note Q to the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS which is filed herein as Exhibit 13, is hereby incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA This information is contained under the caption "Selected Consolidated Financial Data" on page 19 of the 1995 Annual Report to Shareholders, for the fiscal year ended December 31, 1995, filed herein as Exhibit 13, is hereby incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This information is contained under the caption "Management's Discussion and Analysis of Operations" on pages 21 through 25 and "Management's Discussion and Analysis of Cash Flows and Financial Condition" on pages 29 and 30 of the 1995 Annual Report to Shareholders, for the fiscal year ended December 31, 1995, filed herein as Exhibit 13, is hereby incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA This information is contained in the CONSOLIDATED FINANCIAL STATEMENTS on pages 20, 26 through 28. Notes to the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS on pages 31 through 45 and related report thereon of Deloitte & Touche LLP, independent auditors, appearing on page 47 of the 1995 Annual Report to Shareholders, for the fiscal year ended December 31, 1995, filed herein as Exhibit 13, is hereby incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding the Directors of Dominion Resources contained on pages 2 and 3 of the 1996 Proxy Statement, File No. 1-8489, dated March 11, 1996 is hereby incorporated herein by reference. The information concerning the executive officers of Dominion Resources required by this Item is incorporated by reference to the section in Part I hereof entitled "EXECUTIVE OFFICERS OF THE REGISTRANT." ITEM 11. EXECUTIVE COMPENSATION The information regarding executive and director compensation contained on pages 7 through 17 of the 1996 Proxy Statement is hereby incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information concerning stock ownership by directors and executive officers contained on page 5 of the 1996 Proxy Statement is hereby incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information contained on page 6 of the 1996 Proxy Statement under the caption "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" and on page 18 of the 1996 Proxy Statement concerning certain transactions and relationships of Dominion Resources and its subsidiaries with its executive officers and directors is hereby incorporated herein by reference. 15 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K A. The following documents are filed as part of this Form 10-K. The Consolidated Financial Statements are incorporated herein by reference and are found on the pages noted. 1. FINANCIAL STATEMENTS
1995 ANNUAL REPORT TO SHAREHOLDERS (PAGE) Report of Independent Auditors.............................................................. 47 Consolidated Statements of Income and Retained Earnings for the years ended December 31, 1995, 1994 and 1993...................................... 20 Consolidated Balance Sheets at December 31, 1995 and 1994................................... 26-27 Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993.......................................................... 28 Notes to Consolidated Financial Statements.................................................. 31-45
2. EXHIBITS 3(i) - Articles of Incorporation as in effect May 4, 1987 (Exhibit 3(i), Form 10-K for the fiscal year ended December 31, 1993, File No. 1-8489, incorporated by reference). 3(ii) - Bylaws as in effect on September 21, 1994 (Exhibit 3(ii), Form 10-K for the fiscal year ended December 31, 1994, File No. 1-8489, incorporated by reference). 4(i) - See Exhibit 3(i) above. 4(ii) - Indenture of Mortgage of Virginia Electric and Power Company, dated November 1, 1935, as supplemented and modified by fifty-eight Supplemental Indentures (Exhibit 4(ii), Form 10-K for the fiscal year ended December 31, 1985, File No. 1-2255, incorporated by reference); Fifty-Ninth Supplemental Indenture (Exhibit 4(ii), Form 10-Q for the quarter ended March 31, 1986, File No. 1-2255, incorporated by reference); Sixtieth Supplemental Indenture (Exhibit 4(ii), Form 10-Q for the quarter ended September 30, 1986, File No. 1-2255, incorporated by reference); Sixty-First Supplemental Indenture (Exhibit 4(ii), Form 10-Q for the quarter ended June 30, 1987, File No. 1-2255, incorporated by reference); Sixty-Second Supplemental Indenture (Exhibit 4(ii), Form 8-K, dated November 3, 1987, File No. 1-2255, incorporated by reference); Sixty-Third Supplemental Indenture (Exhibit 4(i), Form 8-K, dated June 8, 1988, File No. 1-2255, incorporated by reference); Sixty-Fourth Supplemental Indenture (Exhibit 4(i), Form 8-K, dated February 8, 1989, File No. 1-2255, incorporated by reference); Sixty-Fifth Supplemental Indenture (Exhibit 4(i), Form 8-K, dated June 22, 1989, File No. 1-2255, incorporated by reference); Sixty-Sixth Supplemental Indenture, (Exhibit 4(i), Form 8-K, dated February 27, 1990, File No. 1 -2255, incorporated by reference); Sixty-Seventh Supplemental Indenture (Exhibit 4(i), Form 8-K, dated April 2, 1991, File No. 1-2255, incorporated by reference); Sixty-Eighth Supplemental Indenture, (Exhibit 4(i)), Sixty-Ninth Supplemental Indenture, (Exhibit 4(ii)) and Seventieth Supplemental Indenture, (Exhibit 4(iii), Form 8-K, dated February 25, 1992, File No. 1-2255, incorporated by reference); Seventy-First Supplemental Indenture (Exhibit 4(i)) and Seventy-Second Supplemental Indenture, (Exhibit 4(ii), Form 8-K, dated July 7, 1992, File No. 1-2255, incorporated by reference); Seventy-Third Supplemental Indenture, (Exhibit 4(i), Form 8-K, dated August 6, 1992, File No. 1-2255, incorporated by reference); Seventy-Fourth Supplemental Indenture (Exhibit 4(i), Form 8-K, dated February 10, 1993, File No. 1-2255, incorporated by reference); Seventy-Fifth Supplemental Indenture, (Exhibit 4(i), Form 8-K, dated April 6, 1993, File No. 1-2255, incorporated by reference); Seventy-Sixth Supplemental Indenture, (Exhibit 4(i), Form 8-K, dated April 21, 1993, File No. 1 -2255, incorporated by reference); Seventy-Seventh Supplemental Indenture, (Exhibit 4(i), Form 8-K, dated June 8, 1993, File No. 1-2255, incorporated by reference); Seventy-Eighth Supplemental Indenture, (Exhibit 4(i), Form 8-K, dated August 10, 1993, File No. 1-2255, incorporated by reference); Seventy-Ninth Supplemental Indenture, (Exhibit 4(i), Form 8-K, dated August 10, 1993, File No. 1-2255, incorporated by reference); Eightieth Supplemental Indenture, (Exhibit 4(i), Form 8-K, dated
16 October 12, 1993, File No. 1-2255, incorporated by reference); Eighty-First Supplemental Indenture, (Exhibit 4(iii), Form 10-K for the fiscal year ended December 31, 1993, File No. 1-2255, incorporated by reference); Eighty-Second Supplemental Indenture, (Exhibit 4(i), Form 8-K, dated January 18, 1994, File No. 1-2255, incorporated by reference); Eighty-Third Supplemental Indenture (Exhibit 4(i), Form 8-K, dated October 19, 1994, File No. 1-2255, incorporated by reference) and Eighty-Fourth Supplemental Indenture (Exhibit 4(i), Form 8-K, dated March 23, 1995, File No. 1-2255, incorporated by reference). 4(iii) - Indenture, dated April 1, 1985, between Virginia Electric and Power Company and Crestar Bank (formerly United Virginia Bank) (Exhibit 4(iv), Form 10-K for the fiscal year ended December 31, 1993, File No. 1-2255, incorporated by reference). 4(iv) - Indenture, dated as of June 1, 1986, between Virginia Electric and Power Company and Chemical Bank (Exhibit 4(v), Form 10-K for the fiscal year ended December 31, 1993, File No. 1-2255, incorporated by reference). 4(v) - Indenture, dated April 1, 1988, between Virginia Electric and Power Company and Chemical Bank, as supplemented and modified by a First Supplemental Indenture, dated August 1, 1989, (Exhibit 4(vi), Form 10-K for the fiscal year ended December 31, 1993, File No. 1-2255, incorporated by reference). 4(vi) - Dominion Resources agrees to furnish to the Commission upon request any other instrument with respect to long-term debt as to which the total amount of securities authorized thereunder does not exceed 10% of Dominion Resources' total assets. 10(i) - Operating Agreement, dated June 17, 1981, between Virginia Electric and Power Company and Monongahela Power Company, the Potomac Edison Company, West Penn Power Company, and Allegheny Generating Company (Exhibit 10(vi), Form 10-K for the fiscal year ended December 31, 1983, File No. 1-8489, incorporated by reference). 10(ii) - Purchase, Construction and Ownership Agreement, dated as of December 28, 1982 but amended and restated on October 17, 1983, between Virginia Electric and Power Company and Old Dominion Electric Cooperative (Exhibit 10(viii), Form 10-K for the fiscal year ended December 31, 1983, File No. 1-8489, incorporated by reference). 10(iii) - Interconnection and Operating Agreement, dated as of December 28, 1982 as amended and restated on October 17, 1983, between Virginia Electric and Power Company and Old Dominion Electric Cooperative (Exhibit 10(ix), Form 10-K for the fiscal year ended December 31, 1983, File No. 1-8489, incorporated by reference). 10(iv) - Nuclear Fuel Agreement, dated as of December 28, 1982 as amended and restated on October 17, 1983, between Virginia Electric and Power Company and Old Dominion Electric Cooperative (Exhibit 10(x), Form 10-K for the fiscal year ended December 31, 1983, File No. 1-8489, incorporated by reference). 10(v) - Credit Agreement, dated as of September 1, 1995, between Chemical Bank and Virginia Electric and Power Company (filed herewith). 10(vi) - Inter-Company Credit Agreement, dated December 20, 1985, as modified on August 21, 1987, between Dominion Resources and Dominion Capital, Inc. (Exhibit 10(vi), Form 10-K for the fiscal year ended December 31, 1993, File No. 1-8489, incorporated by reference). 10(vii) - Inter-Company Credit Agreement, dated October 1, 1987 as amended and restated as of May 1, 1988 between Dominion Resources and Dominion Energy, Inc. (Exhibit 10(vii), Form 10-K for the fiscal year ended December 31, 1993, File No. 1-8489, incorporated by reference). 10(viii) - Inter-Company Credit Agreement, dated as of September 1, 1988 between Dominion Resources and Dominion Lands, Inc. (Exhibit 10(viii), Form 10-K for the fiscal year ended December 31, 1993, File No. 1-8489, incorporated by reference). 10(ix) - Form of Amended and Restated Articles of Partnership in Commendam of Catalyst Old River Hydroelectric Limited Partnership, by and between Catalyst Vidalia Corporation and Dominion Capital, Inc. effective as of August 24, 1990 (Exhibit 10(xii) Form 10-K for the fiscal year ended December 31, 1990, File No. 1-8489, incorporated by reference). 10(x) - Supplemental Funding Agreement, dated as of August 24, 1990, by and among Dominion Capital, Inc., Catalyst Old River Hydroelectric Limited Partnership and First National Bank of Commerce
17 (Exhibit 10(xiii) Form 10-K for the fiscal year ended December 31, 1990, File No. 1-8489, incorporated by reference). 10(xi) - Credit Agreement, dated December 1, 1985, between Virginia Electric and Power Company and Old Dominion Electric Cooperative (Exhibit 10(xix), Form 10-K for the fiscal year ended December 31, 1985, File No. 1-8489, incorporated by reference). 10(xii) - Agreement for Northern Virginia Services, dated as of November 1, 1985, between Potomac Electric Power Company and Virginia Electric and Power Company (Exhibit 10(xxi), Form 10-K for the fiscal year ended December 31, 1985, File No. 1-8489, incorporated by reference). 10(xiii) - Purchase, Construction and Ownership Agreement, dated May 31, 1990, between Virginia Electric and Power Company and Old Dominion Electric Cooperative (Exhibit 10(xi), Form 10-K for the fiscal year ended December 31, 1990, File No. 1 -2255, incorporated by reference). 10(xiv) - Operating Agreement, dated May 31, 1990, between Virginia Electric and Power Company and Old Dominion Electric Cooperative (Exhibit 10(xii), Form 10-K for the fiscal year ended December 31, 1990, File No. 1-2255, incorporated by reference). 10(xv) - Coal-Fired Unit Turnkey Contract (Volume 1), dated April 6, 1989, and the United 2 Amendment (Volume 1), dated May 31, 1990 between Virginia Electric and Power Company and Old Dominion Electric Cooperative, Westinghouse, Black & Veatch, Combustion Engineering and H. B. Zachry (Volumes 2-11 contain technical specifications) (Exhibit 10(xiii), Form 10-K for the fiscal year ended December 31, 1990, File No. 1-2255, incorporated by reference). 10(xvi) - Receivables Purchase Agreement, dated as of December 11, 1991, between Virginia Electric and Power Company and Dynamic Funding Corporation (Exhibit 10(xv), Form 10-K for the fiscal year ended December 31, 1991, File No. 1-2255, incorporated by reference). 10(xvii) - Trust Agreement of Dominion Resources Black Warrior Trust, dated May 31, 1994, among Dominion Black Warrior Basin, Inc., Dominion Resources, Inc., Mellon Bank (DE) National Association and Nationsbank of Texas, N.A. (Exhibit 3.1, Amendment No. 1 to Registration Statement, File No. 33-53513, filed June 1, 1994, incorporated by reference). 10(xviii) - First Amendment of Trust Agreement of Dominion Resources Black Warrior Trust, dated June 27, 1994, among Dominion Black Warrior Basin, Inc., Dominion Resources, Inc., Mellon Bank (DE) National Association and Nationsbank of Texas, N.A. (Exhibit 10(ii), Form 10-Q for the quarter ended June 30, 1994, File No. 1-8489, incorporated by reference). 10(xix)* - Dominion Resources, Inc. Directors' Deferred Compensation Plan, effective July 1, 1986, (Exhibit 10(xx), Form 10-K for the fiscal year end December 31, 1988, File No. 1-8489, incorporated by references.) 10(xx)* - Dominion Resources, Inc. Performance Achievement Plan, effective January 1, 1986, as amended and restated effective February 19, 1988 (Exhibit 10(xxi), Form 10-K for the fiscal year ended December 31, 1988, File No. 1-8489, incorporated by reference). 10(xxi)* - Dominion Resources, Inc. Executive Supplemental Retirement Plan, effective January 1, 1981 as amended and restated effective October 22, 1988 (Exhibit 10(xxii), Form 10-K for the fiscal year ended December 31, 1988, File No. 1-8489, incorporated by reference), amended and restated June 15, 1990 (Exhibit 10(xxiv), Form 10-K for the fiscal year ended December 31, 1990, File No. 1-8489, incorporated by reference). 10(xxii)* - Arrangements with certain executive officers regarding additional credited years of service for retirement and retirement life insurance purposes (Exhibit 10(xxv), Form 10-K for the fiscal year ended December 31, 1991, File No. 1-8489, incorporated by reference). 10(xxiii)* - Dominion Resources, Inc.'s Cash Incentive Plan as adopted December 20, 1991 (Exhibit 10(xxii), Form 10-K for the fiscal year ended December 31, 1991, File No. 1-8489, incorporated by reference). 10(xxiv)* - Dominion Resources, Inc. Long-Term Incentive Plan, effective April 17, 1987 (1987 Proxy Statement, File No. 1-8489, incorporated by reference). 10(xxv)* - Form of Employment Continuity Agreement for certain officers of Dominion Resources (Exhibit (xxvi), Form 10-K for the fiscal year ended December 31, 1994, File No. 1-8489, incorporated by reference).
18 10(xxvi)* - Dominion Resources, Inc. Retirement Benefit Funding Plan, effective June 29, 1990 (Exhibit 10(xxxiii), Form 10-K for the fiscal year ended December 31, 1990, File No. 1-8489, incorporated by reference). 10(xxvii)* - Dominion Resources, Inc. Retirement Benefit Restoration Plan as adopted effective January 1, 1991 (Exhibit 10(xxvii), Form 10-K for the fiscal year ended December 31, 1992, File No. 1-8489, incorporated by reference). 10(xxviii)* - Dominion Resources, Inc. Executives' Deferred Compensation Plan, effective January 1, 1994 (Exhibit 10(xxviii), Form 10-K for the fiscal year ended December 31, 1993, File No. 1-8489, incorporated by reference). 10(xxix)* - Employment Agreement dated April 12, 1995 (Exhibit 10(i), Form 10-Q for the quarter ended March 31, 1995, File No. 1-8489, incorporated by reference) and an Amendment dated September 15, 1995 between Dominion Resources and Thos. E. Capps (Exhibit 10(i), Form 10-Q for the quarter ended September 30, 1995, File No. 1-8489, incorporated by reference). 10(xxx)* - Employment Agreement dated April 12, 1995 (Exhibit 10(i), Form 10-Q for the quarter ended March 31, 1995, File No. 1-8489, incorporated by reference) and an Amendment dated September 15, 1995 between Virginia Power and James T. Rhodes (Exhibit 10(i), Form 10-Q for the quarter ended September 30, 1995, File No. 1-8489, incorporated by reference). 10(xxxi)* - Form of three year Employment Agreement between Dominion Resources and Paul J. Bonavia, David L. Heavenridge and certain other executive officers of Dominion Resources (Exhibit 10(xxxiii), Form 10-K for the fiscal year ended December 31, 1994, File No. 1-8489, incorporated by reference). 10(xxxii)* - Form of two year Employment Agreement between Dominion Resources and certain executive officers (Exhibit 10(xxxiv), Form 10-K for the fiscal year ended December 31, 1994, File No. 1-8489, incorporated by reference). 11 - Computation of Earnings Per Share of Common Stock Assuming Full Dilution (filed herewith). 13 - Portions of the 1995 Annual Report to Shareholders for the fiscal year ended December 31, 1995 (filed herewith). 22 - Subsidiaries of the Registrant (filed herewith). 23(i) - Consent of Hunton & Williams (filed herewith). 23(ii) - Consent of Jackson & Kelly (filed herewith). 23(iii) - Consent of Deloitte & Touche LLP (filed herewith). 27 - Financial Data Schedule (filed herewith). 99(i) - Consent Order by the Virginia State Corporation Commission (Item 5., Form 8-K, dated February 21, 1995, File No. 1-8489, incorporated by reference). 99(ii) - Final Report by the Staff of the Virginia State Corporation Commission (Item 5., Form 8-K, dated April 17, 1995, File No. 1-8489, incorporated by reference).
* Indicates management contract or compensatory plan or arrangement. B. Reports on Form 8-K None 19 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DOMINION RESOURCES, INC. By: THOS. E. CAPPS (Thos. E. Capps, Chairman of the Board of Directors, President and Chief Executive Officer) Date: MARCH 12, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated and on the 12th day of March, 1996.
SIGNATURE TITLE JOHN B. ADAMS, JR. Director John B. Adams, Jr. TYNDALL L. BAUCOM Director Tyndall L. Baucom JOHN B. BERNHARDT Director John B. Bernhardt THOS. E. CAPPS Chairman of the Board of Directors, President (Chief Executive Officer) Thos. E. Capps and Director BENJAMIN J. LAMBERT, III Director Benjamin J. Lambert, III RICHARD L. LEATHERWOOD Director Richard L. Leatherwood HARVEY L. LINDSAY, JR. Director Harvey L. Lindsay, Jr. K. A. RANDALL Director K. A. Randall WILLIAM T. ROOS Director William T. Roos FRANK S. ROYAL Director Frank S. Royal
20
SIGNATURE TITLE JUDITH B. SACK Director Judith B. Sack S. DALLAS SIMMONS Director S. Dallas Simmons Director Robert H. Spilman LINWOOD R. ROBERTSON Senior Vice President (Chief Financial Officer) Linwood R. Robertson J. L. TRUEHEART Vice President and Controller (Principal Accounting Officer) J. L. Trueheart
21 EX-10 2 EXHIBIT 10(V) CONFORMED COPY _______________________________________________________________________________ CREDIT AGREEMENT among VIRGINIA ELECTRIC AND POWER COMPANY The Several Lenders from Time to Time Parties Hereto and CHEMICAL BANK, as Administrative Agent Dated as of September 1, 1995 _______________________________________________________________________________ TABLE OF CONTENTS
Page SECTION 1. DEFINITIONS ....................................................... 1 1.1 Defined Terms ...................................................... 1 1.2 Other Definitional Provisions ...................................... 10 SECTION 2. AMOUNT AND TERMS OF THE CREDIT FACILITIES ......................... 11 2.1 The Commitments .................................................... 11 2.2 Procedure for Revolving Credit Borrowing ........................... 11 2.3 Facility Fee ....................................................... 11 2.4 Termination or Reduction of Commitments ............................ 12 2.5 Repayment of Loans; Evidence of Debt ............................... 12 2.6 Optional Prepayments ............................................... 13 2.7 Conversion and Continuation Options ................................ 13 2.8 Minimum Amounts and Maximum Number of Tranches ..................... 13 2.9 The Competitive Loans .............................................. 14 2.10 Procedure for and Payment of Competitive Loan Borrowing ............ 14 2.11 Interest Rates and Payment Dates ................................... 17 2.12 Computation of Interest and Fees ................................... 18 2.13 Inability to Determine Interest Rate ............................... 18 2.14 Pro Rata Treatment and Payments .................................... 19 2.15 Illegality ......................................................... 20 2.16 Additional Costs .................................................. 20 2.17 Taxes .............................................................. 21 2.18 Indemnity .......................................................... 24 2.19 Change of Lending Office ........................................... 24 2.20 Replacement of Lenders under Certain Circumstances ................. 24 SECTION 3. REPRESENTATIONS AND WARRANTIES .................................... 25 3.1 Financial Condition ................................................ 25 3.2 No Change .......................................................... 26 3.3 Corporate Existence; Compliance with Law ........................... 26 3.4 Corporate Power; No Legal Bar ...................................... 26 3.5 Authorization; Enforceability ...................................... 26 3.6 ERISA .............................................................. 26 3.7 No Material Litigation ............................................. 26 3.8 Taxes .............................................................. 27 3.9 Purpose of Loans ................................................... 27 SECTION 4. CONDITIONS PRECEDENT .............................................. 27 4.1 Conditions to Initial Loans ........................................ 27 4.2 Conditions to Each Loan ............................................ 28 SECTION 5. COVENANTS ......................................................... 28 5.1 Financial Statements ............................................... 28 5.2 Conduct of Business and Compliance ................................. 29 5.3 Books and Records .................................................. 29 5.4 Notices ............................................................ 30 5.5 Limitation on Liens ................................................ 30 5.6 Limitation on Fundamental Changes .................................. 30 5.7 Limitation on Guarantee Obligations ................................ 30 5.8 Maintenance of Net Worth ........................................... 31 SECTION 6. EVENTS OF DEFAULT ................................................. 31 SECTION 7. THE ADMINISTRATIVE AGENT .......................................... 33 7.1 Appointment ........................................................ 33 7.2 Delegation of Duties ............................................... 33 7.3 Exculpatory Provisions ............................................. 33 7.4 Reliance by Administrative Agent ................................... 34 7.5 Notice of Default .................................................. 34 7.6 Non-Reliance on Administrative Agent and Other Lenders ............. 34 7.7 Indemnification .................................................... 35 7.8 Administrative Agent in Its Individual Capacity .................... 35 7.9 Successor Administrative Agent ..................................... 35 SECTION 8. MISCELLANEOUS ..................................................... 36 8.1 Amendments and Waivers ............................................. 36 8.2 Notices ............................................................ 36 8.3 No Waiver; Cumulative Remedies ..................................... 37 8.4 Survival ........................................................... 37 8.5 Payment of Expenses ................................................ 37 8.6 Transfer Provisions ................................................ 38 8.7 Adjustments ........................................................ 39 8.8 Counterparts ....................................................... 40 8.9 Severability ....................................................... 40 8.10 Integration ........................................................ 40 8.11 GOVERNING LAW ...................................................... 40 8.12 WAIVERS OF JURY TRIAL .............................................. 40 8.13 Confidentiality .................................................... 40 SCHEDULES I Lending Offices and Commitments II Facility Fee/Applicable Margin III Permitted Guarantee Obligations
EXHIBITS A-1 Form of Revolving Credit Note A-2 Form of Competitive Loan Note B-1 Form of Competitive Loan Confirmation B-2 Form of Competitive Loan Offer B-3 Form of Competitive Loan Request C Form of Closing Certificate D-1 Form of Legal Opinion of General Counsel of the Borrower D-2 Form of Legal Opinion of Simpson Thacher & Bartlett E Form of Assignment and Acceptance CREDIT AGREEMENT, dated as of September 1, 1995, among VIRGINIA ELECTRIC AND POWER COMPANY, a Virginia public service corporation (the "Borrower"), the several banks and other financial institutions from time to time parties to this Agreement (the "Lenders") and Chemical Bank, a New York banking corporation, as administrative agent for the Lenders hereunder (in such capacity, the "Administrative Agent"). WITNESSETH: The parties hereto hereby agree as follows: SECTION 1. DEFINITIONS 1.1 Defined Terms. As used in this Agreement, the following terms shall have the following meanings: "ABR": for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the ABR due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective as of the opening of business on the effective day of such change in the Prime Rate or the Federal Funds Effective Rate. "ABR Loans": Revolving Credit Loans the rate of interest applicable to which is the ABR. "Additional Costs": as defined in subsection 2.16(a). "Affiliate": as to any Person, any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" of a Person means the power, directly or indirectly, either to (a) vote 10% or more of the securities having ordinary voting power for the election of directors of such Person or (b) direct or cause the direction of the management and policies of such Person, whether by contract or otherwise. "Agreement": this Credit Agreement, as amended, supplemented or otherwise modified from time to time. "Applicable Lending Office": each Lender's lending office designated in Schedule I or such other office of such Lender notified to the Administrative Agent and Borrower. "Applicable Margin": the rate per annum set forth in Schedule II under the applicable S&P Bond Rating and Moody's Bond Rating. "Assignee": as defined in subsection 8.6(c). "Board": the Board of Governors of the Federal Reserve System (or any successor). "Borrowing Date": any Business Day specified in a notice given by the Borrower pursuant to subsection 2.2 or 2.10 as a date on which the Loans are to be made hereunder. "Business Day": a day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close, except that, when used in connection with a LIBOR Loan or LIBOR Competitive Loan, the term "Business Day" shall mean any Business Day on which dealings in foreign currencies and exchange between banks may be carried on in London, England and New York, New York. "CD Assessment Rate": for any day as applied to any CD Rate Loan, the annual assessment rate in effect on such day which is payable by a member of the Bank Insurance Fund maintained by the Federal Deposit Insurance Corporation (the "FDIC") classified as well-capitalized and within supervisory subgroup "B" (or a comparable successor assessment risk classification) within the meaning of 12 C.F.R. (S) 327.4(a) (or any successor provision) to the FDIC (or any successor) for the FDIC's (or such successor's) insuring time deposits at offices of such institution in the United States. "CD Base Rate": with respect to each day during each Interest Period pertaining to a CD Rate Loan, the rate of interest per annum determined by the Agent to be the rate notified to the Agent by Chemical as the average rate bid at 9:00 A.M., New York City time, or as soon thereafter as practicable, on the first day of such Interest Period by a total of three certificate of deposit dealers of recognized standing selected by Chemical for the purchase at face value from Chemical of its certificates of deposit in an amount comparable to the CD Rate Loan of Chemical to which such Interest Period applies and having a maturity comparable to such Interest Period. "CD Rate": with respect to each day during each Interest Period pertaining to a CD Rate Loan, a rate per annum determined for such day in accordance with the following formula (rounded upward to the nearest l/lOOth of 1%): CD Base Rate + CD Assessment Rate 1.00 - CD Reserve Percentage "CD Rate Loans": Loans the rate of interest applicable to which is based upon the CD Rate. "CD Reserve Percentage": for any day as applied to any CD Rate Loan, that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board, for determining the maximum reserve requirement for a Depositary Institution (as defined in Regulation D of the Board) in respect of new non-personal time deposits in Dollars having a maturity comparable to the Interest Period for such CD Rate Loan. 2 "Chemical": Chemical Bank. "Closing Date": the date on which the conditions precedent set forth in subsection 4.1 shall be satisfied or waived in accordance with subsection 8.1. "Code": the Internal Revenue Code of 1986, as amended from time to time. "Commitment": as to any Lender, the obligation of such Lender to make Revolving Credit Loans in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Lender's name on Schedule I, as such amount may be changed from time to time in accordance with this Agreement. "Commitment Percentage": as to any Lender at any time, the percentage which such Lender's Commitment then constitutes of the aggregate Commitments (or, at any time after the Commitments shall have expired or terminated, the percentage which the aggregate principal amount of such Lender's Loans then outstanding constitutes of the aggregate principal amount of the Loans then outstanding). "Commitment Period": the period from and including the Closing Date to but not including the Termination Date or such earlier date on which the Commitments shall terminate as provided herein. "Commonly Controlled Entity": an entity, whether or not incorporated, which is under common control with the Borrower within the meaning of Section 4001 of ERISA or is part of a group which includes the Borrower and which is treated as a single employer under Section 414 of the Code. "Competitive Loan Confirmation": each confirmation by the Borrower of its acceptance of Competitive Loan Offers, which Competitive Loan Confirmation shall be substantially in the form of Exhibit B-l and shall be delivered to the Administrative Agent in writing or by facsimile transmission. "Competitive Loan Lender": each Lender that has agreed to offer to make Competitive Loans hereunder and each other Lender that shall hereafter become a Competitive Loan Lender in accordance with the provisions of subsection 8.6 "Competitive Loan Maturity Date": as to any Competitive Loan, the date specified by the Borrower pursuant to subsection 2.10(d)(ii) in its acceptance of the related Competitive Loan Offer. "Competitive Loan Note": as defined in subsection 2.10(i). "Competitive Loan Offer": each offer by a Competitive Loan Lender to make Competitive Loans pursuant to a Competitive Loan Request, which Competitive Loan Offer shall contain the information specified in Exhibit B-2 and shall be delivered to the Administrative Agent by telephone, immediately confirmed by facsimile transmission. 3 "Competitive Loan Request": each request by the Borrower for Competitive Loans, which request shall contain the information specified in Exhibit B-3 and shall be delivered to the Administrative Agent in writing or by facsimile transmission, or by telephone, immediately confirmed by facsimile transmission. "Competitive Loan": each loan made pursuant to subsection 2.9. "Consolidated Net Worth": as of the date of determination, all items which in conformity with GAAP would be included under stockholders' equity on a consolidated balance sheet of the Borrower and its consolidated Subsidiaries, if any, at such date, including preferred stock issued by the Borrower. "Default": any of the events specified in Section 6, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "Dollars" and "$": dollars in lawful currency of the United States of America. "Dominion Resources": Dominion Resources, Inc., a Virginia corporation. "ERISA": the Employee Retirement Income Security Act of 1974, as amended from time to time. "Eurocurrency Reserve Requirements": for any day as applied to a LIBOR Loan or a LIBOR Competitive Loan, as the case may be, the aggregate (without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board) maintained by a member bank of the Federal Reserve System. "Event of Default": any of the events specified in Section 6, provided that any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "Facility Fee Rate": the rate per annum set forth in Schedule II under the applicable S&P Bond Rating and Moody's Bond Rating. "Federal Funds Effective Rate": for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. 5 "First Mortgage Bond Indenture": the first mortgage bond indenture, dated November 1, 1935, by and between the Company and Chase Manhattan Bank, as supplemented and amended. "Fixed Rate Competitive Loan Request": any Competitive Loan Request requesting the Competitive Loan Lenders to offer to make Fixed Rate Competitive Loans. "Fixed Rate Competitive Loans": Competitive Loans the rate of interest applicable to which is equal to a fixed percentage rate per annum specified by the Competitive Loan Lender making such Loan in its Competitive Loan Offer (as opposed to a rate composed of LIBOR plus or minus a margin). "GAAP": generally accepted accounting principles in the United States of America in effect from time to time. "Governmental Authority": any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guarantee Obligation": as to any Person (the "guaranteeing person"), any obligation of: (a) the guaranteeing person or (b) another Person (including, without limitation, any bank under any letter of credit), when the creation of such obligation was induced by a reimbursement, counterindemnity or similar obligation issued by the guaranteeing person, in either case guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other obligations (the "primary obligations") of any other third Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of the guaranteeing person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (1) for the purchase or payment of any such primary obligation or (2) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided, however, that the term Guarantee Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made and (b) the maximum amount for which such guaranteeing person 6 may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, unless such primary obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Guarantee Obligation shall be such guaranteeing person's maximum reasonably anticipated liability in respect thereof as determined by the Borrower in good faith. "Indebtedness": of any Person at any date, (a) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (other than current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices), (b) any other indebtedness of such Person which is evidenced by a note, bond, debenture or similar instrument, (c) all obligations of such Person as lessee which are capitalized in accordance with GAAP, (d) all obligations of such Person in respect of acceptances issued or created for the account of such Person and (e) all liabilities secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof. "Interest Payment Date": (a) as to any ABR Loan, the last day of each March, June, September and December and the Termination Date, (b) as to any LIBOR Loan having an Interest Period of three months or less and any CD Rate Loan having an lnterest Period of 90 days or less, the last day of such Interest Period, (c) as to any LIBOR Loan or CD Rate Loan having an Interest Period longer than three months or 90 days, respectively, each day which is three months or 90 days, respectively, or a whole multiple thereof, after the first day of such Interest Period and the last day of such Interest Period, (d) as to any Fixed Rate Competitive Loan, each interest payment date specified by the Borrower for such Loan in the related Competitive Loan Request (including, in any event, the applicable Competitive Loan Maturity Date) and (e) as to any LIBOR Competitive Loan, (i) the applicable Competitive Loan Maturity Date and (ii) each date (if any) occurring prior to such Competitive Loan Maturity Date which is three months, or a whole multiple thereof, after the Borrowing Date in respect of such Loan "Interest Period": (a) with respect to any LIBOR Loan: (i) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such LIBOR Loan and ending one, two, three, six or, to the extent available as determined by the Administrative Agent, nine or twelve months thereafter, as selected by the Borrower in its notice of borrowing or notice of conversion, as the case may be, given with respect thereto; and (ii) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such LIBOR Loan and ending one, two, three, six or, to the extent available as determined by the Administrative Agent, nine or twelve months thereafter, as selected by the Borrower by irrevocable 7 notice to the Administrative Agent not less than three Business Days prior to the last day of the then current Interest Period with respect thereto; and (b) with respect to any CD Rate Loan: (i) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such CD Rate Loan and ending 30, 60, 90 or 180 days thereafter, as selected by the Borrower in its notice of borrowing or notice of conversion, as the case may be, given with respect thereto; and (ii) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such CD Rate Loan and ending 30, 60, 90 or 180 days thereafter, as selected by the Borrower by irrevocable notice to the Agent not less than three Business Days prior to the last day of the then current Interest Period with respect thereto; and (c) with respect to any LIBOR Competitive Loan, the period specified in the Competitive Loan Request for the LIBOR Competitive Loan with the maturity date corresponding to the LIBOR Competitive Loan accepted by the Borrower in the Competitive Loan Confirmation; provided that, all of the foregoing provisions relating to Interest Periods are subject to the following: (1) if any Interest Period pertaining to a LIBOR Loan would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day; (2) if any Interest Period pertaining to a CD Rate Loan would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day; (3) any Interest Period that would otherwise extend beyond the Termination Date shall end on the Termination Date; (4) any Interest Period pertaining to a LIBOR Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month; and (5) the Borrower shall select Interest Periods so as not to require a payment or prepayment of any LIBOR Loan or CD Rate Loan during an Interest Period for such Loan. 8 "LIBOR": with respect to each day during each Interest Period pertaining to a LIBOR Loan or a LIBOR Competitive Loan, the rate per annum equal to the rate at which Chemical is offered Dollar deposits at or about 11:00 A.M., London time, two Business Days prior to the beginning of such Interest Period, in the London interbank eurodollar market where the eurodollar and foreign currency and exchange operations in respect of its LIBOR Loans are then being conducted, for delivery on the first day of such Interest Period for the number of days comprised therein and in an amount comparable to the amount of its LIBOR Loan (or, in the case of a LIBOR Competitive Loan, an amount that would have been Chemical's portion of such LIBOR Competitive Loan had such Loan been a LIBOR Loan) to be outstanding during such Interest Period. "LIBOR Competitive Loan": Competitive Loans the rate of interest applicable to which is equal to LIBOR plus or minus a margin. "LIBOR Competitive Loan Request": any Competitive Loan Request requesting the Competitive Loan Lenders to offer to make LIBOR Competitive Loans. "LIBOR Loans": Revolving Credit Loans the rate of interest applicable to which is based upon LIBOR. "Lien": any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement and any capitalized lease obligation having substantially the same economic effect as any of the foregoing). "Loan": any Revolving Credit Loan or Competitive Loan made by any Lender pursuant to this Agreement. "Loan Documents": this Agreement and any Notes. "Majority Lenders": at any time, Lenders the Commitment Percentages of which aggregate more than 50%. "Material Subsidiary": means a Subsidiary of the Borrower whose total assets, as determined in accordance with GAAP, represent at least 20% of the total assets of the Borrower, on a consolidated basis, as determined in accordance with GAAP. "Moody's Bond Rating" means for any day, the rating of the Borrower's senior secured long-term debt or if there is no senior secured debt, the Borrower's senior long-term unsecured debt by Moody's Investor Service, Inc. in effect at 11:00 A.M., New York City time, on such day. "Non-Excluded Taxes": as defined in subsection 2.17(a). 9 "Notes": the collective reference to the Revolving Credit Notes and the Competitive Loan Notes. "Participant": as defined in subsection 8.6(b). "PBGC": the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA. "Person": an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "Plan": at a particular time, any employee benefit plan which is covered by ERISA and in respect of which the Borrower or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Prime Rate": the rate of interest per annum publicly announced from time to time by Chemical as its prime rate in effect at its principal office in New York City (the Prime Rate not being intended to be the lowest rate of interest charged by Chemical in connection with extensions of credit to debtors). "Register": as defined in subsection 8.6(d) "Regulatory Change": shall mean, as to any Lender, any change occurring or taking effect after the date of this Agreement in Federal, state, local or foreign laws or regulations, or the adoption or making or taking effect after such date of any interpretations, directives, or requests applying to a class of lenders including the Lenders of or under any Federal, state, local or foreign laws or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof. "Requirement of Law": as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Responsible Officer": the President, any Vice President, the Treasurer or any Assistant Treasurer of the Borrower. "Revolving Credit Loans": as defined in subsection 2.1. "Revolving Credit Note": as defined in subsection 2.5(e). 10 "S&P Bond Rating" means for any day, the rating of the Borrower's senior secured long-term debt or if there is no senior secured debt, the Borrower's senior long-term unsecured debt by Standard & Poor's Ratings Group in effect at 11:00 A.M., New York City time, on such day. "Subsidiary": as to any Person, a corporation, partnership or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower. "Termination Date": July 31, 2000. "Tranche": the collective reference to LIBOR Loans or CD Rate Loans the then current Interest Periods with respect to all of which begin on the same date and end on the same later date (whether or not such Loans shall originally have been made on the same day); Tranches may be identified as "LIBOR Tranches" or "CD Rate Tranches", as applicable. "Transferee": as defined in subsection 8.6(f). "Type": (a) as to any Revolving Credit Loan, its nature as an ABR Loan, a CD Rate Loan or a LIBOR Loan and (b) as to any Competitive Loan, its nature as a Fixed Rate Competitive Loan or a LIBOR Competitive Loan. 1.2 Other Definitional Provisions. (a) Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in the Notes or any certificate or other document made or delivered pursuant hereto or thereto. (b) As used herein and in the Notes and any certificate or other document made or delivered pursuant hereto or thereto, accounting terms relating to the Borrower and its Subsidiaries not defined in subsection 1.1 and accounting terms partly defined in subsection 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP, and the parties hereto agree that upon any change to GAAP that has the effect of materially altering any of the terms herein, the parties hereto will negotiate in good faith to amend the terms affected thereby to place the parties in a position as nearly equivalent as possible to what existed prior to such change to GAAP. (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, subsection Schedule and Exhibit references are to this Agreement unless otherwise specified. 11 (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. SECTION 2. AMOUNT AND TERMS OF THE CREDIT FACILITIES 2.1 The Commitments. (a) Subject to the terms and conditions hereof, each Lender severally agrees to make revolving credit loans ("Revolving Credit Loans") to the Borrower from time to time during the Commitment Period in an aggregate principal amount at any one time outstanding not to exceed the amount of such Lender's Commitment. During the Commitment Period the Borrower may use the Commitments by borrowing, prepaying the Revolving Credit Loans in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof, Notwithstanding anything to the contrary in this Agreement, in no event may Revolving Credit Loans be borrowed under this Section 2 if, after giving effect thereto, the aggregate principal amount of the Loans then outstanding would exceed the aggregate Commitments then in effect. (b) The Revolving Credit Loans may from time to time be (i) LIBOR Loans, (ii) ABR Loans, (iii) CD Rate Loans or (iv) a combination thereof, as determined by the Borrower and notified to the Agent in accordance with subsections 2.2 and 2.7, provided that no Revolving Credit Loan shall be made as a LIBOR Loan or a CD Rate Loan after the day that is one month or 30 days, respectively, prior to the Termination Date. 2.2 Procedure for Revolving Credit Borrowing. The Borrower may borrow under the Commitments during the Commitment Period on any Business Day, provided that the Borrower shall give the Administrative Agent irrevocable written notice, which notice must be received by the Administrative Agent prior to (a) 12:00 P.M., New York City time, three Business Days prior to the requested Borrowing Date, in the case of LIBOR Loans or CD Rate Loans, or (b) 10:30 A.M. New York City time, on the requested Borrowing Date, in the case of ABR Loans. Each such notice shall specify (i) the amount to be borrowed, (ii) the requested Borrowing Date, (iii) whether the borrowing is to be of ABR Loans, CD Rate Loans, LIBOR Loans, or a combination thereof and (iv) if the borrowing is to be entirely or partly of LIBOR Loans or CD Rate Loans, the respective lengths of the initial Interest Periods therefor. Each borrowing under the Commitments shall be in an amount equal to $10,000,000 or a whole multiple of $1,000,000 in excess thereof. Upon receipt of any such notice from the Borrower, the Administrative Agent shall promptly notify each Lender thereof. Each Lender will make the amount of its pro rata share of each borrowing available to the Administrative Agent for the account of the Borrower at the office of the Administrative Agent specified in subsection 8.2 prior to 2:00 P.M., New York City time, on the Borrowing Date requested by the Borrower in funds immediately available to the Administrative Agent. Such borrowing will then be made available to the Borrower by the Administrative Agent crediting the account of the Borrower on the books of such office with the aggregate of the amounts made available to the Administrative Agent by the Lenders and in like funds as received by the Administrative Agent. 2.3 Facility Fee. The Borrower agrees to pay to the Administrative Agent for the account of each Lender a facility fee for the period from and including the first day of the 12 Commitment Period to the Termination Date, computed at the Facility Fee Rate on the average daily amount of the Commitment (whether used or unused) of such Lender during the period for which payment is made, payable quarterly in arrears on the last day of each March, June, September and December and on the date on which the Commitments shall terminate as provided herein, commencing on the first of such dates to occur after the date hereof. 2.4 Termination or Reduction of Commitments. The Borrower may, upon not less than three Business Days' written notice to the Administrative Agent, terminate or reduce the unutilized amount of the Commitments. Any reduction of the Commitments shall be in an amount equal to $10,000,000 or a whole multiple of $1,000,000 in excess thereof and shall reduce permanently the Commitments then in effect. 2.5 Repayment of Loans; Evidence of Debt. (a) The Borrower hereby unconditionally promises to pay to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Revolving Credit Loan of such Lender on the Termination Date (or such earlier date on which the Revolving Credit Loans become due and payable pursuant to Section 6). The Borrower hereby further agrees to pay interest on the unpaid principal amount of the Loans from time to time outstanding from the date hereof until payment in full thereof at the rates per annum, and on the dates, set forth in subsection 2.11. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing indebtedness of the Borrower to such Lender resulting from each Loan of such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time under this Agreement. (c) The Administrative Agent shall maintain the Register pursuant to subsection 8.6(d), and a subaccount therein for each Lender, in which shall be recorded (i) the amount of each Loan made hereunder, the Type thereof and each Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) both the amount of any sum received by the Administrative Agent hereunder from the Borrower and each Lender's share thereof. (d) The entries made in the Register and the accounts of each Lender maintained pursuant to subsection 2.5(b) shall, to the extent permitted by applicable law, be prima facie evidence of the existence and amounts of the obligations of the Borrower therein recorded: provided, however, that the failure of any Lender or the Administrative Agent to maintain the Register or any such account, or any error therein, shall not in any manner affect the obligation of the Borrower to repay (with applicable interest) the Loans made to such Borrower by such Lender in accordance with the terms of this Agreement. (e) The Borrower agrees that, upon the request to the Administrative Agent by any Lender, the Borrower will execute and deliver to such Lender a promissory note of the Borrower evidencing the Revolving Credit Loans of such Lender, substantially in the form of Exhibit A-1 with appropriate insertions as to date and principal amount (a "Revolving Credit Note"). 13 2.6 Optional Prepayments. The Borrower may at any time and from time to time prepay the Revolving Credit Loans, in whole or in part, without premium or penalty, upon at least four Business Days' irrevocable notice to the Administrative Agent. Each such notice shall specify the date and amount of prepayment and whether the prepayment is of ABR Loans, CD Rate Loans, LIBOR Loans, or a combination thereof, and, if of a combination thereof, the amount allocable to each. Upon receipt of any such notice the Administrative Agent shall promptly notify each Lender thereof. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein, together with any amounts payable pursuant to subsection 2.18. Partial prepayments shall be in an aggregate principal amount of $10,000,000 or a whole multiple of $1,000,000 in excess thereof. Prepayments of the Competitive Loans shall not be permitted. 2.7 Conversion and Continuation Options. (a) The Borrower may elect from time to time to convert LIBOR Loans or CD Rate Loans to ABR Loans, by giving the Administrative Agent at least one Business Day's prior irrevocable notice of such election, provided that any such conversion of LIBOR Loans or CD Rate Loans may only be made on the last day of an Interest Period with respect thereto. The Borrower may elect from time to time to convert ABR Loans or CD Rate Loans to LIBOR Loans, and/or to convert LIBOR Loans or ABR Loans to CD Rate Loans, by giving the Administrative Agent at least three Business Days' prior irrevocable notice of such election, provided that any such conversion of LIBOR Loans or CD Rate Loans may only be made on the last day of an Interest Period with respect thereto. Any such notice of conversion to LIBOR Loans or CD Rate Loans shall specify the length of the initial Interest Period or Interest Periods therefor. Upon receipt of any such notice the Administrative Agent shall promptly notify each Lender thereof. All or any part of outstanding LIBOR Loans, ABR Loans and CD Rate Loans may be converted as provided herein, provided that (i) no Loan may be converted into a LIBOR Loan or a CD Rate Loan when any Event of Default has occurred and is continuing and the Administrative Agent has or the Majority Lenders have determined that such a conversion is not appropriate and (ii) no Loan may be converted into a LIBOR Loan or a CD Rate Loan after the date that is one month or 30 days, respectively, prior to the Termination Date. (b) Any LIBOR Loans or CD Rate Loans may be continued as such upon the expiration of the then current Interest Period with respect thereto by the Borrower giving notice to the Administrative Agent, in accordance with the applicable provisions of the term "Interest Period" set forth in subsection 1.1, of the length of the next Interest Period to be applicable to such Loans, provided that no LIBOR Loan or CD Rate Loan may be continued as such (i) when any Event of Default has occurred and is continuing and the Agent has or the Majority Lenders have determined that such a continuation is not appropriate or (ii) after the date that is one month or 30 days prior to, respectively, the Termination Date and provided, further, that if the Borrower shall fail to give such notice or if such continuation is not permitted such Loans shall be automatically converted to ABR Loans on the last day of such then expiring Interest Period. 2.8 Minimum Amounts and Maximum Number of Tranches. All borrowings, prepayments, conversions and continuations of Loans hereunder and all selections of Interest Periods hereunder shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, the aggregate principal amount of the Loans comprising each LIBOR 14 Tranche or each CD Rate Tranche shall be equal to $10,000,000 or a whole multiple of $1,000,000 in excess thereof. In no event shall there be more than 5 LIBOR Tranches or 5 CD Rate Tranches outstanding at any time. 2.9 The Competitive Loans. Subject to the terms and conditions of this Agreement, the Borrower may borrow Competitive Loans in Dollars from time to time on any Business Day during the period from the date hereof through the date 14 days prior to the Termination Date; provided, that in no event may Competitive Loans be borrowed hereunder if, after giving effect thereto the aggregate principal amount of Loans then outstanding would exceed the aggregate Commitments then in effect. Within the limits and on the conditions herein set forth with respect to Competitive Loans, the Borrower from time to time may borrow, repay and reborrow Competitive Loans. 2.10 Procedure for and Payment of Competitive Loan Borrowing. (a) The Borrower shall request Competitive Loans by delivering a Competitive Loan Request to the Administrative Agent, not later than 2:00 P.M. (New York City time) four Business Days prior to the proposed Borrowing Date (in the case of a LIBOR Competitive Loan Request), and not later than 1:00.P.M. (New York City time) one Business Day prior to the proposed Borrowing Date (in the case of a Fixed Rate Competitive Loan Request). Each Competitive Loan Request may solicit bids for Competitive Loans in an aggregate principal amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof and having not more than three alternative maturity dates. The maturity date for each Fixed Rate Competitive Loan shall be not less than 14 days nor more than 180 days after the Borrowing Date therefor and the maturity date for each LIBOR Competitive Loan shall be not less than one month nor more than six months after the Borrowing Date therefor, and in any event shall be not later than the Termination Date. The Administrative Agent shall notify each Competitive Loan Lender promptly by facsimile transmission of the contents of each Competitive Loan Request received by the Administrative Agent. (b) In the case of a LIBOR Competitive Loan Request, upon receipt of notice from the Administrative Agent of the contents of such Competitive Loan Request, each Competitive Loan Lender may elect, in its sole discretion, to offer irrevocably, subject to Section 4, to make one or more Competitive Loans at LIBOR plus or minus a margin determined by such Competitive Loan Lender in its sole discretion for each such Competitive Loan. Any such irrevocable offer shall be made by delivering a Competitive Loan Offer to the Administrative Agent, before 10:30 A.M. (New York City time) on the day that is three Business Days before the proposed Borrowing Date, setting forth: (i) the maximum amount of Competitive Loans for each maturity date and the aggregate maximum amount of Competitive Loans for all maturity dates which such Competitive Loan Lender would be willing to make (which amounts may, subject to subsection 2.9, exceed such Competitive Loan Lender's Commitment); and (ii) the margin above or below LIBOR at which such Competitive Loan Lender is willing to make each such Competitive Loan. 15 The Administrative Agent shall advise the Borrower before 11:00 A.M. (New York City time) on the date which is three Business Days before the proposed Borrowing Date of the contents of each such Competitive Loan Offer received by it. If the Administrative Agent, in its capacity as a Competitive Loan Lender, shall elect, in its sole discretion, to make any such Competitive Loan Offer, it shall advise the Borrower of the contents of its Competitive Loan Offer before 10:15 A.M. (New York City time) on the date which is three Business Days before the proposed Borrowing Date. (c) In the case of a Fixed Rate Competitive Loan Request upon receipt of notice from the Administrative Agent of the contents of such Competitive Loan Request, each Competitive Loan Lender may elect, in its sole discretion, to offer irrevocably, subject to Section 4, to make one or more Competitive Loans at a rate of interest determined by such Competitive Loan Lender in its sole discretion for each such Competitive Loan. Any such irrevocable offer shall be made by delivering a Competitive Loan Offer to the Administrative Agent before 9:30 A.M. (New York City time) on the proposed Borrowing Date, setting forth: (i) the maximum amount of Competitive Loans for each maturity date, and the aggregate maximum amount for all maturity dates, which such Competitive Loan Lender would be willing to make (which amounts may, subject to subsection 2.9, exceed such Competitive Loan Lender's Revolving Credit Commitment); and (ii) the rate of interest at which such Competitive Loan Lender is willing to make each such Competitive Loan. The Administrative Agent shall advise the Borrower before 10:00 A.M. (New York City time) on the proposed Borrowing Date of the contents of each such Competitive Loan Offer received by it. If the Administrative Agent, in its capacity as a Competitive Loan Lender, shall elect, in its sole discretion, to make any such Competitive Loan Offer, it shall advise the Borrower of the contents of its Competitive Loan Offer before 9:15 A.M. (New York City time) on the proposed Borrowing Date. (d) Before 12:00 P.M. (New York City time) three Business Days before the proposed Borrowing Date (in the case of LIBOR Competitive Loans) and before 10:30 A.M. (New York City time) on the proposed Borrowing Date (in the case of Fixed Rate Competitive Loans), the Borrower, in its absolute discretion, shall: (i) cancel such Competitive Loan Request by giving the Administrative Agent telephone notice to that effect, or (ii) by giving telephone notice to the Administrative Agent (immediately confirmed by delivery to the Administrative Agent of a Competitive Loan Confirmation in writing or by facsimile transmission) (1) subject to the provisions of subsection 2.10(e), accept one or more of the offers made by any Competitive Loan Lender or Competitive Loan Lenders of the amount of Competitive Loans for each relevant maturity date and (2) reject any remaining offers made by Competitive Loan Lenders. 16 (e) The Borrower's acceptance of Competitive Loans in response to any Competitive Loan Request shall be subject to the following limitations: (i) The amount of Competitive Loans accepted for each maturity date specified by any Competitive Loan Lender in its Competitive Loan Offer shall not exceed the maximum amount for such maturity date specified in such Competitive Loan Offer; (ii) the aggregate amount of Competitive Loans accepted for all maturity dates specified by any Competitive Loan Lender in its Competitive Loan Offer shall not exceed the aggregate maximum amount specified in such Competitive Loan Offer for all such maturity dates; (iii) the Borrower may not accept offers for Competitive Loans for any maturity date in an aggregate principal amount in excess of the maximum principal amount requested in the related Competitive Loan Request; and (iv) if the Borrower accepts any of such offers, (1) it must accept such offers based solely upon the lowest pricing for such relevant maturity date (including any amounts which shall be payable to the relevant Competitive Loan Lender in respect of the relevant Competitive Loans pursuant to subsection 2.17) and upon no other criteria whatsoever and (2) if (x) two or more Competitive Loan Lenders submit offers for any maturity date at identical pricing and the Borrower accepts any of such offers but does not wish to (or by reason of the limitations set forth in subsection 2.9 or in this subsection 2.10, cannot) borrow the total amount offered by such Competitive Loan Lenders with such identical pricing, the Borrower shall accept offers from all of such Competitive Loan Lenders in amounts allocated among them pro rata according to the amounts offered by such Competitive Loan Lenders (or as nearly pro rata as shall be practicable after giving effect to the requirement that Competitive Loans made by a Competitive Loan Lender on a Borrowing Date for each relevant maturity date shall be in a principal amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof) or (y) a Competitive Loan Lender submits offers for multiple maturity dates specifying a maximum aggregate principal amount for all maturity dates, and the Borrower accepts offers from such Competitive Loan Lender for more than one maturity date, then the Borrower shall instruct the Administrative Agent how to apportion the Borrower's acceptances among such offers for different maturity dates to the extent, if any, necessary to provide for acceptance of offers from such Competitive Loan Lender equal to but not exceeding such specified maximum aggregate amount. (f) If the Borrower notifies the Administrative Agent that a Competitive Loan Request is cancelled pursuant to subsection 2.10(d)(i), the Administrative Agent shall give prompt telephone notice thereof to the Competitive Loan Lenders. (g) If the Borrower accepts pursuant to subsection 2.10(d)(ii) one or more of the offers made by any one or more Competitive Loan Lenders, the Administrative Agent promptly shall notify each Competitive Loan Lender which has made such a Competitive Loan Offer of (i) the aggregate amount of such Competitive Loans to be made on such Borrowing Date for each 17 maturity date, (ii) the acceptance or rejection of any offers to make such Competitive Loans made by such Competitive Loan Lender and (iii) in the case of LIBOR Competitive Loans, LIBOR in respect thereof. Before 12:30 P.M. (New York City time) on the Borrowing Date specified in the applicable Competitive Loan Request, each Competitive Loan Lender whose Competitive Loan Offer has been accepted shall make available to the Administrative Agent at its office set forth in subsection 8.2 the amount of Competitive Loans to be made by such Competitive Loan Lender, in immediately available funds. The Administrative Agent will make such funds available to the Borrower as soon as practicable on such date at the Administrative Agent's aforesaid address. As soon as practicable after each Borrowing Date, the Administrative Agent shall notify each Competitive Loan Lender of the aggregate amount of Competitive Loans advanced on such Borrowing Date, the respective maturity dates thereof and the respective interest rates applicable thereto. (h) The Borrower hereby unconditionally promises to pay to the Administrative Agent for the account of each Competitive Loan Lender the then unpaid principal amount of each Competitive Loan of such Competitive Loan Lender on the applicable Competitive Loan Maturity Date. The Borrower hereby further agrees to pay interest on the unpaid principal amount of the Competitive Loans from time to time outstanding from the date hereof until payment in full thereof at the rates per annum, and on the dates, set forth in subsection 2.11. Each Competitive Loan Lender shall maintain accounts and the Administrative Agent shall maintain the Register with respect to Competitive Loans as provided in subsections 2.5(b), (c) and (d). (i) The Borrower agrees that, upon the request to the Administrative Agent by any Competitive Loan Lender, the Borrower will execute and deliver to such Competitive Loan Lender a promissory note of the Borrower evidencing the Competitive Loans of such Competitive Loan Lender, substantially in the form of Exhibit A-2 with appropriate insertions as to date and principal amount (a "Competitive Loan Note"). 2.11 Interest Rates and Payment Dates. (a) Each LIBOR Loan shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to LIBOR determined for such day plus the Applicable Margin. (b) Each ABR Loan shall bear interest at a rate per annum equal to the ABR plus the Applicable Margin. (c) Each CD Rate Loan shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to the CD Rate determined for such day plus the Applicable Margin. (d) Each Competitive Loan shall bear interest for each day from the applicable Borrowing Date to (but excluding) the applicable Competitive Loan Maturity Date at the rate of interest specified in the Competitive Loan Offer accepted by the Borrower in connection with such Competitive Loan. (e) If all or a portion of (i) the principal amount of any Loan, (ii) any interest payable thereon or (iii) any fee or other amount payable hereunder shall not be paid when due 18 (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall, to the extent permitted by applicable law, bear interest at a rate per annum which is (x) in the case of overdue principal (except as otherwise provided in clause (y) below), the rate that would otherwise be applicable thereto pursuant to the foregoing provisions of this subsection 2.11 plus 2% or (y) in the case of principal of any Competitive Loan which remains overdue past the applicable Competitive Loan Maturity Date, or any overdue interest, fee or other amount, the rate described in subsection 2.11(b) plus 2%, in each case from the date of such non-payment until such overdue principal, interest, fee or other amount is paid in full (as well after as before judgment). (f) lnterest shall accrue from and including the first day of an Interest Period to but excluding the last day of such Interest Period. Interest shall be payable in arrears on each Interest Payment Date, provided that interest accruing pursuant to paragraph (e) of this subsection shall be payable from time to time on demand. 2.12 Computation of Interest and Fees. (a) Facility fees and, whenever it is calculated on the basis of the ABR, interest shall be calculated on the basis of a 365- (or 366-, as the case may be) day year for the actual days elapsed; and, otherwise, interest shall be calculated on the basis of a 360-day year for the actual days elapsed. The Administrative Agent shall as soon as practicable notify the Borrower and the Lenders of each determination of LIBOR or of a CD Rate. Any change in the interest rate on a Loan resulting from a change in the CD Assessment Rate or the CD Reserve Percentage shall become effective as of the opening of business on the day on which such change becomes effective. The Administrative Agent shall as soon as practicable notify the Borrower and the Lenders of the effective date and the amount of each such change in interest rate. (b) Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrower and the Lenders in the absence of manifest error. The Administrative Agent shall, at the request of the Borrower, deliver to the Borrower upon request a statement showing the quotations used by the Administrative Agent in determining any interest rate pursuant to subsection 2.1 I(c). 2.13 Inability to Determine Interest Rate. If prior to the first day of any Interest Period: (a) the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Borrower) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining LIBOR or the CD Rate for such Interest Period, or (b) the Administrative Agent shall have received notice from the Majority Lenders that LIBOR or the CD Rate determined or to be determined for such Interest Period will not adequately and fairly reflect the cost to such Lenders (as conclusively certified by such Lenders) of making or maintaining their affected Loans during such Interest Period, 19 the Administrative Agent shall give telecopy or telephonic notice thereof to the Borrower and the Lenders as soon as practicable thereafter. If such notice is given (x) any LIBOR Loans, CD Rate Loans or LIBOR Competitive Loans, as the case may be, requested to be made on the first day of such Interest Period shall be made as ABR Loans, (y) any Loans that were to have been converted on the first day of such Interest Period to LIBOR Loans or CD Rate Loans, as the case may be, shall be converted to or continued as ABR Loans and (z) any outstanding LIBOR Loans or CD Rate Loans, as the case may be, shall be converted, on the first day of such Interest Period, to ABR Loans. Until such notice has been withdrawn by the Administrative Agent, no further LIBOR Loans, CD Rate Loans or LIBOR Competitive Loans, as the case may be, shall be made or continued as such, nor shall the Borrower have the right to convert Loans to LIBOR Loans or CD Rate Loans, as the case may be. 2.14 Pro Rata Treatment and Payments. (a) Each borrowing by the Borrower from the Lenders of a Revolving Credit Loan, each payment by the Borrower on account of any facility fee hereunder and any reduction of the Commitments of the Lenders shall be made pro rata according to the respective Commitment Percentages of the Lenders. Each payment (including each prepayment) by the Borrower on account of principal of and interest on the Loans shall be made pro rata according to the respective outstanding principal amounts of the Loans for which such payment is being made. All payments (including prepayments) to be made by the Borrower hereunder, whether on account of principal, interest, fees or otherwise, shall be made without set off or counterclaim and shall be made prior to 2:00 P.M., New York City time, on the due date thereof to the Administrative Agent, for the account of the Lenders, at the Administrative Agent's office specified in subsection 8.2, in Dollars and in immediately available funds. The Administrative Agent shall distribute such payments to the Lenders promptly upon receipt in like funds as received. If any payment hereunder becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day, and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. (b) Unless the Administrative Agent shall have been notified in writing by any Lender prior to a borrowing that such Lender will not make the amount that would constitute its share of such borrowing available to the Administrative Agent, the Administrative Agent may assume that such Lender is making such amount available to the Administrative Agent, and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower a corresponding amount. If such amount is not made available to the Administrative Agent by the required time on the Borrowing Date therefor, such Lender shall pay to the Administrative Agent, on demand, such amount with interest thereon at a rate equal to the daily average Federal Funds Effective Rate for the period until such Lender makes such amount immediately available to the Administrative Agent. A certificate of the Administrative Agent submitted to any Lender with respect to any amounts owing under this subsection shall be conclusive in the absence of manifest error. If such Lender's share of such borrowing is not made available to the Administrative Agent by such Lender within three Business Days of such Borrowing Date, the Administrative Agent shall also be entitled to recover such amount with interest thereon at the rate per annum applicable to ABR Loans hereunder, on demand, from the Borrower. 20 2.15 Illegality. Notwithstanding any other provision herein, if the adoption of or any change in any Requirement of Law or in the interpretation or application thereof shall make it unlawful for any Lender to make or maintain LIBOR Loans or LIBOR Competitive Loans as contemplated by this Agreement (a) such Lender shall promptly give notice thereof to the Borrower and the Administrative Agent, (b) the commitment of such Lender hereunder to make LIBOR Loans, continue LIBOR Loans as such and convert ABR Loans or CD Rate Loans to LIBOR Loans shall forthwith be cancelled, (c) such Lender's outstanding LIBOR Loans, if any, shall be converted automatically to ABR Loans on the respective last days of the then current Interest Periods with respect to such Loans or within such earlier period as required by law and (d) the Borrower shall, with respect to any LIBOR Competitive Loan of such Lender, take such action as such Lender may reasonably request. If any such conversion of a LIBOR Loan occurs on a day which is not the last day of the then current Interest Period with respect thereto, the Borrower shall pay to such Lender such amounts, if any, as may be required pursuant to subsection 2.18. 2.16 Additional Costs. (a) If, as a result of any Regulatory Change: (i) the basis of taxation of payments to any Lender of the principal of or interest on any LIBOR Loans, any CD Rate Loans or LIBOR Competitive Loans or any other amounts payable under this Agreement in respect thereof (other than Non-Excluded Taxes covered by subsection 2.17 and taxes imposed on the overall net income of any Lender) is changed; (ii) any reserve, special deposit, or capital adequacy, or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, any Lender are imposed, modified, or deemed applicable; or (iii) any other condition affecting this Agreement or any LIBOR Loans, any CD Rate Loans or LIBOR Competitive Loans is imposed on any Lender after the date hereof; and any Lender determines that, by reason thereof, the cost (or in the case of clause (i) above, the actually incurred cost) to such Lender of making or maintaining its Commitment or any of its LIBOR Loans, CD Rate Loans or LIBOR Competitive Rate Loans to the Borrower is increased or any amount receivable by such Lender hereunder in respect of any of such Loans is reduced, in each case by an amount reasonably deemed by such Lender to be material (such increases in cost and reductions in amounts receivable being herein called "Additional Costs"), then the Borrower shall pay to such Lender upon its request the additional amount or amounts as will compensate such Lender for such Additional Costs within 15 Business Days after such written notice is received; provided, however, that if all or any such Additional Costs would not have been payable or incurred but for such Lender's voluntary decision to designate a new Applicable Lending Office, the Borrower shall have no obligation under this subsection 2.16 to compensate such Lender for such amount relating to such Lender's decision; provided, further, that the Borrower shall not be required to make any payments to such Lender for Additional Costs resulting from capital adequacy requirements unless (A) such Lender has given at least 60 days' prior written notice of its intent to request such payments and (B) such payments are with respect 21 to Additional Costs which accrued and were incurred after the expiration of such 60-day notice period. Each Lender will notify the Borrower and the Administrative Agent of any Regulatory Change occurring after the date of this Agreement which will entitle such Lender to compensation pursuant to this subsection 2.16(a) as promptly as practicable after it obtains knowledge thereof and determines to request such compensation. If such Lender requests compensation under this subsection 2.16(a) in respect of any Regulatory Change, the Borrower may, by notice to such Lender, require that such Lender forward to the Borrower a statement setting forth the basis for requesting such compensation and the method for determining the amount thereof. (b) Without limiting the effect of the provisions of subsection 2.16(a) (but without duplication thereof), the Borrower will pay to any Lender, within 15 Business Days of receipt by the Borrower of notice from such Lender, for each day such Lender is required to maintain reserves against "Eurocurrency liabilities" under Regulation D of the Board as in effect on the date of this Agreement, an additional amount determined by such Lender equal to the product of the following: (i) the principal amount of the LIBOR Loan or LIBOR Competitive Loan, as the case may be; (ii) the remainder of (x) a fraction the numerator of which is LlBOR for such LIBOR Loan or LIBOR Competitive Loan, as the case may be, and the denominator of which is one minus the rate at which such reserve requirements are imposed on such Lender on such day minus (y) such numerator; and (iii) 1/360. Such Lender shall request payment under this subsection 2.16(b) by giving notice to the Borrower as of the last day of each Interest Period for each LIBOR Loan and LIBOR Competitive Loan, as the case may be (and, if such Interest Period exceeds three months' duration, also as of three months, or a whole multiple thereof, after the first day of such Interest Period). Such notice shall specify the basis for requesting such compensation and the method for determining the amount thereof. Such Lender shall provide any evidence of such requirement to maintain reserves as the Borrower may reasonably request. (c) Determinations by any Lender for purposes of this subsection 2.16 of the effect of any Regulatory Change shall be conclusive, provided that such determinations are made absent manifest error. The agreements in this subsection shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. 2.17 Taxes. (a) All payments made by the Borrower under this Agreement and any Notes shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding net income taxes and franchise taxes (imposed in lieu of net income taxes) imposed on the Administrative Agent, any Lender or any 22 Applicable Lending Office as a result of a present or former connection between the Administrative Agent, such Lender or Applicable Lending Office and the jurisdiction of the Governmental Authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than any such connection arising solely from the Administrative Agent or such Lender having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement or any Note). If any such non-excluded taxes, levies, imposts, duties, charges, fees deductions or withholdings ("Non-Excluded Taxes") are required to be withheld from any amounts payable to the Administrative Agent or any Lender hereunder or under any Note, the amounts so payable to the Administrative Agent or such Lender shall be increased to the extent necessary so that the amount received by the Administrative Agent or such Lender (after payment of all Non-Excluded Taxes) shall be equal to the interest or any such other amounts it would have received had no such withholding been required, provided, however, that the Borrower shall not be required to increase any such amounts payable to any Lender that is not organized under the laws of the United States of America or a state thereof if such Lender fails to comply with the requirements of paragraph (b) of this subsection. Whenever any Non-Excluded Taxes are payable by the Borrower, as promptly as practicable thereafter the Borrower shall send to the Administrative Agent for its own account or for the account of such Lender, as the case may be, evidence reasonably satisfactory to the Administrative Agent or such Lender, as the case may be, of such payment. If the Borrower fails to pay any Non-Excluded Taxes payable by the Borrower when due to the appropriate taxing authority or fails to remit to the Administrative Agent the receipts therefor or other required documentary evidence, the Borrower shall indemnify the Administrative Agent and the Lenders for any incremental taxes, interest or penalties that may become payable by the Administrative Agent or any Lender as a result of any such failure. The agreements in this subsection shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. (b) Each Lender that is not incorporated under the laws of the United States of America or a state thereof shall: (i) deliver to the Borrower and the Administrative Agent (A) two duly completed copies of United States Internal Revenue Service Form 1001 or 4224, or successor applicable form, as the case may be, and (B) an Internal Revenue Service Form W-8 or W-9, or successor applicable form, as the case may be; (ii) deliver to the Borrower and the Administrative Agent two further copies of any such form or certification on or before the date that any such form or certification expires or becomes obsolete and after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Borrower; and (iii) obtain such extensions of time for filing and complete such forms or certifications as may reasonably be requested by the Borrower or the Administrative Agent; unless in any such case an event (including, without limitation, any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from 23 duly completing and delivering any such form with respect to it and such Lender so advises the Borrower and the Administrative Agent. Such Lender shall certify (i) in the case of a Form 1001 or 4224, that it is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes and (ii) in the case of a Form W-8 or W-9, that it is entitled to an exemption from United States backup withholding tax. Each Person that shall become a Lender or a Participant pursuant to subsection 8.6 shall, no later than the effectiveness of the related transfer, be required to provide all of the forms and statements required pursuant to this subsection, provided that in the case of a Participant such Participant shall furnish all such required forms and statements to the Lender from which the related participation shall have been purchased. (c) Any Lender claiming any amount pursuant to this subsection 2.17 shall use reasonable efforts (consistent with legal and regulatory restrictions) to file any certificate or document reasonably requested by the Borrower if such a filing would avoid the need for or reduce the amount payable by the Borrower under this subsection 2.17 and would not, in the good faith determination of such Lender, be otherwise disadvantageous to such Lender. (d) Refunds. If a Lender or the Administrative Agent (as the case may be) shall become aware that it is entitled to claim a refund (or a refund in the form of a credit) (each, a "Refund") from a Governmental Authority (as a result of any error in the amount of Non-Excluded Taxes paid to such Governmental Authority) of Non-Excluded Taxes which the Borrower has paid, or with respect to which the Borrower has paid additional amounts, pursuant to this subsection 2.17, it shall promptly notify the Borrower of the availability of such Refund and shall, within 30 days after receipt of written notice by the Borrower, make a claim to such Governmental Authority for such Refund at the Borrower's expense if, in the judgment of such Lender or the Administrative Agent (as the case may be), the making of such claim will not be otherwise disadvantageous to it; provided that nothing in this subsection 2.17(d) shall be construed to require any Lender or the Administrative Agent to institute any administrative proceeding (other than the filing of a claim for any such Refund) or judicial proceeding to obtain such Refund. If a Lender or the Administrative Agent (as the case may be) receives a Refund from a Governmental Authority (as a result of any error in the amount of Non-Excluded Taxes paid to such Governmental Authority) of any Non-Excluded Taxes which have been paid by the Borrower, or with respect to which the Borrower has paid additional amounts pursuant to this subsection 2.17, it shall promptly pay to the Borrower the amount so received (but only to the extent of payments made, or additional amounts paid, by the Borrower under this subsection 2.17 with respect to Non-Excluded Taxes giving rise to such Refund), net of all reasonable out-of-pocket expenses (including the net amount of taxes, if any, imposed on such Lender or the Administrative Agent with respect to such Refund) of such Lender or the Administrative Agent, and without interest (other than interest paid by the relevant Governmental Authority with respect to such Refund); provided, however, that the Borrower, upon the request of such Lender or the Administrative Agent, agrees to repay the amount paid over to the Borrower (plus penalties, interest or other charges) to such Lender or the Administrative Agent in the event such Lender or the Administrative Agent is required to repay such Refund to such Governmental Authority. Nothing contained in this subsection 2.1 7(d) shall require any Lender or the Administrative Agent to make available any of its tax returns (or any other information that it deems to be confidential or proprietary). 24 (e) For purposes of this subsection 2.17, the term "Lender" includes (i) an "Assignee" within the meaning of, and after compliance with the requirements of, subsection 8.6(c), and (ii) a "Participant" within the meaning of subsection 8.6(b); provided that such Participant shall have complied with the requirements of subsection 2.17(c) to the extent applicable and provided, further, that such Participant shall not be entitled to receive any greater amount pursuant to this subsection 2.17 than the transferor Lender would have been entitled to receive had no such transfer occurred. 2.18 Indemnity. The Borrower agrees to indemnify each Lender and to hold each Lender harmless from any loss or expense which such Lender may sustain or incur as a consequence of (a) default by the Borrower in making a borrowing of LIBOR Loans, CD Rate Loans or Competitive Loans, or in the conversion into or continuation of LIBOR Loans or CD Rate Loans, after the Borrower has given a notice requesting or accepting the same in accordance with the provisions of this Agreement, (b) default by the Borrower in making any prepayment after the Borrower has given a notice thereof in accordance with the provisions of this Agreement, or (c) the making of a prepayment of LIBOR Loans, CD Rate Loans or Competitive Loans on a day which is not the last day of an Interest Period or the applicable Competitive Loan Maturity Date, as the case may be, with respect thereto. Such indemnification may include an amount equal to the excess, if any, of (i) the amount of interest which would have accrued on the amount so prepaid, or not so borrowed, converted or continued, for the period from the date of such prepayment or of such failure to borrow, convert or continue to the last day of the relevant Interest Period (or proposed Interest Period) or, in the case of Competitive Loans, the applicable Competitive Loan Maturity Date (or proposed Competitive Loan Maturity Date), in each case at the applicable rate of interest for such Loans provided for herein (excluding, however, the Applicable Margin or any positive margin applicable to LIBOR Competitive Loans included therein, if any) over (ii) the amount of interest (as reasonably determined by such Lender) which would have accrued to such Lender on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank eurodollar market. The agreements in this subsection shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. 2.19 Change of Lending Office. Each Lender agrees that if it makes any demand for payment under subsection 2.16 or 2.17(a), or if any adoption or change of the type described in subsection 2.15 shall occur with respect to it, it will use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions and so long as such efforts would not be disadvantageous to it, as determined in its sole discretion) to designate a different Applicable Lending Office if the making of such a designation would reduce or obviate the need for the Borrower to make payments under subsection 2.16 or 2.17(a), or would eliminate or reduce the effect of any adoption or change described in subsection 2.15. 2.20 Replacement of Lenders under Certain Circumstances. The Borrower shall be permitted to replace any Lender which (a) requests reimbursement for amounts owing pursuant to subsection 2.16 or 2.17 (other than with respect to LIBOR Competitive Loans), (b) is affected in the manner described in subsection 2.15 (other than with respect to LIBOR Competitive Loans) and as a result thereof any of the actions described in said subsection is required to be taken or (c) defaults in its obligation to make Revolving Credit Loans hereunder, with a 25 replacement bank or other financial institution; provided that (i) such replacement does not conflict with any Requirement of Law, (ii) no Event of Default shall have occurred and be continuing at the time of such replacement, (iii) the Borrower shall repay (or the replacement bank or institution shall purchase, at par) all Loans and other amounts owing to such replaced Lender prior to the date of replacement, (iv) the Borrower shall be liable to such replaced Lender under subsection 2.18 if any LIBOR Loan owing to such replaced Lender shall be prepaid (or purchased) other than on the last day of the Interest Period relating thereto or any Competitive Loan owing to such replaced Lender shall be paid other than on the relevant Competitive Loan Maturity Date, (v) the replacement bank or institution, if not already a Lender, shall be reasonably satisfactory to the Administrative Agent, (vi) the replaced Lender shall be obligated to make such replacement in accordance with the provisions of subsection 8.6 (provided that the Borrower shall be obligated to pay the registration and processing fee referred to therein), (vii) until such time as such replacement shall be consummated, the Borrower shall pay all additional amounts (if any) required pursuant to subsection 2.16 or 2.17, as the case may be, and (viii) any such replacement shall not be deemed to be a waiver of any rights which the Borrower, the Administrative Agent or any other Lender shall have against the replaced Lender. SECTION 3. REPRESENTATIONS AND WARRANTIES To induce the Administrative Agent and the Lenders to enter into this Agreement and to make the Loans, the Borrower hereby represents and warrants to the Administrative Agent and each Lender that: 3.1 Financial Condition. The balance sheets of the Borrower as at December 31, 1994 and the related statements of income, earnings reinvested in business, and cash flows for the fiscal year then ended on such date, reported on by Deloitte & Touche LLP, copies of which have heretofore been furnished to each Lender, present fairly the financial condition of the Borrower as at such date, and the results of its operations and its cash flows for the fiscal year then ended. The unaudited balance sheet of the Borrower as at March 31, 1995 and the related unaudited statements of income, earnings reinvested in business, and cash flows for the three-month period ended on such date, certified by a Responsible Officer, copies of which have heretofore been furnished to each Lender, are complete and correct and present fairly the financial condition of the Borrower as at such date, and the results of its operations and its cash flows for the three-month period then ended (subject to normal year-end audit adjustments) All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by such accountants or Responsible Officer, as the case may be, and as disclosed therein). During the period from December 31, 1994 to and including the date hereof there has been no sale, transfer or other disposition by the Borrower of any material part of its business or property and no purchase or other acquisition of any business or property (including any capital stock of any other Person) material in relation to the financial condition of the Borrower at December 31, 1994. 26 3.2 No Change. From December 31, 1994 through the date hereof there has been no development or event which has had or could reasonably be expected to have a material adverse effect on the financial position or business operations of the Borrower. 3.3 Corporate Existence; Compliance with Law. Each of the Borrower and its Material Subsidiaries, if any, (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the corporate power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged, (c) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification other than in such jurisdictions where the failure so to qualify would not, individually or in the aggregate, have a material adverse effect on the financial position or business operations of the Borrower and (d) is in compliance with all Requirements of Law except to the extent that the failure to comply therewith could not, in the aggregate, have a material adverse effect on the financial position or business operations of the Borrower. 3.4 Corporate Power; No Legal Bar. The execution, delivery, and performance by the Borrower of this Agreement and any Note are within its corporate powers, have been duly authorized by all necessary corporate action, and do not violate any provision of law or any agreement, indenture, note, or other instrument binding upon or affecting it or its charter or by-laws or give cause for acceleration of any of its Indebtedness. 3.5 Authorization; Enforceability. All authorizations, approvals, and other actions by, and notices to and filings with all Governmental Authorities required for the due execution, delivery and performance of this Agreement and any Note have been obtained or made and are in full force and effect. Each of this Agreement and each Note executed in connection herewith is a legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. 3.6 ERISA. No "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) or "accumulated funding deficiency" (as defined in Section 022 of ERISA) or "reportable event" (herein defined as any of the events set forth in Section 4043(b) of ERlSA or the regulations thereunder) has occurred since July 1, 1974 with respect to any Plan which would materially and adversely affect the financial condition of the Borrower. The present value of all benefits vested under all Plans maintained by the Borrower or any Commonly Controlled Entity (based on those assumptions used to fund the Plans) did not, as of the last annual valuation date, exceed the value of the assets of the Plan allocable to such vested benefits. 3.7 No Material Litigation. As of the date hereof, except as heretofore disclosed pursuant to Section 13 of the Securities Exchange Act of 1934, as amended, there are no legal or arbitral proceedings or any proceedings by or before any governmental or regulatory authority or agency, now pending or, to the knowledge of the Borrower, threatened against the Borrower 27 or any of its Material Subsidiaries, which the Borrower would be required to disclose pursuant to Section 13 of the Securities Exchange Act of 1934, as amended. 3.8 Taxes. The Borrower (or Dominion Resources for years in which the Borrower filed a consolidated return with Dominion Resources) and its Material Subsidiaries have filed all United States Federal income tax returns and all other tax returns which are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Borrower or any such Material Subsidiary. The charges, accruals and reserves on the books of the Borrower and such Material Subsidiaries in respect of taxes and other governmental charges are, in the opinion of the Borrower, adequate. 3.9 Purpose of Loans. The proceeds of the Loans shall be used by the Borrower for general corporate purposes, including commercial paper back-up, and no part of the proceeds of any Loans will be used in violation of Regulations G, U or X of the Board as now and from time to time hereafter in effect. SECTION 4. CONDITIONS PRECEDENT 4.1 Conditions to Initial Loans. The effectiveness of this Agreement is subject to the satisfaction of the following conditions precedent on or prior to September 1, 1995: (a) Execution of Agreement. (i) This Agreement shall have been executed and delivered by a duly authorized officer of each of the Borrower and the Administrative Agent and (ii) the Administrative Agent shall have received an executed counterpart hereof (or a copy thereof by facsimile transmission) from each Lender listed on Schedule I. (b) Closing Certificate. The Administrative Agent shall have received a certificate of the Borrower, dated the Closing Date, substantially in the form of Exhibit C, executed by any Assistant Treasurer and the Secretary or any Assistant Secretary of the Borrower, and attaching the documents referred to in subsections 4.1(c), (d) and (e). (c) Corporate Proceedings. The Administrative Agent shall have received a copy of the resolutions, in form and substance satisfactory to the Administrative Agent, of the Board of Directors of the Borrower (or a duly authorized committee thereof) authorizing (i) the execution, delivery and performance of this Agreement and (ii) the borrowings contemplated hereunder. (d) Corporate Documents. The Administrative Agent shall have received a copy of the articles of incorporation and by-laws of the Borrower. (e) Regulatory Approvals. The Administrative Agent shall have received copies of any required orders of the Virginia State Corporation Commission or any other state utilities commission approving the Borrower's execution, delivery and performance of this Agreement and the borrowings hereunder. 28 (f) Legal Opinions. The Administrative Agent shall have received the following executed legal opinions, with a copy for each Lender: (i) the executed legal opinion of Hunton & Williams, counsel to the Borrower, substantially in the form of Exhibit D-l; and (ii) the executed legal opinion of Simpson Thacher & Bartlett, special counsel to the Administrative Agent, substantially in the form of Exhibit D-2. (g) Representations and Warranties; No Default. Each of the representations and warranties made by the Borrower in or pursuant to the Loan Documents shall be true and correct in all material respects on and as of such date as if made on and as of such date and no Default or Event of Default shall have occurred and be continuing on such date. 4.2 Conditions to Each Loan. The agreement of each Lender to make any Loan requested to be made by it on any date (including, without limitation, its initial Loan) is subject to the satisfaction of the following conditions precedent: (a) Representations and Warranties. Each of the representations and warranties made by the Borrower in or pursuant to the Loan Documents shall be true and correct in all material respects on and as of such date as if made on and as of such date. (b) No Default. No Default or Event of Default shall have occurred and be continuing on such date or after giving effect to the Loans requested to be made on such date. Each borrowing by the Borrower hereunder shall constitute a representation and warranty by the Borrower as of the date thereof that the conditions contained in this subsection 4.2 have been satisfied. SECTION 5. COVENANTS The Borrower hereby agrees that, so long as the Commitments remain in effect or any amount is owing to any Lender or the Administrative Agent hereunder or under any other Loan Document: 5.1 Financial Statements. The Borrower shall furnish to the Administrative Agent, who shall forward to each Lender: (a) as soon as practicable, but in any event within 120 days after the end of each fiscal year of the Borrower, a copy of the consolidated balance sheet of the Borrower and its consolidated Subsidiaries, if any, as at the end of such year and the related consolidated statements of income, earnings reinvested in business, and cash flows for such year, setting forth in each case in comparative form the figures for the previous year, 29 reported on, by Deloitte & Touche LLP or other independent certified public accountants of nationally recognized standing; and (b) as soon as practicable, but in any event not later than 60 days after the end of each of the first three quarterly periods of each fiscal year of the Borrower, the unaudited consolidated balance sheet of the Borrower and its consolidated Subsidiaries, if any, as at the end of such quarter and the related unaudited consolidated statements of income, earnings reinvested in business, and cash flows for such quarter and the portion of the fiscal year through the end of such quarter, setting forth in each case in comparative form the figures for the previous year certified by a Responsible Officer as being fairly stated in all material respects (subject to normal year-end audit adjustments); (c) within fourteen days after the same are sent, copies of all financial statements and reports which the Borrower sends to its stockholders generally, and within fourteen days after the same are filed, copies of all financial statements and reports which the Borrower may make to, or file with, the Securities and Exchange Commission or any successor or analogous Governmental Authority; and (d) promptly, such additional financial and other information as the Administrative Agent, or any Lender through the Administrative Agent, may from time to time reasonably request. All such financial statements in (a) and (b) shall be (i) complete and correct in all material respects, (ii) prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants or officer, as the case may be, and disclosed therein) and (iii) accompanied by a compliance certificate signed by a Responsible Officer of the Borrower setting forth the Consolidated Net Worth of the Borrower as of the date of such financial statements. Unless accompanied by a statement of a Responsible Officer setting forth the details of each Default which has occurred and is continuing and the steps which the Borrower proposes to take to remedy such Default, each delivery of financial statements pursuant to clauses (a) and (b) of this subsection 5.1 shall be deemed to constitute a certification by the Borrower that no Default has occurred and is continuing. 5.2 Conduct of Business and Compliance. The Borrower will continue to engage in business of the same general type as now conducted by it, and the Borrower will, and will cause each of its Subsidiaries, if any, to comply with all Requirements of Law except to the extent that failure to comply therewith would not materially and adversely affect the ability of the Borrower to perform its obligations hereunder. 5.3 Books and Records. The Borrower will, and will cause each of its Material Subsidiaries, if any, to, keep proper books of records and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities. 30 5.4 Notices. The Borrower shall promptly give notice to the Administrative Agent, and the Administrative Agent shall in turn give notice to each Lender, of: (a) the occurrence of any Default or Event of Default, which such notice shall state that such notice is a "notice of default"; (b) the existence or imposition of any judgements against the Borrower or any of its Material Subsidiaries in an amount in excess of $25,000,000; (c) the failure of the Borrower or any of its Material Subsidiaries to pay any principal or interest in an aggregate amount of $25,000,000 or more on any Indebtedness; and (d) promptly following the Borrower's receipt, any change in the Moody's Bond Rating or the S&P Bond Rating. Each notice pursuant to clause (a) shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action the Borrower proposes to take with respect thereto. 5.5 Limitation on Liens. The Borrower shall not, nor shall it permit any of its Material Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, except for (i) Liens permitted by the First Mortgage Bond Indenture and (ii) Liens created in the ordinary course of business. 5.6 Limitation on Fundamental Changes. The Borrower will not enter into any merger, consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer or otherwise dispose of, a material part of its property, business or assets, except the Borrower may be merged or consolidated with another Person that is a corporation duly organized and existing under the laws of any state in the United States provided that (i) the survivor shall continue to use and operate the Borrower's public utility business, (ii) the survivor shall assume the Borrower's obligations hereunder in accordance with documentation acceptable to the Administrative Agent and the Majority Lenders and (iii) after giving effect to such merger or consolidation no Default or Event of Default shall have occurred or be continuing. 5.7 Limitation on Guarantee Obligations. The Borrower shall not create, incur, assume or suffer to exist any Guarantee Obligation except for (a) Guarantee Obligations in existence on the date hereof and listed on Schedule III; (b) Guarantee Obligations made in the ordinary course of its business by the Borrower of obligations of any of its Subsidiaries; and (c) Guarantee Obligations guaranteeing securities issued by a corporation, partnership or trust formed at the direction of the Borrower, provided that (i) the proceeds from the issuance of such securities (other than to cover offering expenses) were used solely by such corporation, partnership or trust to purchase from the Borrower securities issued by the Borrower and (ii) the 31 Guarantee Obligations exist only so long as and only to the extent that such corporation, partnership or trust holds such securities issued by the Borrower. 5.8 Maintenance of Net Worth. The Borrower will not permit Consolidated Net Worth to be less than $3.75 billion. SECTION 6. EVENTS OF DEFAULT If any of the following events shall occur and be continuing: (a) The Borrower shall fail to pay any principal of any Loan when due in accordance with the terms hereof, or to pay any interest on any Loan, or any other amount payable hereunder, within 5 Business Days after any such amount becomes due in accordance with the terms hereof; (b) Any representation or warranty made to the Administrative Agent or any Lender in connection with the execution and delivery of this Agreement or the making of Loans hereunder proves to have been incorrect in any material respect when made, and the future financial position or business operations of the Borrower could reasonably be expected to be materially and adversely affected from what would be the case had such representation and warranty not been incorrect; (c) The Borrower shall default in the performance of any other term, covenant, or provision contained in this Agreement (other than as provided in paragraphs (a) and (b) of this Section) and such default shall continue unremedied for 30 days; (d) The Borrower or any of its Material Subsidiaries shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee, or liquidator of itself or of all or a substantial part of its property, (ii) admit in writing its inability, or be generally unable, to pay its debts as such debts become due, (iii) make a general assignment for the benefit of its creditors, (iv) commence a voluntary case under the federal bankruptcy laws (as now or hereafter in effect), (v) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or readjustment of debts, (vi) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against the Borrower or any of its Material Subsidiaries in an involuntary case under such federal laws, or (vii) take any corporate action for the purpose of affecting any of the foregoing; (e) A case or other proceeding shall be commenced (including commencement of such case or proceeding by way of service of process on the Borrower or any of its Material Subsidiaries), in any court of competent jurisdiction, seeking (i) the liquidation, reorganization, dissolution or winding-up, or the composition or readjustment of debts of the Borrower or any of its Material Subsidiaries, (ii) the appointment of a trustee, receiver, custodian, liquidator, or the like of the Borrower or any of its Material Subsidiaries or of all or any substantial part of their respective assets, (iii) similar relief 32 in respect of the Borrower or any of its Material Subsidiaries under any law relating to bankruptcy, insolvency, reorganization, winding up, or composition or readjustment of debts, or a warrant of attachment, execution, or similar process shall be issued against a substantial part of the property of the Borrower or any of its Material Subsidiaries and such case, proceeding, warrant, or process shall continue undismissed or unstayed and in effect for a period of 45 days, or an order, judgment, or decree approving or ordering any of the foregoing shall be entered in an involuntary case under such federal bankruptcy laws; (f) A trustee shall be appointed to administer any Plan under Section 4042 of ERISA, or the PBGC shall institute proceedings to terminate, or to have a trustee appointed to administer any Plan and such proceedings shall continue undismissed or unstayed and in effect for a period of 30 days, and any such event shall result in any liability which is material in relation to the consolidated financial condition of the Borrower and its consolidated Subsidiaries, if any; (g) The Borrower or any of its Material Subsidiaries shall (i) default in any payment of principal or interest in an aggregate amount of $25,000,000 or more (or in the payment of any guarantee thereof) beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness or guarantee thereof was created or (ii) default beyond any applicable grace period in the observance or performance of any other agreement or condition relating to any Indebtedness in an aggregate amount of $25,000,000 or more or any guarantee thereof or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity; provided, however, if such default shall be cured by the Borrower or any Material Subsidiary or waived by the holders of such Indebtedness and any acceleration of maturity having resulted from such default shall be rescinded or annulled, in each case in accordance with the terms of such agreement or instrument, without (i) any modification of the terms of such Indebtedness requiring the Borrower or any such Material Subsidiary to furnish additional or other security therefor, reducing the average life to maturity thereof or increasing the principal amount thereof or (ii) any agreement by the Borrower or any such Material Subsidiary to furnish additional or other security therefor or to issue in lieu thereof Indebtedness secured by additional or other collateral or with a shorter average life to maturity or in a greater principal amount, then any default hereunder by reason thereof shall be deemed likewise to have been thereupon cured or waived; or (h) There shall have been entered by a court of competent jurisdiction within the United States and shall not have been vacated, discharged or stayed within sixty (60) days from the entry thereof (or such longer period as may be provided by law) one or more final judgments or final decrees for payment of money against the Borrower or any of its Material Subsidiaries involving in the aggregate a liability (to the extent not paid or covered by insurance) in excess of $25,000,000; 33 then, and in any such event, (A) if such event is an Event of Default specified in paragraph (d) or (e) of this Section with respect to the Borrower, automatically the Commitments shall immediately terminate and the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement shall immediately become due and payable, and (B) if such event is any other Event of Default, either or both of the following actions may be taken: (i) with the consent of the Majority Lenders, the Administrative Agent may, or upon the request of the Majority Lenders, the Administrative Agent shall, by notice to the Borrower declare the Commitments to be terminated forthwith, whereupon the Commitments shall immediately terminate; and (ii) with the consent of the Majority Lenders, the Administrative Agent may, or upon the request of the Majority Lenders, the Administrative Agent shall, by notice to the Borrower, declare the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement to be due and payable forthwith, whereupon the same shall immediately become due and payable. Except as expressly provided above in this Section, presentment, demand, protest and all other notices of any kind are hereby expressly waived. SECTION 7. THE ADMINISTRATIVE AGENT 7.1 Appointment. Each Lender hereby irrevocably designates and appoints the Administrative Agent as the agent of such Lender under this Agreement and the other Loan Documents, and each such Lender irrevocably authorizes the Administrative Agent, in such capacity, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents; and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Administrative Agent. 7.2 Delegation of Duties. The Administrative Agent may execute any of its duties under this Agreement and the other Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys in-fact selected by it with reasonable care. 7.3 Exculpatory Provisions. Neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Loan Document (except for its or such Person's own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Borrower or any officer thereof contained in this Agreement or any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or any other Loan Document or for the value, validity, 34 effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or for any failure of the Borrower to perform its obligations hereunder or thereunder. The Administrative Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Borrower. 7.4 Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any Note, writing, resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Borrower), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Majority Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Loan Documents in accordance with a request of the Majority Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Loans. 7.5 Notice of Default. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Administrative Agent has received notice from a Lender or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Majority Lenders; provided that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders. 7.6 Non-Reliance on Administrative Agent and Other Lenders. Each Lender expressly acknowledges that neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by the Administrative Agent hereafter taken, including any review of the affairs of the Borrower, shall be deemed to constitute any representation or warranty by the Administrative Agent to any Lender. Each Lender represents to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own 35 appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Borrower and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Borrower. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Borrower which may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. 7.7 Indemnification. The Lenders agree to indemnify the Administrative Agent in its capacity as such (to the extent not reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably according to their respective Commitment Percentages in effect on the date on which indemnification is sought (or, if indemnification is sought after the date upon which the Commitments shall have terminated and the Loans shall have been paid in full, ratably in accordance with their Commitment Percentages immediately prior to such date), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Loans) be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of, the Commitments, this Agreement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Administrative Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the Administrative Agent's gross negligence or willful misconduct. The agreements in this subsection shall survive the payment of the Loans and all other amounts payable hereunder. 7.8 Administrative Agent in Its Individual Capacity. The Administrative Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrower as though the Administrative Agent were not the Administrative Agent hereunder and under the other Loan Documents. With respect to the Loans made by it, the Administrative Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Lender and may exercise the same as though it were not the Administrative Agent, and the terms "Lender" and "Lenders" shall include the Administrative Agent in its individual capacity. 7.9 Successor Administrative Agent. The Administrative Agent may resign as Administrative Agent upon 10 days' notice to the Lenders. If the Administrative Agent shall resign as Administrative gent under this Agreement and the other Loan Documents, then the 36 Majority Lenders shall appoint from among the Lenders a successor agent for the Lenders, which successor agent shall be approved by the Borrower, whereupon such successor agent shall succeed to the rights, powers and duties of the Administrative Agent, and the term "Administrative Agent" shall mean such successor agent effective upon such appointment and approval, and the former Administrative Agent's rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement or any holders of the Loans. After any retiring Administrative Agent's resignation as Administrative Agent, the provisions of this Section 7 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement and the other Loan Documents, SECTION 8. MISCELLANEOUS 8.1 Amendments and Waivers. The Majority Lenders may, or, with the written consent of the Majority Lenders, the Administrative Agent may, from time to time, enter into with the Borrower written amendments, supplements, modifications or waivers hereto and to the other Loan Documents provided, however, that no such waiver and no such amendment, supplement or modification shall (i) reduce the amount or extend the scheduled date of maturity of any Loan, or reduce the stated rate of any interest or fee payable hereunder or extend the scheduled date of any payment thereof or increase the amount or extend the expiration date of any Lender's Commitment, in each case without the consent of each Lender affected thereby, or (ii) amend, modify or waive any provision of this subsection, the provision of Section 8.6(a) requiring the written consent of each Lender for the assignment or transfer by the Borrower of its rights and obligations under this Agreement, or reduce the percentage specified in the definition of Majority Lenders, in each case without the written consent of all the Lenders, or (iii) amend, modify or waive any provision of Section 7 without the written consent of the then Administrative Agent. 8.2 Notices. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by facsimile transmission) and, unless: otherwise expressly provided herein, shall be deemed to have been duly given or made (a) in the case of delivery by hand, when delivered, (b) in the case of delivery by mail, 5 days after being deposited in the mails, postage prepaid, or (c) in the case of delivery by facsimile transmission, when sent and receipt has been confirmed, addressed as follows in the case of the Borrower and the Administrative Agent, and as set forth in Schedule I in the case of the other parties hereto, or to such other address as may be hereafter notified by the respective parties hereto: The Borrower: Treasurer Virginia Electric and Power Company 701 E. Cary Street P.O. Box 26666 Richmond, VA 23261 Fax: (804) 771-4066 37 The Administrative Agent: Chemical Bank 270 Park Avenue New York, New York 10017 Attention: Delia Marin Fax: (212) 270-4711 Chemical Bank Agency Services 140 East 45th Street New York, New York 10017 Attention: Lynette Lang Fax: (212) 622-0136 provided that any notice, request or demand to or upon the Administrative Agent or the Lenders pursuant to subsection 2.2, 2.4, 2.6, 2.7, 2.10 or 2.14 shall not be effective until received. 8.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Administrative Agent or any Lender, any right, remedy, power or privilege hereunder or under the other Loan Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 8.4 Survival. All representations and warranties made hereunder, in the other Loan Documents and in any document, certificate or statement delivered pursuant hereto or in connection herewith or therewith shall survive the execution and delivery of this Agreement and the making of the Loans hereunder. 8.5 Payment of Expenses. The Borrower agrees (a) to pay or reimburse the Administrative Agent for all its reasonable out-of-pocket costs and expenses incurred in connection with the development, preparation and execution of, and any amendment, supplement or modification to, this Agreement and the other Loan Documents including, without limitation, the reasonable fees and disbursements of counsel to the Administrative Agent, (b) to pay or reimburse each Lender and the Administrative Agent for all its costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement or the other Loan Documents including, without limitation, the fees and disbursements of counsel (and the allocated fees and expenses of in-house counsel) to each Lender and of counsel to the Administrative Agent and (c) to pay, indemnify, and hold each Lender and the Administrative Agent harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement and the other Loan Documents (all the foregoing in this clause (c), collectively, the "indemnified liabilities"), provided, that the Borrower shall have no obligation hereunder to the Administrative Agent or any Lender with respect to indemnified liabilities arising from the gross negligence or willful misconduct of the Administrative Agent or any such Lender or the failure of the Administrative Agent or any such Lender to comply with this 38 Agreement. The agreements in this subsection shall survive repayment of the Loans and all other amounts payable hereunder. 8.6 Transfer Provisions. (a) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Borrower, the Lenders, the Administrative Agent and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of each Lender. (b) Participations. Any Lender may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time sell to one or more banks or other entities ("Participants") participating interests in any Loan owing to such Lender, any Commitment of such Lender or any other interest of such Lender hereunder and under the other Loan Documents. In the event of any such sale by a Lender of a participating interest to a Participant, such Lender's obligations under this Agreement to the other parties to this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of any such Loan for all purposes under this Agreement and the other Loan Documents, and the Borrower and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Loan Documents. (c) Assignments. Any Lender may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time and from time to time assign to any Lender or any affiliate thereof or, with the consent of the Borrower and the Administrative Agent (which in each case shall not be unreasonably withheld), to an additional bank or financial institution ("an Assignee") all or any part of its rights and obligations under this Agreement and the other Loan Documents pursuant to an Assignment and Acceptance, substantially in the form of Exhibit E, executed by such Assignee, such assigning Lender (and, in the case of an Assignee that is not then a Lender or an affiliate thereof, by the Borrower and the Administrative Agent) and delivered to the Administrative Agent for its acceptance and recording in the Register, provided that, (i) in the case of any such assignment to an additional bank or financial institution, the sum of the aggregate principal amount of the Commitment being assigned shall not be less than $10,000,000 (or such lesser amount as may be agreed to by the Borrower and the Administrative Agent) and (ii) any such assignment may, but need not, include rights of the assigning Lender in respect of Competitive Loans. Upon such execution, delivery, acceptance and recording, from and after the effective date determined pursuant to such Assignment and Acceptance, (x) the Assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Lender hereunder with a Commitment as set forth therein, and (y) the assigning Lender thereunder shall, to the extent provided in such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such assigning Lender shall cease to be a party hereto). (d) The Register. The Administrative Agent, on behalf of the Borrower, shall maintain at the address of the Administrative Agent referred to in subsection 8.2 a copy of each Assignment and Acceptance delivered to it and a register (the "Register") for the recordation of 39 the names and addresses of the Lenders and the Commitment of, and principal amounts of the Loans owing to, each Lender from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, the Administrative Agent and the Lenders may (and, in the case of any Loan or other obligation hereunder not evidenced by a Note, shall) treat each Person whose name is recorded in the Register as the owner of a Loan or other obligation hereunder as the owner thereof for all purposes of this Agreement and the other Loan Documents, notwithstanding any notice to the contrary. Any assignment of any Loan or other obligation hereunder not evidenced by a Note shall be effective only upon appropriate entries with respect thereto being made in the Register. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (e) Recordation. Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an Assignee (and, in the case of an Assignee that is not then a Lender or an affiliate thereof, by the Borrower and the Administrative Agent) together with payment by the Assignee or the Assignor (or, in the event of a replacement of a Lender pursuant to subsection 2.20, the replacement Lender) to the Administrative Agent of a registration and processing fee of $1,500, the Administrative Agent shall (i) promptly accept such Assignment and Acceptance and (ii) on the effective date determined pursuant thereto record the information contained therein in the Register and give notice of such acceptance and recordation to the Lenders and the Borrower. (f) Disclosure. The Borrower authorizes each Lender to disclose to any Participant or Assignee (each, a "Transferee") and any prospective Transferee, any and all financial information in such Lender's possession concerning the Borrower and its Subsidiaries, which has been delivered to such Lender by or on behalf of the Borrower pursuant to this Agreement or which has been delivered to such Lender by or on behalf of the Borrower in connection with such Lender's credit evaluation of the Borrower and its Subsidiaries prior to becoming a party to this Agreement. (g) Pledges. For avoidance of doubt, the parties to this Agreement acknowledge that the provisions of this subsection concerning assignments of Loans and Notes relate only to absolute assignments and that such provisions do not prohibit assignments creating security interests, including, without limitation, any pledge or assignment by a Lender of any Loan or Note to any Federal Reserve Bank in accordance with applicable law. 8.7 Adjustments. If any Lender (a "benefitted Lender") shall at any time receive any payment of all or part of its Loans, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in Section 6(d) or (e), or otherwise), in a greater proportion than any such payment to or collateral received by any other Lender, if any, in respect of such other Lender's Loans that are then due and payable, or interest thereon, such benefitted Lender shall purchase for cash from the other Lenders a participating interest in such portion of each such other Lender's Loans, or shall provide such other Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such benefitted Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the Lenders; provided, 40 however, that if all or any portion of such excess payment or benefits is thereafter recovered from such benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. 8.8 Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by facsimile transmission), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with the Borrower and the Administrative Agent. 8.9 Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 8.10 Integration. This Agreement and the other Loan Documents represent the agreement of the Borrower, the Administrative Agent and the Lenders with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Administrative Agent or any Lender relative to subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents. 8.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 8.12 WAIVERS OF JURY TRIAL. THE BORROWER, THE ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT. 8.13 Confidentiality. Each Lender agrees to keep confidential any written or oral information (a) provided to it by or on behalf of the Borrower pursuant to or in connection with this Agreement or (b) obtained by such Lender based on a review of the books and records of the Borrower; provided that nothing herein shall prevent any Lender from disclosing any such information (i) to its affiliates, the Administrative Agent or any other Lender, (ii) to any Transferee which agrees to comply with the provisions of this subsection, (iii) to its employees, directors, agents, attorneys, accountants and other professional advisors, (iv) upon the request or demand of any Governmental Authority having jurisdiction over such Lender, (v) in response to 41 any order of any court or other Governmental Authority or as may otherwise be required pursuant to any Requirement of Law, (vi) which has been publicly disclosed other than in breach of this Agreement, or (vii) in connection with the exercise of any remedy hereunder. In the event that a Lender determines to disclose information pursuant to clause (v) of this subsection 8.13, such Lender will, to the extent permitted by applicable law, notify the Borrower prior to disclosing such information. 42 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. VIRGINIA ELECTRIC AND POWER COMPANY By: /s/ J. Kennerly Davis. Jr. Name: J. Kennerly Davis, Jr. Title: Vice President Treasurer and Corporate Secretary CHEMICAL BANK, as Administrative Agent and as a Lender By: /s/ Jane Ritchie Name: Jane Ritchie Title: Vice President FIRST UNION NATIONAL BANK OF VIRGINIA, as a Lender By: /s/ Douglas T. Davis Name: Douglas T. Davis Title: Vice President THE FUJI BANK, LIMITED, as a Lender By: /s/ Gina M. Kearns Name: Gina M. Kearns Title: Vice President & Manager J.P. MORGAN DELAWARE, as a Lender By: /s/ Philip S. Detjens Name: Philip S. Detjens Title: Vice President 43 NATIONS BANK, N.A. (CAROLINAS), as a Lender By: /s/ Brenda R. Tate Name: Brenda R. Tate Title: Vice President ABN AMRO BANK N.V. (NEW YORK BRANCH), as a Lender By: /s/ John W. Deegan Name: John W. Deegan Title: Vice President By: /s/ George M. Dugan Name: George M. Dugan Title: Vice President THE FIRST NATIONAL BANK OF CHICAGO, as a Lender By: /s/ Paul C. Friedland Name: Paul C. Friedland Title: Senior Managing Director THE MISTUBISHI BANK, LIMITED, as a Lender By: /s/ J. Bruce Meredith Name: J. Bruce Meredith Title: Senior Vice President and Manager 44 THE SUMITOMO BANK, LIMITED, as a Lender By: /s/ S. Higashi Name: S. Higashi Title: Joint General Manager TORONTO DOMINION (NEW YORK), INC., as a Lender By: /s/ Debbie A. Greene Name: Debbie A. Greene Title: Vice President WACHOVIA BANK OF NORTH CAROLINA, as a Lender By: /s/ F. Richard Redden III Name: F. Richard Redden, III Title: Corporate Banking Officer THE BANK OF NEW YORK, as a Lender By: /s/ Ian K. Stewart Name: Ian K. Stewart Title: Senior Vice President CRESTAR BANK, as a Lender By: /s/ Christopher B. Werner Name: Christopher B. Werner Title: Vice President SCHEDULE I ADDRESSES AND COMMITMENTS Name and Address of Lender Amount of Commitment CHEMICAL BANK $36,000,000.00 270 Park Avenue New York, New York 10017 Attention: Jane Ritchie Facsimile: (212) 270-7138 FIRST UNION NATIONAL BANK OF VIRGINIA $30,000,000.00 901 East Cary Street, 2nd Floor Richmond, VA 23219 Attention: Martin Rust Facsimile: (804)-788-9673 THE FUJI BANK, LIMITED $28,000,000.00 Two World Trade Center, 79th Floor New York, NY 10048 Attention: Gina Kearns Facsimile: (212)-912-0516 J.P. MORGAN SERVICES, INC. $28,000,000.00 500 Stanton-Christiana Road Newark, DE 19713 Attention: Loan Department Facsimile: (303)-634-1093 NATIONSBANK, N.A. (CAROLINAS) $28,000,000.00 100 North Tryon, 8th Floor Charlotte, NC 28255 Attention: Brenda Tate Facsimile: (704)-386-1270 ABN AMRO BANK N.V. $20,000,000.00 500 Park Avenue New York, NY 10022 Attention: Pam Delvecchio Facsimile: (212)-832-7129 THE FIRST NATIONAL BANK OF CHICAGO $20,000,000.00 One First National Plaza Chicago, IL 60670 Attention: Richard H. Waldman Facsimile: (312)-732-3055 THE MISTUBISHI BANK, LIMITED $20,000,000.00 191 Peachtree Street, Suite 1170 Atlanta, GA 30303 Attention: Randy Glass Facsimile: (404)-730-9014 THE SUMITOMO BANK, LIMITED $20,000,000.00 277 Park Avenue New York, NY 10172 Attention: Harry Oashi Facsmile: (212)-224-5188 TORONTO DOMINION (NEW YORK), INC. $20,000,000.00 909 Fannin Street Houston, TX 77010 Attention: Neva Nesbitt Facsimile: (713)-951-9921 WACHOVIA BANK OF NORTH CAROLINA $20,000,000.00 301 North Main Street Winston Salem, NC 27150 Attention: F. Richard Redden III Facsimile: (910)-761-6458 THE BANK OF NEW YORK $15,000,000.00 One Wall Street, 19th Floor New York, NY 10286 Attention: Dennis Pidherny Facsimile: (212)-635-7923 CRESTAR BANK $ 15,000,000.00 9l9 East Main Street Richmond, VA 23219 Attention: Christopher Werner Facsimile: (804)-782-5413 SCHEDULE II FACILITY FEE/APPLICABLE MARGIN
Level I Level 2 Level 3 Level 4 Level 5 Senior Secured A/A2 or BBB or BBB-/Baa2 Ratings S&P/Moody's higher A-/A3 BBB+/Baal or Baa3 BBB-/Baa3 or Lower Facility Fee Rate* Applicable Margins* LIBOR CD Rate ABR
* In the event such ratings fall within different Levels, the foregoing will be based on the Level with the highest rating (i.e., the lower Level number), except that in the event that the lower of such ratings is more than one Level below the higher of such ratings, the Facility Fee Rate and the Applicable Margin will be determined based on the Level one Level above the lower of such ratings. In the event that there is no Moody's Bond Rating or S&P Bond Rating available (other than due to both Moody's Investor Services, Inc. and Standard & Poor's Ratings Group ceasing to be engaged in the business of rating corporate debt securities), then the Facility Fee Rate and the Applicable Margin will be determined based on Level 5. In the event that both Moody's Investor Services, Inc. and Standard & Poor's Ratings Group cease to be engaged in the business of rating corporate debt securities, the parties hereto agree to negotiate in good faith to establish on an equitable basis new Facility Fee Rates and Applicable Margins. SCHEDULE III PERMITTED GUARANTEE OBLIGATIONS 1. Guarantee Agreement between Virginia Electric and Power Company and Chemical Bank dated August 31, 1995 EX-11 3 EXHIBIT 11 EXHIBIT 11 Dominion Resources, Inc. Computation of Earnings Per Share of Common Stock Assuming Full Dilution Years (Million, Except Per Share Amounts) 1995 1994 1993 Consolidated net income (1) $425.0 $478.2 $516.6 ====== ====== ====== Adjustments to average common shares: Shares of common stock -average shares outstanding 173.8 170.3 165.7 Plus: Additional shares assuming conversion of installments received on Stock Purchase Plan for Customers of Virginia Power at average market value (2) .5 .6 .6 ------ ------ ------ Adjusted average common shares 174.3 170.9 166.3 ====== ====== ====== Earnings per share $2.44 $ 2.80 $ 3.11 ===== ======= ======= Notes: (1) See the Consolidated Statements of Income. (2) Based on the following date: 1995 1994 1993 Installments received on Stock Purchase Plan for Customers of Virginia Power at year-end $17.81 $ 22.4 $ 26.8 Average market per common share $38.25 $ 40.13 $ 43.88
EX-13 4 EXHIBIT 13 DOMINION RESOURCES, INC. FINANCIAL SECTION OF THE 1995 ANNUAL REPORT TO SHAREHOLDERS (Incorporated by Reference) 19 Selected Consolidated Financial Data
(millions, except per share amounts and percentages) 1995 1994 1993 1992 1991 1990 Revenues and other income $ 4,651.7 $ 4,491.1 $ 4,433.9 $ 3,791.1 $ 3,785.7 $ 3,532.5 Income before cumulative effect of a change in accounting principle $ 425.0 $ 478.2 $ 516.6 $ 428.9 $ 459.9 $ 445.7 Cumulative effect on prior years of changing the method of accounting for income taxes 15.6 Net income $ 425.0 $ 478.2 $ 516.6 $ 444.5 $ 459.9 $ 445.7 Total assets $ 13,903.3 $ 13,562.2 $ 13,349.5 $ 12,615.1 $ 11,201.4 $ 10,990.9 Long-term debt, preferred stock subject to mandatory redemption and preferred securities of a subsidiary trust $ 4,926.9 $ 4,934.2 $ 4,976.7 $ 4,667.4 $ 4,668.2 $ 4,697.3 Common stock data: Earnings per share before cumulative effect of a change in accounting principle $ 2.45 $ 2.81 $ 3.12 $ 2.66 $ 2.94 $ 2.92 Cumulative effect on prior years of changing the method of accounting for income taxes .10 Earnings per share $ 2.45 $ 2.81 $ 3.12 $ 2.76 $ 2.94 $ 2.92 Dividends paid per share $ 2.58 $ 2.55 $ 2.48 $ 2.40 $ 2.32 $ 2.23 Market value per share at year-end 41.25 36.00 45.38 39.50 38.00 31.25 Book value per share at year-end 26.88 26.60 26.38 25.21 24.41 23.41 Return on equity--average 9.2% 10.6% 12.2% 11.2% 12.4% 12.6% Payout ratio 105.3% 90.7% 79.5% 87.0% 78.9% 76.4% Price/earnings ratio at year-end 16.8 12.8 14.5 14.3 12.9 10.7 Outstanding shares of common stock --average 173.8 170.3 165.7 161.1 156.5 152.5 --actual (year-end) 176.4 172.4 168.1 163.8 158.8 154.8 Capitalization:* Long-term debt $ 4,348.9 $ 4,384.1 $ 4,219.5 $ 4,111.8 $ 4,025.6 $ 4,105.2 Preferred securities 135.0 Preferred stock 689.0 816.1 819.5 845.6 761.7 775.9 Common equity 4,742.0 4,586.1 4,435.9 4,131.3 3,877.8 3,623.9 Total capitalization $ 9,914.9 $ 9,786.3 $ 9,474.9 $ 9,088.7 $ 8,665.1 $ 8,505.0 *Capitalization excludes: Nonrecourse-nonutility financing $ 684.7 $ 727.1 $ 726.8 $ 593.4 $ 545.7 $ 494.8 Short-term debt $ 237.3 $ 146.0 $ 262.8 $ 125.2 $ 154.0 $ 142.4 Property, plant and equipment: Electric utility $ 14,201.6 $ 13,896.6 $ 13,376.1 $ 12,930.6 $ 12,397.7 $ 11,822.4 Nuclear fuel 836.0 817.2 814.1 754.6 766.4 732.9 Other 939.8 701.6 724.5 451.4 213.4 108.8 Total 15,977.4 15,415.4 14,914.7 14,136.6 13,377.5 12,664.1 Less accumulated depreciation, depletion and amortization 5,655.1 5,170.0 4,802.1 4,459.5 4,110.5 3,725.5 Net property, plant and equipment $ 10,322.3 $ 10,245.4 $ 10,112.6 $ 9,677.1 $ 9,267.0 $ 8,938.6 CWIP included in property, plant and equipment $ 512.1 $ 828.2 $ 913.1 $ 840.9 $ 736.1 $ 691.7
20 Consolidated Statements of Income and Retained Earnings
For The Years Ended December 31, 1995 1994 1993 (millions, except per share amounts) Operating revenues and income: Electric utility $ 4,350.4 $ 4,170.8 $ 4,187.3 Nonutility 301.3 320.3 246.6 Total operating revenues and income 4,651.7 4,491.1 4,433.9 Operating expenses: Fuel, net 1,006.9 973.0 959.5 Purchased power capacity, net 688.4 669.4 646.1 Restructuring 121.5 Other operation 724.0 739.6 647.8 Maintenance 260.5 263.2 279.5 Depreciation, depletion and amortization 551.0 533.1 509.5 Other taxes 273.8 274.6 264.2 Total operating expenses 3,626.1 3,452.9 3,306.6 Operating income 1,025.6 1,038.2 1,127.3 Other income 7.3 13.5 15.1 Income before fixed charges and federal income taxes 1,032.9 1,051.7 1,142.4 Fixed charges: Interest charges, net 381.7 360.3 373.5 Preferred dividends of Virginia Power 44.1 42.2 42.1 Total fixed charges 425.8 402.5 415.6 Income before provision for federal income taxes 607.1 649.2 726.8 Provision for federal income taxes 182.1 171.0 210.2 Net income $ 425.0 $ 478.2 $ 516.6 Retained earnings, January 1 1,455.2 1,417.8 1,319.1 Common dividends and other deductions: Dividends (448.7) (434.7) (411.2) Other deductions (3.9) (6.1) (6.7) Retained earnings, December 31 $ 1,427.6 $ 1,455.2 $ 1,417.8 Earnings per common share $ 2.45 $ 2.81 $ 3.12 Dividends paid per common share $ 2.58 $ 2.55 $ 2.48 Average common shares outstanding 173.8 170.3 165.7
The accompanying notes are an integral part of the Consolidated Financial Statements. 21 Management's Discussion and Analysis of Operations: (Unaudited) Overview Dominion Resources achieved earnings of $425.0 million in 1995 or $2.45 per average common share, compared with earnings of $478.2 million in 1994 or $2.81 per share. Virginia Power contributed $2.24 per share in 1995, down 14 cents from $2.38 per share in 1994. Dominion Resources' nonutility businesses contributed 21 cents per share in 1995, down 22 cents from 43 cents per share in 1994. EPS 1995 Change 1994 Change 1993 Virginia Power $ 2.24 (5.9)% $ 2.38 (15.6)% $ 2.82 Nonutility 0.21 (51.2)% 0.43 43.3% 0.30 Consolidated $ 2.45 (12.8)% $ 2.81 (9.9)% $ 3.12 Net Income 1995 Change 1994 Change 1993 (millions) Net income $ 425.0 (11.1)% $ 478.2 (7.4)% $ 516.6 Shares 173.8 2.1% 170.3 2.8% 165.7 ROE 9.2% 10.6% 12.2% The 1995 results were affected by a number of factors described below: Virginia Power Earnings Impacts Included: - - --increase in kilowatt-hour (kwh) sales from both retail and wholesale customers; and - - --increase in operating expenses attributable to restructuring costs, which reduced earnings by 44 cents per share (see Note O). Nonutility Businesses Earnings Impacts Included: - - --decrease in income from Dominion Energy attributable to the sale of the Black Warrior Trust units, which increased earnings by 17 cents per share in 1994. - - --increase in Dominion Resources' holding company expenses attributable to restructuring costs and other charges, which reduced earnings by 5 cents per share in 1995. Virginia Power Virginia Power's Operating Results As part of the Vision 2000 program, Virginia Power recorded $117.9 million of restructuring charges in 1995 (see Note O). Restructuring charges included severance costs, purchased power contract cancellation and negotiated settlement costs, capital project cancellation costs and other costs. Without restructuring costs, balance available for common stock in 1995 would have increased by $76.6 million. Virginia Power will incur additional restructuring charges in 1996. However, the amount of restructuring charges yet to be incurred is not known at this time. Savings to be realized will be reflected in lower construction expenditures, as well as lower operation and maintenance expenses. Virginia Power in 1994 recognized a net cost of $41.6 million associated with voluntary separation and early retirement packages accepted by about 1,400 employees. In addition, lower base revenues when compared with 1993 contributed to a decrease in the balance available for common stock in 1994. 1995 Change 1994 Change 1993 (millions) Revenues $4,350.4 4.3% $4,170.8 (0.4)% $4,187.3 Operating expenses 3,375.8 5.0% 3,216.4 3.1% 3,120.4 Balance available for common stock 388.7 (4.0)% 404.9 (13.3)% 466.9 Virginia Power's Operating Revenues In 1995 Virginia Power's revenues increased primarily due to the weather experienced in the last six months of 1995, increased customer growth and increased sales to wholesale customers. Revenues decreased in 1994 primarily because of lower base revenues for Virginia jurisdictional and County and Municipal customers. In February 1994, Virginia Power received a final order from the Virginia Commission in its 1992 base rate case that lowered the allowed return on equity to 11.4%. Operating Revenues Increase (decrease) from prior year 1995 1994 (millions) Customer growth $ 76.2 $ 22.5 Weather 81.6 (8.8) Change in base revenues 6.3 (35.0) Fuel cost recovery (8.9) (7.9) Other 24.4 12.7 Total $179.6 $(16.5) During 1995, Virginia Power had 44,955 new connections to its system compared to 46,741 in 1994. Kilowatt-Hour Sales 1995 Change 1994 Change 1993 (millions) Residential 22,512 4.1% 21,621 (1.0)% 21,846 Commercial 19,486 3.6% 18,801 1.5% 18,526 Industrial 10,606 3.6% 10,235 4.0% 9,840 Other 8,261 3.9% 7,950 (0.3)% 7,971 Total retail 60,865 3.9% 58,607 0.7% 58,183 Wholesale 08,088 13.4% 07,134 4.1% 06,853 Total sales 68,953 4.9% 65,741 1.1% 65,036 22 Degree-Days 1995 1994 Normal Cooling degree days 1,667 1,613 1,534 Percentage change compared to prior year 3.3% (5.2)% Heating degree days 3,790 3,515 3,662 Percentage change compared to prior year 7.8% (8.3)% The increase in kilowatt-hour sales in 1995 as compared to 1994 reflects increased customer growth and the weather experienced in the last six months of 1995, partially offset by the milder weather experienced in the first six months of 1995. The increase in kilowatt-hour sales in 1994 as compared to 1993 reflects the extreme weather experienced in January 1994, partially offset by lower sales during the second half of 1994 because of milder weather. The increase in sales to wholesale customers in 1995, as compared to 1994, was primarily due to weather experienced in surrounding regions by other utilities during the last six months of 1995 and increased marketing efforts by Virginia Power. Virginia Power's Operating Expenses (excluding federal income taxes) 1995 Change 1994 Change 1993 Fuel, net $1,006.9 3.5% $ 973.0 1.4% $ 959.5 Purchased power capacity, net 688.4 2.8% 669.4 3.6% 646.1 Other operation 543.8 (5.8) 577.4 9.8% 525.7 Maintenance 260.5 (1.0) 263.2 (5.8) 279.5 Restructuring 117.9 Depreciation and amortization 503.5 4.7% 480.7 3.8% 462.9 Taxes, other than income $ 254.8 0.8% $ 252.7 2.4% $ 246.7 Total $3,375.8 5.0% $3,216.4 3.1% $3,120.4 Other operation and maintenance expenses decreased in 1995 as compared to 1994. Expenses during 1994 included payroll and voluntary separation costs for those employees who elected to terminate service with Virginia Power under the 1994 Early Retirement and Voluntary Separation Programs, offset in part by recognition of insurance policyholder distributions. Expenses in 1995 reflected a decrease in payroll costs due to reduced staffing levels and weather-related overtime offset by 1995 salary increases and the impact of employees being reassigned from capital to operation and maintenance activities. In addition, 1995 expenses include expenses associated with the North Branch Power Station, increased obsolete inventory costs, increased accruals for employee benefits, and increased nuclear outage costs. [place chart here] Virginia Power 1995 System Energy Output Nuclear 32% Coal 39% Oil 1% Purchased Power 25% Other 3% Nonutility Nonutility Operating Results The nonutility net income decreased in 1995 as compared to 1994 because of the sale of the Black Warrior Trust units. The sale of the units, which hold royalty interests in proven, developed natural gas properties, provided a net gain of $28.9 million in the second quarter of 1994. Dominion Resources also recorded $3.6 million in restructuring expenses and $8.8 million in other charges in the fourth quarter of 1995. These expenses included restructuring costs at the holding company as well as litigation and other costs. All outstanding shareholder claims that were made in 1994 have been resolved. Without restructuring costs, net income in 1995 would have increased by $2.3 million and without other charges, net income in 1995 would have increased by $5.8 million. The nonutility companies increased net income in 1994 as compared to 1993 by 47.7% because of Dominion Energy's sale of the Black Warrior Trust units. 1995 Change 1994 Change 1993 (millions) Revenues $301.3 (5.9)% $320.3 29.9% $246.6 Operating expenses 244.6 4.8% 233.4 28.7% 181.4 Net income 36.3 (50.5)% 73.4 47.7% 49.7 Nonutility Operating Revenues Nonutility revenues decreased in 1995 because of the sale of the Black Warrior Trust units in 1994, partially offset by revenues at Dominion Capital's financial services company, First Source Financial, which began operating in April, 1995. The $8.3 million gain from the sale of the remaining Black Warrior Trust units in 1995 also partially offset the decrease in nonutility revenues. The 1994 revenue increase was attributable to the sale of the Black Warrior Trust units, partially offset by lower revenues from the Vidalia hydroelectric plant when compared with extraordinary water flows experienced in 1993. Nonutility Operating Expenses Operating expenses increased in 1995 because of restructuring and other charges which were incurred by Dominion Resources' holding company. The increase in 1994 operating expenses was consistent with revenue increases. 23 Consolidated Non-operating Items Income Taxes Income taxes increased in 1995 compared to 1994 primarily because of decreases in nonconventional fuel credits and other tax benefits. The nonutility companies recorded tax credits of $33.0 million in 1995. They were primarily generated from investments in low-income housing projects and natural gas production activities. Income taxes decreased in 1994 compared to 1993 primarily because of decreased pre-tax book income from the utility. This was partially offset by a tax increase from the nonutility companies because of the sale of the Black Warrior Trust units. The nonutility companies recorded tax credits of $36.6 million in 1994. Interest Charges Interest charges increased in 1995 as compared to 1994 primarily as a result of higher interest rates on the utility's First and Refunding Mortgage Bonds and Pollution Control Notes and as a result of a reduction of $10.6 million in the interest accrued for prior years on certain tax obligations in 1994. Interest charges decreased in 1994 as compared to 1993 as a result of the utility's reduction of $10.6 million in the interest accrued for prior years on certain tax obligations, and the utility's refinancing activities in current and prior years. Future Issues Recently Issued Accounting Standards In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which must be adopted by the company by January 1, 1996. This statement requires the company to review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and requires rate-regulated companies to write-off regulatory assets against earnings whenever those assets no longer meet the criteria for recognition of a regulatory asset as defined by SFAS No. 71. Based on the company's current operating environment, adoption of SFAS 121 is not expected to have a material impact. However, the Virginia Commission has established a proceeding to examine the issue of competition and the regulatory framework in Virginia. In addition, the Federal Energy Regulatory Commission (FERC) has initiated proceedings to address open-access transmission policy. If future regulatory reform should provide for a departure from cost-based regulation, regulators, electric utilities and other parties involved in the restructuring of the electric industry would face significant issues. One such issue is concerned with potential "stranded investment." Stranded investment represents costs incurred or commitments made by utilities under traditional cost-based regulation based on an obligation to serve supported by an implicit promise to recover prudently incurred costs that may not be reasonably expected to be recovered. Regulatory assets recognized under SFAS 71, unrecovered investment in power plants and commitments such as long-term purchased power contracts are items that may become stranded investment if prices for electric services are based on market rather than the cost of providing that service. 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 the Company operates, may evolve in the future to accommodate changes in the industry and to address issues such as recovery of potential stranded investment. At this time, company management can predict neither the ultimate outcome of the regulatory reform initiatives in the electric utility industry nor the impact such changes would have on the company. In 1995, the Financial Accounting Standards Board issued SFAS No. 123 "Accounting for Stock Based Compensation." The company has decided to continue to apply Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," for recognition and measurement purposes. Utility Issues Regulatory Policy: Regulatory policy continues to be of fundamental importance to Virginia Power. The cost of purchased capacity constitutes a large category of cost incurred in Virginia Power's operations. The Virginia Commission has authorized rates providing for the current recovery of the ongoing levels of capacity payments. Moreover, the Commission has established and reaffirmed deferral accounting that is intended to ensure dollar for dollar recovery of reasonably incurred capacity costs. Competition: In light of existing and potential threats and opportunities brought about by increased competition in the wholesale and retail markets for electricity, Virginia Power has undertaken cost-cutting measures to maintain its position as a low-cost producer of electricity, engaged in re-engineering efforts of its core business processes, and pursued a strategic planning initiative called Vision 2000 to encourage innovative approaches to serving traditional markets and to prepare appropriate methods by which to service future markets. In furtherance of these initiatives, Virginia Power has established separate business units for its nuclear operations, fossil and hydroelectric operations, commercial operations, as well as its energy services business. It has gained regulatory approval of innovative pricing proposals for industrial loads in Virginia and North Carolina, entered into an energy partnership with a key industrial customer, and in January 1996, acquired two energy services divisions of A & C Enercom of Atlanta, Georgia, which Virginia Power formed into a non-regulated subsidiary, A & C Enercom, Inc. As part of its Vision 2000 program, Virginia Power has developed a regulatory/legislative strategy intended to establish an orderly transition to a more competitive environment. 24 It supports a number of legislative proposals that have been introduced during the 1996 session of the Virginia General Assembly that are aimed at achieving greater flexibility for both the Virginia Commission and Virginia Power. Virginia Power will continue to be affected by the developing competitive market in wholesale power. Under the Energy Policy Act of 1992, any participant in the wholesale market can obtain a FERC order to provide transmission services, under certain conditions. In 1995 a wholesale power group was formed within Virginia Power to engage in the purchase and sale of whole sale electric power. The group has already developed trading relationships beyond the geographic limits of Virginia Power's retail service territory. In 1995, FERC issued a Notice of Proposed Rulemaking (NOPR) regarding open-access transmission service and a NOPR regarding real-time information networks and standards of conduct. The real-time information network would provide transmission users data concerning the availability of transmission service on a same-time basis. Virginia Power filed comments in both proceedings supporting FERC's objective to promote comparable open-access transmission service, however, the company urged FERC to rethink its suggestion of functional unbundling to insure the continued reliability of the transmission system. At present, competition for retail customers is limited. It arises primarily from the ability of certain business customers to relocate among utility service territories, to substitute other energy sources for electric power and to generate their own electricity. While the Energy Policy Act bans federal orders of transmission service to ultimate customers, broader retail competition that would allow customers to choose among electric suppliers is the subject of intense debate, both legislative and regulatory. If such competition were to develop, it would have the potential to shift costs among customer classes and to create significant transitional costs. Potential competition also exists for Virginia Power's sales to its wholesale cooperative and municipal customers. However, nearly all of this service is under contracts with multi-year notice provisions. To date, Virginia Power has not experienced any material loss of load, revenues or net income due to competition for its wholesale customers. The utility believes it has a strong capability to meet future competition. The City of Falls Church, Virginia, has indicated that it intends to pursue the establishment of a municipal electric system. In response to a Virginia Power petition, the Commission has ruled that it has jurisdiction over the City and that the City must seek approval from the Commission prior to implementing plans to condemn Virginia Power facilities within the City. Revenues from retail sales within the City of Falls Church account for less than 0.2% of Virginia Power's total revenues. As a result, Virginia Power will not experience a material loss of revenues or net income should a municipal electric system be created. No other city has communicated to Virginia Power any interest in forming a municipal electric system. In accordance with SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation," the company's financial statements reflect assets and costs based on current cost- based ratemaking regulations. Continued accounting under SFAS No. 71 requires that the following criteria be met: a) A utility's rates for regulated services provided to its customers are established by, or are subject to approval by, an independent third-party regulator; b) The regulated rates are designed to recover specific costs of providing the regulated services or products; and c) In view of the demand for the regulated services and the level of competition, direct and indirect, it is reasonable to assume that rates set at levels that will recover a utility's costs can be charged to and collected from customers. This criterion requires consideration of anticipated changes in levels of demand or competition during the recovery period for any capitalized costs. A utility's operations or portion of operations can cease to meet these criteria for various reasons, including a change in the method of regulation or a change in the competitive environment for regulated services. A utility whose operations or portion of operations cease to meet these criteria should discontinue application of SFAS No. 71 and write-off any regulatory assets and liabilities for those operations that no longer meet the requirements of SFAS No. 71. The company's operations currently satisfy the SFAS No. 71 criteria. However, if events or circumstances should change so that those criteria are no longer satisfied, management believes that a material adverse effect on the Company's results of operations and financial position may result. Environmental Matters: Virginia Power is subject to rising costs resulting from a steadily increasing number of federal, state and local laws and regulations designed to protect human health and the environment. These laws and regulations affect future planning and existing operations. They can result in increased capital, operating and other costs as a result of compliance, remediation, containment, and monitoring obligations of Virginia Power. These costs have been historically recovered through the ratemaking process; however, should material costs be incurred and not recovered through rates, Virginia Power's results of operations and financial condition could be adversely impacted. Virginia Power incurred expenses of $68.3 million, $67.3 million and $72.2 million (including depreciation) during 1995, 1994 and 1993, respectively, for environmental protection facilities and expects these expenses to be approximately $68.3 million in 1996. In addition, capital expenditures to limit or monitor hazardous substances were $23.4 million, $47.3 million and $94.4 million for 1995, 1994 and 1993, respectively. The amount estimated for 1996 for these expenditures is $24.5 million. The Clean Air Act, as amended in 1990, requires Virginia Power to reduce its emissions of sulfur dioxide and nitrogen oxides. Beginning in 1995, the sulfur dioxide reduction pro gram is based on the issuance of a limited number of sulfur dioxide emission allowances, each of which may be used as a 25 permit to emit one ton of sulfur dioxide into the atmosphere or may be sold to someone else. The program is administered by the Environmental Protection Agency (EPA). Virginia Power has installed sulfur dioxide (SO2) control equipment on Unit 3 at Mt. Storm Power Station. The SO2 control equipment began operation on October 31, 1994. The cost of this and related equipment was $147 million. Virginia Power has completed its compliance plan for Phase II of the Clean Air Act, with the exception of some additional studies concerning Phase II nitrogen oxide (NOx) controls. The plan will involve switching to lower sulfur coal, purchase of emission allowances and addi tional NOx and SO2 controls. Maximum flexibility and least- cost compliance will be maintained through annual studies. Capital expenditures on Clean Air Act compliance over the next 5 years are projected to be approximately $61 million. Electromagnetic Fields: The possibility that exposure to electromagnetic fields (EMFs) emanating from power lines, household appliances and other electric sources may result in adverse health effects has been a subject of increased public, governmental and media attention. A considerable amount of scientific research has been conducted on this topic without definitive results. Research is continuing to resolve scientific uncertainties. It is too soon to tell what, if any, impact EMFs may have on the company's financial condition. Nuclear Operations: Three normal refueling outages are currently scheduled for 1996. Refueling outages typically occur every 18 months and last for approximately 48 days. Virginia Power's goal is to reduce refueling outages from an average of 48 days to 35 days. When nuclear units are refueled, Virginia Power replaces the nuclear-generated power with other more expensive sources. A reduction in the length of the outage should result in increased availability of low-cost nuclear generation, thereby lowering generation expenses. The Nuclear Regulatory Commission revised the nuclear power plant license renewal rules issued in 1991. Virginia Power intends to work with industry groups on license renewal programs and to apply for renewal of the current 40-year licenses by 1999. Nonutility Issues Independent Power: The major emphasis in expanding Dominion Energy's core independent power business is international. With investments in Argentina, Bolivia and Belize and growing interest elsewhere, the related risks include currency fluctuations, developments in national markets, and governmental actions. Dominion Energy is managing these risks by limiting its investments to stable countries and by avoiding over-commitment to one country or region. In the United States, the continuing industry trend toward deregulation will offer opportunities to acquire existing assets. Dominion Energy's U.S. independent power contracts generally are not variable based on current market prices. To date, none of the company's contractual purchasers have sought to modify the terms of any of the company's independent power contracts. If any of these contracts were to be challenged and unfavorably modified there could be a significant impact on the company's results of operations. Although, in the future, there could be challenges to the enforceability of these power sales contracts, management has evaluated all of its significant independent power contracts and concluded that the terms of such contracts are enforceable. Natural Gas: Natural gas operations are now making a significant contribution to Dominion Energy's earnings and are expected to continue to do so. Since Dominion Energy has acquired and developed primarily proven and/or producing reserves, the trend of financial performance will depend largely on the market price of natural gas. The market price of any commodity is influenced by many factors outside of the control of Dominion Energy. However, because of the advantageous cost basis of Dominion Energy's reserves and the related tax credits, the natural gas operations are profitable at today's market prices. Since the majority of the reserves have associated tax credits based on production, future profitability could be impacted adversely by federal legislation that would eliminate the tax credit before its current expiration in 2002. Real Estate Investments: Dominion Capital's investments in real estate have historically been a relatively minor part of the nonutility business. Residential property development primarily targets the middle- to upper-price market. The critical risk to financial performance in this market is the regional economy, which affects both market price and the rate at which the market absorbs the developed product. Commercial Lending: Dominion Capital's joint venture, First Source Financial LLP, lends to middle-market companies. First Source serves the nation's demand for loans to businesses which need funds for expansion, recapitalization and acquisition. The critical risk to financial performance of First Source is a decline in the general economy and competitive forces affecting individual borrowers. This risk is reduced through a policy of diversification of the lending portfolio. First Source has assembled a proven management team, identified a specific market and established a strategic plan for growth in the commercial lending arena. Corporate Issues Dominion Resources is unable to predict how changing industry conditions may affect future results and that it is possible that in order to address changing conditions in ways that are designed to improve the ability of Dominion Resources and Virginia Power to compete and to serve the goal of preserving and enhancing shareholder value, it may be necessary to effect structural changes either within Virginia Power or with respect to the holding company structure. During 1995, in a proceeding instituted by the Virginia Commission in 1994 into the relationship between Dominion Resources and Virginia Power, the Commission Staff filed a Final Report, making numerous recommendations on corporate governance, intercompany relationships and regulatory tools for the Commission, and the Commission entered a con sent order, effective until July 2, 1996, requiring Commission approval before Dominion Resources may take certain corporate actions involving Virginia Power. The two companies have responded to the Final Report. The Staff's final response is due March 15, 1996. Dominion Resources is unable to predict the outcome of these matters. 26 Consolidated Balance Sheets Assets At December 31, 1995 1994 (millions) Current assets: Cash and cash equivalents $ 66.7 $ 146.7 Trading securitie 10.8 110.8 Customer accounts receivable, net 362.6 202.7 Other accounts receivable 104.2 83.2 Accrued unbilled revenues 179.5 97.4 Materials and supplies at average cost or less: Plant and general 160.2 186.6 Fossil fuel 71.2 122.9 Other 141.5 136.2 1,096.7 1,086.5 Investments: Investments in affiliates 436.2 282.8 Available-for-sale-securities 285.5 286.5 Nuclear decommissioning trust funds 351.4 260.9 Investments in real estate 133.0 107.5 Other 236.6 222.4 1,442.7 1,160.1 Property, plant and equipment: (includes plant under construction of $512.1 [1994-$828.2]) 15,977.4 15,415.4 Less accumulated depreciation, depletion and amortization 5,655.1 5,170.0 10,322.3 10,245.4 Deferred charges and other assets: Regulatory assets 816.4 871.0 Other 225.2 199.2 1,041.6 1,070.2 Total assets $13,903.3 $13,562.2 The accompanying notes are an integral part of the Consolidated Financial Statements. 27 Liabilities and Shareholders' Equity At December 31, 1995 1994 (millions) Current liabilities: Securities due within one year $ 420.8 $ 399.1 Short-term debt 236.6 146.0 Accounts payable, trade 336.7 343.5 Accrued interest 110.5 106.3 Accrued payroll 77.7 59.5 Severance costs accrued 42.5 Customer deposits 55.4 55.0 Other 114.0 128.0 1,394.2 1,237.4 Long-term debt: Utility 3,889.4 3,910.4 Nonrecourse-nonutility 523.5 640.2 Other 199.0 160.0 4,611.9 4,710.6 Deferred credits and other liabilities: Deferred income taxes 1,661.1 1,613.6 Investment tax credits 272.2 289.2 Deferred fuel expenses 57.7 51.5 Other 340.2 257.7 2,331.2 2,212.0 Total liabilities 8,337.3 8,160.0 Commitments and contingencies Virginia Power obligated mandatorily redeemable preferred securities of subsidiary trust* 135.0 Preferred stock: Virginia Power stock subject to mandatory redemption 180.0 222.1 Virginia Power stock not subject to mandatory redemption 509.0 594.0 Common shareholders' equity: Common stock--no par authorized 300,000,000 shares, outstanding--176,414,110 shares at 1995 and 172,405,049 shares at 1994 3,303.5 3,157.6 Retained earnings 1,427.6 1,455.2 Allowance on available-for-sale securities (6.7) (47.8) Other paid-in capital 17.6 21.1 4,742.0 4,586.1 Total liabilities and shareholders' equit $13,903.3 $13,562.2 *As described in Note L, the 8.05% Junior Subordinated Notes totaling $139.2 million principal amount constitute 100% of the Trust's assets. 28
Consolidated Statements of Cash Flows For The Years Ended December 31, 1995 1994 1993 (millions) Cash flows from (to) operating activities: Net income $ 425.0 $ 478.2 $ 516.6 Adjustments to reconcile net income to net cash: Depreciation, depletion and amortization 633.5 610.7 593.9 Deferred income taxe 26.4 68.2 34.7 Investment tax credits, net (16.9) (17.1) (19.2) Allowance for other funds used during construction (6.7) (6.4) (5.1) Deferred fuel expense 6.2 (2.6) (36.1) Deferred capacity expense 6.4 26.5 72.8 Restructuring expenses 96.2 Non-cash return on terminated construction project costs--pre-tax (8.4) (10.3) (11.9) Gain on sale of trust units (8.7) (49.0) Changes in current assets and liabilities: Accounts receivable (38.7) 19.1 (56.6) Accrued unbilled revenue (27.7) 11.9 (6.3) Materials and supplies 61.1 (6.5) 27.4 Accounts payable, trade (37.6) 32.6 26.5 Accrued interest and taxes 33.6 (46.5) 31.1 Provision for rate refunds (12.2) (89.5) (87.6) Other changes 39.8 (27.5) 16.8 Net cash flows from operating activities 1,171.3 991.8 1,097.0 Cash flows from (to) financing activities: Issuance of common stock 161.7 186.7 196.6 Issuance of preferred stock 150.0 Preferred securities of subsidiary trust 135.0 Issuance of long-term debt: Utility 240.0 464.0 1,035.0 Nonrecourse-nonutility 54.3 18.7 288.4 Issuance (repayment) of short-term debt 101.1 (117.0) 133.4 Repayment of long-term debt and preferred stock (553.0) (349.6) (1,241.6) Common dividend payments (448.7) (434.7) (411.2) Other (20.5) (8.0) (8.8) Net cash flows from (to) financing activities (330.1) (239.9) 141.8 Cash flows from (used in) investing activities: Utility capital expenditures (excluding AFC-equity funds) (577.5) (660.9) (712.8) Acquisition of natural gas and independent power properties (128.5) (316.8) Sale of accounts receivable, net (160.0) Sale of trust unit 16.4 128.4 Other investments (71.6) (74.3) (189.6) Net cash flows used in investing activities (921.2) (707.2) Increase (decrease) in cash and cash equivalents $ (80.0) $ 44.7 $ 19.6 Cash and cash equivalents at beginning of the year 146.7 102.0 82.4 Cash and cash equivalents at end of the year $ 66.7 $ 146.7 $ 102.0
The accompanying notes are an integral part of the Consolidated Financial Statements. 29 Management's Discussion and Analysis of Cash Flows and Financial Condition: (Unaudited) Consolidated Financing Activity Each of Dominion Resources' subsidiaries--Virginia Power, Dominion Capital, and Dominion Energy--obtains capital primarily through cash from operations, financings and equity contributed by the parent. The utility and nonutility companies obtain financing based on their individual credit profiles and ability to repay the debt. In no way are the other companies contingently liable for each other's indebtedness. Commercial Paper To finance working capital for operations, proceeds from the sale of Dominion Resources commercial paper in regional and national markets are made available to its nonutility subsidiaries under the terms of intercompany credit agreements. To support these borrowings, Dominion Resources had available bank lines of credit totaling $300.8 million at the end of 1995. Amounts borrowed by the subsidiaries are repaid to Dominion Resources through cash flows from operations and through proceeds from permanent financings. Common Equity Dominion Resources made no underwritten public offerings of common stock in 1995, but did raise capital from sales of common stock through an Automatic Dividend Reinvestment and Stock Purchase Plan, a Customer Stock Purchase Plan, and an Employee Savings Plan. Dominion Resources will continue to raise capital through these plans in 1996. Proceeds from these plans were (in millions): 1995-$136.9; 1994-$166; and 1993-$196.6. Reflected in the amounts of proceeds from these plans were the repurchases of 685,500 shares of common stock in 1995 for an aggregate price of $24.8 million, and 566,000 shares in 1994 for an aggregate price of $20.7 million. Dominion Resources is authorized to repurchase up to 5 million shares of its common stock. Virginia Power Liquidity and Capital Resources Liquidity is important to Virginia Power because of the capital intensive nature of its business, which requires large investments in long-lived assets. Cash from operations has accounted for, on average, 72 percent of Virginia Power's cash requirements during the past three years. Virginia Power's major external sources of financing during 1995 were the issuances of $200 million of First and Refunding Mortgage Bonds, $135 million of preferred securities of a subsidiary trust, and $40 million of unsecured medium term notes. The proceeds from these financings were used for redemptions of various series of Dividend Preferred Stock having an aggre gate principal value of $126.7 million, and payment of a portion of Virginia Power's mandatory debt maturities and capital requirements. During the year, Virginia Power retired $312.3 million of securities through mandatory debt maturities. Cash Flows 1995 1994 1993 (millions) Sources of cash: Cash from operations $1,125.4 $1,018.3 $1,022.9 Common stock 75.0 50.0 Preferred securities of a subsidiary trust 135.0 Preferred stock 150.0 Long-term debt 240.0 464.0 1,035.0 Other 177.4 6.9 76.2 $1,677.8 $1,564.2 $2,334.1 Uses of cash: Utility plant $ 519.9 $ 580.9 $ 644.9 Nuclear fuel 57.6 80.0 67.9 Repayment of long-term debt and preferred stock 439.0 334.3 1,072.1 Dividends 438.6 438.2 421.1 Nuclear decommissioning contributions 28.5 24.5 24.4 Other 194.2 106.3 103.7 $1,677.8 $1,564.2 $2,334.1 These transactions, among other factors, had the effect of raising Virginia Power's embedded cost of debt from 7.65 percent to 7.73 percent in 1995. Virginia Power's common equity portion of its capitaliza tion was 43.8 percent at December 31, 1995. Virginia Power's commercial paper program is supported by a $300 million revolving credit facility. The program's debt limit is $300 million. Proceeds from the sale of commercial paper are primarily used to finance working capital for operations. Net borrowings under the commercial paper program were $169 million at the end of 1995. In 1995, Virginia Power paid common stock and preferred stock dividends of $394.3 million and $44.3 million, respectively. Capital Requirements Virginia Power presently anticipates that kilowatt-hour sales will grow approximately two percent a year through 2010. Capacity needed to support this growth will be provided through a combination of generating units constructed by Virginia Power and purchases from nonutility generators and other utility generators. Each of these options plays an important role in Virginia Power's overall plan to meet capacity needs. After 1996, no new base load generation is expected to be needed until the end of the next decade. From 2000 until 2009, Virginia Power will need to add peaking or intermediate units to meet anticipated demand. 30 [place graph here] Virginia Power Capital Expenditures (Millions of Dollars) 93 713 94 661 95 578 96 569 97 530 98 531 Construction continues on the Clover project in which Virginia Power has a 50 percent ownership interest. Virginia Power's share of construction costs is estimated to be $514.7 million. As of December 31, 1995, Virginia Power had incurred $500.7 million in construction expenditures. Clover Unit 1 began commercial operation in October 1995 and Clover Unit 2 is expected to be in service by April 1996. In 1995, with the near completion of the 832 megawatt coal- fired power station near Clover, Virginia, Virginia Power began a period in which internal cash generation will exceed con struction expenditures. The internal generation of cash in 1994 and 1993 provided 88 percent and 84 percent, respectively, of the funds required for Virginia Power's capital requirements. Virginia Power will require $259.6 million to meet long-term debt maturities in 1996. Virginia Power presently estimates that, for 1996, all of its construction expenditures, including nuclear fuel expenditures, will be met through cash flow from operations. Other capital requirements will be met through a combination of sales of securities and short-term borrowings. Projected construction and nuclear fuel expenditures for the next three years are expected to total approximately $1.6 billion, including allowance for funds used during construction (AFC). Nonutility Liquidity and Capital Resources Current capital requirements for nonutility operations are funded from: internally generated funds; intercompany credit agreements with Dominion Resources; a $200 million medium-term note facility; $185 million in bank revolving credit agreements and a $90 million commercial paper program. In 1995, net borrowings decreased by $121.5 million, primarily due to the cash inflow from the equity contributions of Dominion Resources. In 1994, net borrowings decreased by $33.7 million, primarily due to the cash inflow from the sale of the Black Warrior Trust units. Net borrowings increased by $264.2 million during 1993. These funds were borrowed principally for investments in marketable securities, natural gas acquisitions, land acquisitions and independent power projects. Cash Flows 1995 1994 1993 (millions) Sources of cash: Cash from operations $ 91.5 $ 48.1 $116.9 Issuance of debt 48.7 81.3 415.5 Sale of trust units 16.4 128.4 Contribution from parent 299.3 4.9 35.0 Other 13.6 55.9 91.9 $469.5 $318.6 $659.3 Uses of cash: Investments $ 52.8 $ 39.8 $ 61.7 Independent power properties 60.2 214.1 Natural gas properties 68.3 60.4 102.7 Land and land development 11.7 0.6 Repayment of debt 170.2 115.0 151.3 Dividends 54.3 39.1 32.9 Other 52.0 64.3 96.0 $469.5 $318.6 $659.3 In 1995 Dominion Capital and Dominion Energy received $150 million and $149.3 million, respectively, from Dominion Resources to finance operations. Nonutility capital requirements in 1996 are expected to be funded primarily by equity contributions and cash flows from operations. Financial Position 1995 1994 1993 (millions) Marketable securities $ 296.3 $ 397.3 $ 436.9 Hydroelectric project 129.6 123.5 116.6 Enron/Dominion Cogen Corp. 91.6 86.2 90.0 Energy partnerships 120.5 124.0 125.6 Venture partnership 97.5 Financing partnership 59.0 Real estate partnerships 15.8 11.2 10.3 Other 155.6 140.3 102.4 Total investments $ 965.9 $ 882.5 $ 881.8 Land and land development 122.2 97.2 104.7 Independent power properties 370.8 240.0 243.1 Natural gas properties 314.7 279.3 326.7 Other assets 337.8 472.1 303.0 Total assets $2,111.4 $1,971.1 $1,859.3 Total long-term debt $ 523.5 $ 640.2 $ 700.6 31 Notes to Consolidated Financial Statements Note A Significant Accounting Policies General: Dominion Resources, Inc. is a holding company headquartered in Richmond, Virginia. Its primary business is Virginia Electric and Power Company, 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 governmental 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 over 80 percent of its population. The company also operates business subsidiaries active in independent power production; the acquisition and sale of natural gas reserves; in financial services, and in real estate. Some of the independent power and natural gas projects are located in foreign countries. Net assets of approximately $200 million are involved in independent power production operations in Latin America. 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 duringthe reporting period. Actual results could differ from those estimates. Dominion Resources is currently exempt from regulation as a registered holding company under the Public Utility Holding Company Act of 1935. Accounting for the utility business conforms with generally accepted accounting principles as applied to regulated public utilities and as prescribed by federal agencies and the com missions of the states in which the utility business operates. Consolidation: The Consolidated Financial Statements include the accounts of Dominion Resources and its subsidiaries. In consolidation, all significant inter-company trans actions and accounts have been eliminated. Operating Revenues and Income: Utility revenues are recorded on the basis of service rendered. Dividend income on securities owned is recognized on the ex-dividend date. Investments in common stocks of affiliates representing 20 percent to 50 percent ownership, and joint ventures and partnerships representing generally 50 percent or less ownership interests, are accounted for under the equity method. Property, Plant and Equipment: Utility plant is recorded at original cost, which includes labor, materials, services, AFC (where permitted by regulators), and other indirect costs. The cost of acquisition, exploration and development of natural resource properties is accounted for under the successful efforts method. Interest is capitalized in connection with the construction of major facilities. The capitalized interest is recorded as part of the asset to which it relates and is amortized over the asset's estimated useful life. In 1995, 1994 and 1993, $14.1 million, $13.8 million, and $11.1 million of interest cost was capitalized, respectively. Capitalized interest includes AFC- other funds for certain regulatory jurisdictions of $6.7 million, $6.4 million and $5.1 million for the years ended December 31, 1995, 1994 and 1993, respectively. Major classes of property, plant and equipment and their respective balances are: At December 31, 1995 1994 (millions) Utility: Production $7,340.0 $6,916.6 Transmission 1,316.1 1,301.2 Distribution 4,215.7 3,989.8 Other electric 817.7 860.8 Construction work-in-progress 512.1 828.2 Nuclear fuel 836.0 817.2 Total utility 15,037.6 14,713.8 Nonutility: Natural gas properties 395.7 331.6 Independent power properties 462.7 253.0 Construction work-in-progress 45.6 Other 81.4 71.4 Total nonutility 939.8 701.6 Total property, plant and equipment $15,977.4 $15,415.4 Depreciation, Depletion and Amortization: Depreciation of utility plant (other than nuclear fuel) is computed using the straight- line method based on projected useful service lives. The cost of depreciable utility plant retired and the cost of removal, less salvage, are charged to accumulated depreciation. The provi sion for depreciation on utility plant was based on weighted average depreciable plant using a rate of 3.2 percent for 1995, 1994, and 1993. Owned nuclear fuel is amortized on a unit-of-production basis sufficient to amortize fully, over the estimated service life, the cost of the fuel plus permanent storage and disposal costs. Costs in excess of net assets acquired from equity investments are amortized over periods not to exceed 40 years. Nuclear Decommissioning: Nuclear plant decommissioning costs are accrued and recovered through rates over the expected service lives of Virginia Power's nuclear generating units. The amounts collected from customers are being placed in trusts, which, with the accumulated earnings thereon, will be utilized solely to fund future decommissioning obligations. North Anna Surry Unit 1 Unit 2 Unit 1 Unit 2 NRC license expiration year 2018 2020 2012 2013 Method of decommissioning DECON DECON DECON DECON (millions) Current cost estimate (1994) dollars $247.0 $253.6 $272.4 $274.0 External trusts balance at December 31, 1995 84.1 78.9 96.2 92.2 1995 contribution to external trusts 6.1 5.7 8.0 8.7 32 Approximately every four years, site-specific studies are prepared to determine the decommissioning cost estimate for Virginia Power's four nuclear units. The current cost estimate is based on the DECON method, which assumes the activities associated with the decontamination or prompt removal of radioactive contaminants will begin shortly after cessation of operations so that the property may be released for unre stricted use. The accumulated provision for decommissioning of $351.4 million and $260.9 million is included in accumulated depreciation, depletion and amortization at December 31, 1995 and 1994, respectively. Provisions for decommissioning of $28.5 million, $24.5 million and $24.4 million applicable to 1995, 1994 and 1993, respectively, are included in depreciation, depletion and amortization expense. The net unrealized gain of $40.7 million and a net unrealized loss of $5.2 million associated with securities held by Virginia Power's Nuclear Decommissioning trust at December 31, 1995 and 1994, respectively, are included in the accumulated provision for decommissioning. Earnings of the trust funds were $15.9 million, $15.2 million and $16.3 million for 1995, 1994 and 1993, respectively, and are included in other income in the Consolidated Financial Statements. The accretion of the accumulated provision for decom missioning, equal to the earnings of the trust funds, is also recorded in other income. The Financial Accounting Standards Board (FASB) is reviewing the accounting for nuclear plant decommissioning. If current electric utility industry practices for such decom missioning are changed, annual provisions for decommissioning could increase. FASB has tentatively determined that the estimated cost of decommissioning should be reported as a liability rather than as accumulated depreciation and that a substantial portion of the decommissioning obligation should be recognized earlier in the operating life of the nuclear plant. During its deliberations, FASB has expanded the scope of this project to include similar unavoidable obligations to per form closure and post-closure activities incurred as a condition to operate assets other than nuclear power plants. Whether this position, if adopted, would impact other assets of Virginia Power cannot be determined at this time. Furthermore, the FASB has tentatively determined that it would be inappropriate to account for cost of removal as negative salvage; thus, any forthcoming standard may also cause changes in industry plant depreciation practices. Federal Income Taxes: Dominion Resources and its subsidi aries file a consolidated federal income tax return. Dominion Resources adopted SFAS No. 109, "Accounting for Income Taxes" in 1992 which requires companies to measure and record deferred tax assets and liabilities for all temporary differences. Temporary differences occur when events and transactions recognized for financial reporting result in taxable or tax-deductible amounts in future periods. The regulatory treatment of temporary differences can differ from the requirements of SFAS No. 109. Accordingly, Virginia Power recognizes a regulatory asset if it is probable that future revenues will be provided for the payment of those deferred tax liabilities. Similarly, in the event a deferred tax liability is reduced to reflect changes in tax rates, a regulatory liability is established if it is probable that a future reduction in revenue will result. Due to regulatory requirements, Virginia Power accounts for investment tax credits under the "deferral method" which provides for the amortization of these credits over the service lives of the property giving rise to the credits. Allowance for Funds Used During Construction: The applicable regulatory Uniform System of Accounts defines AFC as the cost during the construction period of borrowed funds used for construction purposes and a reasonable rate on other funds when so used. The pre-tax AFC rates for 1995, 1994 and 1993 were 8.9, 8.9 and 9.4 percent, respectively. Approximately 83 percent of Virginia Power's construction work in progress (CWIP) is now included in rate base and a cash return is collected currently thereon. Deferred Capacity and Fuel Expenses: Approximately 90 percent of fuel expenses and 80 percent of capacity expenses are subject to deferral accounting. Under this method, the difference between reasonably incurred actual expenses and the level of expenses included in current rates is deferred and matched against future revenues. Amortization of Debt Issuance Costs: Dominion Resources defers and amortizes any expenses incurred in the issuance of long-term debt including premiums and discounts associated with such debt over the lives of the respective issues. Any gains or losses resulting from the refinancing of Virginia Power debt are also deferred and amortized over the lives of the new issues of long-term debt as permitted by the appropriate regulatory commission. At Virginia Power, gains or losses resulting from the redemption of debt without refinancing are amortized over the remaining lives of the redeemed issues. Marketable Securities: Dominion Resources adopted, effective January 1, 1994, SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The standard requires companies to account for and classify investments in equity securities that have readily determinable fair values and for all investments in debt securities based on management's intent. The investments are to be classified into three categories and accounted for in the following manner. Debt securities which are intended to be held to maturity are classified as held-to-maturity securities and reported at amortized cost. Debt and equity securities purchased and held with the intent of selling them in the current period are classified as trading securities. They are reported at fair value and unrealized gains and losses are included in earnings. Debt and 33 equity securities that are neither held-to-maturity or trading are classified as available-for-sale securities. These are reported at fair value with unrealized gains and losses reported in shareholders' equity, net of tax. This standard is to be applied on a prospective basis effective with fiscal years after December 15, 1993 and can not be applied retroactively to the prior year's financial statements. Nonrecourse-Nonutility Financings: Dominion Resources' non-utility subsidiaries issue debt to finance their operations and obtain financings that generally are secured by the assets of the nonutility subsidiaries. However, Dominion Resources may be required to provide contingent equity support or to maintain a minimum net worth at the nonutility subsidiaries. These financings have been segregated on the accompanying financial statements to distinguish their nonrecourse nature. Cash: Current banking arrangements generally do not require checks to be funded until actually presented for payment. At December 31, 1995 and 1994, the company's accounts payable included the net effect of checks outstanding but not yet presented for payment of $70.1 million and $72.2 million, respectively. For purposes of the Consolidated Statements of Cash Flows, Dominion Resources considers cash and cash equivalents to include cash on hand and temporary investments purchased with a maturity of three months or less. Supplementary Cash Flows Information: 1995 1994 1993 (millions) Cash paid during the year for: Interest (reduced for net costs of borrowed funds capitalized) $376.0 $355.9 $375.8 Federal income taxes 159.6 154.2 187.8 Non-cash transactions from investing and financing activities: Exchange of long-term marketable securities 12.3 11.8 169.8 Assumption of obligations and acquisition of utility property 26.3 Other 3.1 (0.4) Reclassification: Certain amounts in the 1994 and 1993 Consolidated Financial Statements have been reclassified to conform to the 1995 presentation. Note B Sale of Receivables: Virginia Power has an agreement to sell, with limited recourse, certain accounts receivable including unbilled amounts, up to a maximum of $200 million. Additional receivables are continually sold, at Virginia Power's discretion, to replace those collected up to the limit. At December 31, 1995 no amount was outstanding; however, at December 31, 1994, $160 million of receivables had been sold and were outstanding under this agreement. The limited recourse is provided by Virginia Power's assignment of an additional undivided interest in accounts receivable to cover any potential losses to the purchaser due to uncollectible accounts. Virginia Power has provided for the estimated amount of such losses in its accounts. Note C Taxes 1995 1994 1993 (millions, except percentages) Taxes other than federal income tax: Real estate and property $91.2 $83.9 $84.8 State and local gross receipts 104.8 104.9 100.8 Payroll 31.1 33.9 31.3 Other 46.7 51.9 47.3 $273.8 $274.6 $264.2 Provision for federal income taxes: Included in operating expenses: Current $179.8 $120.8 $197.2 Tax effects of temporary/ timing differences: Liberalized depreciation 56.6 61.3 50.6 Indirect construction cost (13.8) (21.5) (23.2) Other plant related items 12.1 4.0 19.9 Deferred fuel (2.2) 0.8 11.8 Deferred capacity (3.8) (9.0) (24.7) Separation costs (12.4) Customer accounts reserve 36.8 (34.9) Intangible drilling costs 3.6 4.1 15.3 Other, net (20.9) (9.2) 17.4 19.2 67.3 32.2 Net deferred investment tax credits--amortization (16.9) (17.1) (19.2) Total provision for federal income tax expense $182.1 $171.0 $210.2 Computation of provision for federal income tax: Pre-tax income $607.1 $649.2 $726.8 Tax at statutory federal income tax rate of 35% applied to pre-tax income $212.5 $227.2 $254.4 Changes in federal income taxes resulting from: Preferred dividends of Virginia Power 15.4 14.8 14.8 Amortization of investment tax credits (16.9) (17.1) (16.1) Nonconventional fuel credit (28.2) (32.0) (30.5) Other, net (0.7) (21.9) (12.4) Total provision for federal income tax expense $182.1 $171.0 $210.2 Effective tax rate 30% 26.3% 28.9% 34 Dominion Resources net noncurrent deferred tax liability is attributable to: 1995 1994 (millions) Assets: Deferred investment tax credits $ (96.4) $ (102.4) Liabilities: Depreciation method and plant basis differences $1,403.5 $1,349.7 Income taxes recoverable through future rates 171.6 172.9 Partnership basis differences 111.5 104.3 Other 70.9 89.1 Total deferred income tax liability 1,757.5 1,716.0 Net deferred income tax liability $1,661.1 $1,613.6 Note D Regulatory Assets: Certain expenses normally reflected in income are deferred on the balance sheet as regulatory assets and are recognized in income as the related amounts are included in rates and recovered from customers. The company's regulatory assets included the following: At December 31, 1995 1994 (millions) Income taxes recoverable through future rates $484.5 $488.2 Cost of decommissioning DOE uranium enrichment facilities 78.5 83.7 Deferred losses (gains) on reacquired debt, net 99.3 107.0 North Anna Unit 3 project termination costs 101.8 128.5 Other 52.3 63.6 Total $816.4 $871.0 Income taxes recoverable through future rates represent principally the tax effect of depreciation differences not normalized. These amounts are amortized as the related temporary differences reverse. The costs of decommissioning Department of Energy's (DOE) uranium enrichment facilities have been deferred and represent the unamortized portion of Virginia Power's required contributions to a fund for decommissioning and decontaminating the DOE's uranium enrichment facilities. Virginia Power is making such contributions over a 15-year period with escalation for inflation. These costs are being recovered in fuel rates. Losses or gains on reacquired debt are deferred and amortized over the lives of the new issues of long-term debt. Gains or losses resulting from the redemption of debt without refinancing are amortized over the remaining lives of the redeemed issues. The construction of North Anna 3 was terminated in November 1982. All retail jurisdictions have permitted recovery of the incurred costs. For Virginia and FERC jurisdictional customers, the amounts deferred are being amortized from the date termination costs were first includible in rates. The incurred costs underlying these regulatory assets may represent expenditures by Virginia Power or may represent the recognition of liabilities that ultimately will be settled at some time in the future. For some of those regulatory assets representing past expenditures that are not included in Virginia Power's rate base or used to adjust Virginia Power's capital structure, Virginia Power is not allowed to earn a return on the unrecovered balance. Of the $816.4 million of regulatory assets at December 31, 1995, approximately $123 million represent past expenditures that are effectively excluded from the rate base by the Virginia State Corporation Commission that has primary jurisdiction over Virginia Power's rates. However, of that amount $101.8 million represent the present value of amounts to be recovered through future rates for North Anna Unit 3 project termination costs, and thus reflect a reduction in the actual dollars to be recovered through future rates for the time value of money. Virginia Power does not earn a return on the remaining $21.2 million of regulatory assets, effectively excluded from rate base, to be recovered over various recovery periods up to 23 years, depending on the nature of the deferred costs. Notes E Jointly Owned Plants: The following information relates to Virginia Power's proportionate share of jointly owned plants at December 31, 1995: Bath County Pumped North Anna Clover Storage Station Power Station Power Station Ownership interest 60.0% 88.4% 50.0% (millions) Utility plant in service $1,074.8 $1,798.5 $289.6 Accumulated depreciation 188.6 635.7 1.5 Nuclear fuel 405.1 Accumulated amortization of nuclear fuel 387.3 CWIP 0.7 110.9 211.1 The co-owners are obligated to pay their share of all future construction expenditures and operating costs of the jointly owned facilities in the same proportions as their respective ownership interest. Virginia Power's share of operating costs is classified in the appropriate expense category in the con solidated statements of income. 35 Note F Short-Term Debt: Dominion Resources and its subsidiaries have credit agreements with various expiration dates. These agreements provided for maximum borrowings of $885.8 million and $705.8 million at December 31, 1995 and 1994, respectively. At December 31, 1995 and 1994, $48.6 million and $135.2 million, respectively, was borrowed under such agreements and classified as long-term debt. Dominion Resources credit agreements supported $199 million and $224 million of Dominion Resources commercial paper at December 31, 1995 and 1994, respectively. Virginia Power credit agreements, which in September 1995 replaced the intercompany credit agreement with Dominion Resources, supported $169 million of Virginia Power commercial paper at December 31, 1995. No Virginia Power commercial paper was outstanding at December 31, 1994. A subsidiary of Dominion Capital also had $91 million and $90.7 million of nonrecourse commercial paper outstanding at December 31, 1995 and 1994, respectively. A total of $289 million and $250 million of the commercial paper was classified as long-term debt at December 31, 1995 and 1994, respectively. The commercial paper is supported by revolving credit agreements that have expiration dates extending beyond one year. Dominion Resources and its subsidiaries pay fees in lieu of compensating balances in connection with these credit agreements. A summary of short-term debt outstanding at December 31 follows: Amount Weighted Average Outstanding Interest Rate (millions, except percentages) 1995 Commercial paper $169.0 5.79% Term-notes 67.6 11.7% Total $236.6 1994 Commercial paper $64.0 6.08% Term-notes 82.0 7.38% Total $146.0 Notes G Marketable Securities: Effective January 1, 1994, Dominion Resources adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS No. 115). The standard prescribes how companies are to account for and report investments in equity securities that have readily determinable fair values and for all investments in debt securities. This standard is effective for fiscal years beginning after December 15, 1993. Securities classified as available-for-sale as of December 31 follow: Gross Gross Unrealized Unrealized Security Holding Holding Aggregate Type Cost Gains Losses Fair Value (millions) 1995 Equity $288.3 $8.0 $16.5 $279.8 Debt 5.8 0.1 5.7 1994 Equity $334.5 $1.3 $54.2 $281.6 Debt 5.5 0.6 4.9 Maturities of debt securities classified as available-for-sale as of December 31, 1995: Aggregate Security Type Cost Fair Value (millions) Tax exempt obligations: 0-5 years $0.3 $0.3 After five years 5.1 5.0 Temporary investments and deposits: 0-5 years $0.1 $0.1 After five years 0.3 0.3 For the years ended December 31, 1995 and 1994, the proceeds from the sales of available-for-sale securities were $49.4 million and $35.8 million, respectively. The gross realized gains and losses were $10.4 million and $0.1 million for 1995 and $0.4 million and $1.6 million for 1994, respectively. The basis on which the cost of these securities was determined is specific identification. For 1994, the gross gains included in earnings from transfers of securities from the available-for-sale category into the trading category was $0.8 million. The changes in net unrealized holding gain or loss on available-for-sale securities has resulted in an increase in the separate component of shareholders equity during the year ended December 31, 1995 of $41.1 million, net of tax, and a decrease of $47.2 million, net of tax, for the year ended December 31, 1994. The changes in net realized holding gain or loss on trading securities increased earnings during the year ended December 31, 1995 by $2.1 million and decreased earnings by $10 million for the year ended December 31, 1994. In 1993, the company accounted for marketable securities as prescribed in SFAS No. 12, "Accounting for Certain Marketable Securities." A net realized gain of $12.5 million on the sale of marketable securities was included in net income for the year ended December 31, 1993. 36 Note H Fair Value of Financial Instruments: The fair value amounts of the company's financial instruments have been determined using available market information and valuation methodologies deemed appropriate in the opinion of management. However, considerable judgment is required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the company could realize in a current market exchange. The use of different market assumptions and/or estimation assumptions may have a material effect on the estimated fair value amounts. Carrying Amount Estimated Fair Value December 31, 1995 1994 1995 1994 (millions) Assets: Cash and cash equivalents $66.7 $146.7 $66.7 $146.7 Trading securities 10.8 110.8 10.8 110.8 Available-for-sale securities 285.5 286.5 285.5 286.5 Pollution control project funds 11.9 20.3 11.9 20.3 Notes receivable 43.1 17.1 43.7 17.1 Nuclear decommissioning trust funds 351.4 260.9 351.4 260.9 Liabilities: Short-term debt $236.6 $146.0 $236.6 $146.0 Long-term debt 5,058.8 5,134.4 5,322.4 4,951.9 Preferred securities of a subsidiary trust $135.0 $140.4 Preferred stock $180.0 $222.1 $190.9 $201.5 Cash and Cash Equivalents: The carrying amount of these items is a reasonable estimate of their fair value. Marketable Securities and Nuclear Decommissioning Trust Funds: The estimated fair value is determined based on quoted market prices, dealer quotes, and prices obtained from inde pendent pricing sources. Notes Receivable: The carrying value approximates fair value due to the variable rate or term structure of the notes receivable. Short Term Debt and Long-Term Debt: Market values are used to determine the fair value for debt securities for which a market exists. For debt issues that are not quoted on an exchange, interest rates currently available to the company for issuance of debt with similar terms and remaining maturities are used to estimate fair value. The carrying amount of debt issues with short-term maturities and variable rates that are refinanced at current market rates is a reasonable estimate of their fair value. Preferred Securities of Subsidiary Trust: The fair value is based on market quotations. Preferred Stock: The fair value of the fixed-rate preferred stock subject to mandatory redemption was estimated by discounting the dividend and principal payments for a representative issue of each series over the average remaining life of the series. 37 Note I Long-Term Debt: At December 31, 1995 1994 (millions) Virginia Power First and Refunding Mortgage Bonds(1): 1992 Series A, 6.375%, due 1995 $180.0 Series T, 4.5%, due 1995 56.6 Series U, 5.125%, due 1997 $49.3 49.3 1992 Series B, 7.25%, due 1997 250.0 250.0 1988 Series A, 9.375%, due 1998 150.0 150.0 1992 Series F, 6.25%, due 1998 75.0 75.0 1989 Series B, 8.875%, due 1999 100.0 100.0 1993 Series C, 5.875%, due 2000 135.0 135.0 1992 Series D, 7.625%, due 2007 215.0 215.0 Various series, 6.0-8%, due 2001-2004 805.0 805.0 Various series, 5.45%-8.75%, due 2020-2025 1,144.5 944.5 Total First and Refunding Mortgage Bonds 2,923.8 2,960.4 Other long-term debt: Virginia Power: Bank loans, notes and term loans, 6.15%-10.8%, due 1995-2003 762.7 798.2 Pollution control financings(2): Money market municipals, due 2008-2027(3) 488.6 488.6 Dominion Resources: Commercial paper(4) 199.0 160.0 Total other long-term debt 1,450.3 1,446.8 Nonrecourse--Nonutility Debt: Dominion Resources: Bank loans, 9.25%, due 2008 21.7 22.5 Dominion Capital: Senior notes, fixed rate, 6.12%-11.875%, due 1996-2005(5) 102.0 102.0 Term notes, fixed rate, 4.6%-12.48%, due 1994-2020 204.0 206.0 Revolving credit agreements, due 1994-1998(6) 34.6 61.7 Commercial paper(7) 90.0 90.0 Dominion Energy: Term loan, 7.22% (1993-10.13%), due 1996(8) 68.6 71.3 Revolving credit agreements, due 1996(9) 14.0 69.5 Term loan, 5.445%, due 1998 55.0 75.0 Bank loans, 9.70-13.20%, due 2005 35.0 28.8 Bank loans, 4.5%-6.43%, due 1996-2024 59.8 0.3 Total nonrecourse--nonutility debt 684.7 727.1 Less amounts due within one year: First and refunding mortgage bonds 236.6 Bank loans, notes and term loans 259.6 75.6 Sinking fund obligations Nonrecourse--nonutility 161.2 86.9 Total amount due within one year 420.8 399.1 Less unamortized discount, net of premium 26.1 24.6 Total long-term debt $4,611.9 $4,710.6 (1) Substantially all of Virginia Power's property is subject to the lien of the mortgage securing its First and Refunding Mortgage Bonds. (2) Certain pollution control equipment at Virginia Power's generating facilities has been pledged or conveyed to secure these financings. (3) Interest rates vary based on short-term tax-exempt market rates. The weighted average daily interest rates were 3.89% and 2.96% for 1995 and 1994, respectively. (4) See Note F to the Consolidated Financial Statements. (5) The Rincon Securities common stock owned by Dominion Capital is pledged as collateral to secure the loan. (6) The weighted average interest rates during 1995 and 1994 were 6.76% and 5.19%, respectively. (7) The weighted average interest rates during 1995 and 1994 were 5.91% and 4.27%, respectively. (8) The Enron/Dominion Cogen Corp. common stock owned by Dominion Energy is pledged as collateral to secure the loan. (9) The weighted average interest rates during 1995 and 1994 were 6.04% and 4.72%, respectively. 38 On February 8, 1996, Dominion Energy established a $400 million revolving credit facility through ABN AMRO North America, Inc. The interest rate is variable and is presently set at LIBOR plus 1/4. Proceeds from the revolver were used to retire a $55 million term loan on February 15, 1996. In addition, a $100 million revolving credit agreement was canceled by the company on February 8, 1996. Maturities (including cash sinking fund obligations) through 2000 are as follows (in millions): 1996-$420.8; 1997-$459.1; 1998-$481.2; 1999-$275.3; and 2000-$260.4. Note J Common stock: During 1995 the company purchased on the open market and retired 685,500 shares of common stock for an aggregate price of $24.8 million. From 1993 through 1995, the following changes in common stock occurred:
1995 1994 1993 Shares Shares Shares Outstanding Amount Outstanding Amount Outstanding Amount (millions) Balance at January 1 172.4 $3,157.6 168.1 $2,991.0 163.8 $2,796.3 Changes due to: Automatic Dividend Reinvestment and Stock Purchase Plan 2.9 107.6 2.9 112.2 2.6 115.3 Stock Purchase Plan for Customers of Virginia Power 1.4 45.8 1.3 51.3 1.0 51.6 Employee Savings Plan .2 8.3 .6 23.2 .7 29.7 Stock repurchase and retirement (.7) (24.8) (.6) (20.7) Other .2 9.0 .1 .6 (1.9) Balance at December 31 176.4 $3,303.5 172.4 $3,157.6 168.1 $2,991.0
Note K Long-term incentive plan: A long-term incentive plan (the Plan) provides for the granting of nonqualified stock options and restricted stock to certain employees of Dominion Resources and its affiliates. The aggregate number of shares of common stock that may be issued pursuant to the Plan is 3,750,000. The changes in share and option awards under the Plan were as follows:
Restricted Price Stock Option Shares Shares Per Share Options Price Excercisable Balance at December 31, 1992 17,024 14,706 14,706 Awards granted--1993 19,457 $41.875-$42.75 Exercised/distributed (9,582) (2,242) $27.75-$29.625 Balance at December 31, 1993 26,899 12,464 12,464 Awards granted--199 19,842 $40.625-$40.875 Exercised/distributed (5,555) (1,388) $29.625 Balance at December 31, 1994 41,186 11,076 11,076 Awards granted--1995 25,320 $37.625 Exercised/distributed (21,576) Balance at December 31, 1995 44,930 11,076 11,076
39 Note L 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 million, representing preferred beneficial interests and 97 percent beneficial owner ship in the assets held by VP Capital Trust. Virginia Power issued $139.2 million of its 1995 Series A, 8.05 percent Junior Subordinated Notes (the Notes) in exchange for the $135 million realized from the sale of the Preferred Securities and $4.2 million of common securities of VP Capital Trust. The common securities represent the remaining 3 percent beneficial ownership interest in the assets held by VP Capital Trust. The Notes constitute 100 percent of VP Capital Trust's assets. The Notes are due September 30, 2025, but may be extended up to an additional ten years, subject to satisfying certain conditions. However, Virginia Power may redeem the Notes on or after September 30, 2000, under certain circumstances. The Preferred Securities are subject to mandatory redemption upon repayment of the Notes at maturity or earlier redemption. At redemption, each Preferred Security shall be entitled to receive a liquidation amount of $25 plus accrued and unpaid distributions, including any interest thereon. Note M Preferred Stock: Dominion Resources is authorized to issue up to 20,000,000 shares of preferred stock; however, no such shares are issued and outstanding. Virginia Power has authorized 10,000,000 shares of preferred stock, $100 liquidation preference. Upon voluntary liquidation, each share is entitled to receive $100 plus accrued dividends. Dividends are cumulative. Virginia Power preferred stock subject to mandatory redemption at December 31, 1995 was as follows: Shares Series Outstanding $5.58 400,000(1)(2) $6.35 1,400,000(1)(3) Total 1,800,000(1)(2) (1) Shares are non-callable prior to redemption. (2) All shares to be redeemed on 3/1/00. (3) All shares to be redeemed on 9/1/00. During the years 1993 through 1995, the following shares were redeemed: Year Dividend Shares 1995 $7.30 417,319 1994 7.30 37,681 1993 7.30 30,000 1993 7.58 480,000 1993 7.325 400,419 At December 31, 1995 Virginia Power preferred stock not subject to mandatory redemption, $100 liquidation preference, is listed in the table below. Issued and Entitled Per Outstanding Share Upon Dividend Shares Redemption $5.00 106,677 $112.50 $4.04 12,926 102.27 $4.20 14,797 102.50 $4.12 32,534 103.73 $4.80 73,206 101.00 $7.05 500,000 105.00(1) $6.98 600,000 105.00(2) MMP 1/87 series(3) 500,000 100.00 MMP 6/87 series(3) 750,000 100.00 MMP 10/88 series(3) 750,000 100.00 MMP 6/89 series(3) 750,000 100.00 MMP 9/92A(3) 500,000 100.00 MMP 9/92B(3) 500,000 100.00 Total 5,090,140 (1) Through 7/31/03 and thereafter to amounts declining in steps to $100.00 after 7/31/13. (2) Through 8/31/03 and thereafter to amounts declining in steps to $100.00 after 8/31/13. (3) Money Market Preferred (MMP) dividend rates are variable and are set every 49 days via an auction. The weighted average rates for these series in 1995, 1994 and 1993, including fees for broker/dealer agreements, were 4.93%, 3.75%, and 3.01%, respectively. During the years 1993 through 1995, the following shares were redeemed: Year Dividend Shares 1995 $7.45 400,000 1995 7.20 450,000 1993 7.72 350,000 1993 (1972 series) 7.72 500,000 40 Note N Retirement Plan, Postretirement Benefits and Other Benefits Retirement Plan: Dominion Resources' Retirement Plan (the Plan) covers virtually all employees of Dominion Resources and its subsidiaries. The benefits are based on years of service and the employee's compensation. Dominion Resources' funding policy is to contribute annually an amount that is in accordance with the provisions of the Employment Retirement Income Security Act of 1974. The components of the provision for net periodic pension expense were as follows: 1995 1994 1993 (millions) Service cost--benefits earned during the year $23.4 $24.6 $21.9 Interest cost on projected benefit obligation 54.9 46.3 46.3 Actual return on plan assets (56.7) (51.3) (49.3) Net amortization and deferral (0.7) 0.1 (2.6) Net periodic pension cost $20.9 $19.7 $16.3 The following table sets forth the Plan's funded status: 1995 1994 (millions) Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefit of 1995-$540.2 and 1994-$480.9 $607.4 $577.5 Projected benefit obligation for service rendered to date $767.0 $678.4 Plan assets at fair value, primarily listed stocks and U.S. bonds 763.6 588.1 Plan assets in excess of projected benefit obligation (3.4) (90.3) Unrecognized net loss from past experience different from that assumed and effects of changes in assumptions 35.7 102.8 Unrecognized prior service cost 5.3 5.9 Unrecognized net asset at January 1, being recognized over 16 years beginning in 1986 (25.1) (28.5) Prepaid (accrued) pension cost included in other assets (liabilities) $12.5 $(10.1) Significant assumptions used in determining net periodic pension cost and the projected benefit obligation were: As of December 31, 1995 1994 Discount rates 8.00% 8.25% Rates of increase in compensation levels 5% 5% Expected long-term rate of return 9.5% 9.5% Postretirement Benefits: Dominion Resources and its subsidiaries provide retiree health care and life insurance benefits through insurance companies with annual premiums based on benefits paid during the year. From time to time in the past, Dominion Resources and its subsidiaries have changed benefits. Some of these changes have reduced benefits. Under the terms of their benefits plans, the companies reserve the right to change, modify or terminate the plans. Net periodic postretirement benefit expense for 1995 and 1994 was as follows: Year ending December 31, 1995 1994 (millions) Service cost $8.9 $11.2 Interest cost 21.9 21.8 Return on plan assets (6.1 0.9 Amortization of transition obligation 12.1 12.1 Net amortization and deferra 0.1 (4.1) Net periodic postretirement benefit expense $36.9 $41.9 The following table sets forth the funded status of the plan: December 31, 1995 1994 (millions) Fair value of plan assets $96.3 $59.7 Accumulated postretirement benefit obligation: Retirees $211.4 $208.7 Active plan participants 99.2 93.9 Accumulated postretirement benefit obligation 310.6 302.6 Accumulated postretirement benefit obligation in excess of plan assets (214.3) (242.9) Unrecognized transition obligation 206.2 218.3 Unrecognized net experience gain 8.6 16.9 Prepaid (accrued) postretirement benefit cost $0.5 $(7.7) 41 A one percent increase in the health care cost trend rate would result in an increase of $3.5 million in the service and interest cost components and a $37.2 million increase in the accumulated postretirement benefit obligation. Significant assumptions used in determining the postretirement benefit obligation were: 1995 1994 Discount rates 8.0% 8.25% Assumed return on plan assets 9.0% 9.0% Medical cost trend rate 9% for first year 10% for first year 8% for second year 9% for second year Scaling down to Scaling down to 4.75% beginning in 4.75% beginning in the year 2001 the year 2001 Virginia Power is recovering these costs in rates on an accrual basis in all material respects, in all jurisdictions. Current and future rate recoveries of OPEB accruals are expected to collect sufficient amounts to provide for the unfunded accumulated postretirement obligation over time. The funds being collected for OPEB accrual in rates, in excess of OPEB benefits actually paid during the year, are contributed to external benefit trusts under Virginia Power's current funding policy. Other Benefits: In 1994, Virginia Power offered an early retirement program to employees aged 50 or older and offered a voluntary separation program to all regular full-time employees. Approximately 1,400 employees accepted offers under these programs. The costs associated with these programs were $90.1 million. Virginia Power capitalized $25.9 million based upon regulatory precedent and expensed $64.2 million. Note O Restructuring In March 1995, Virginia Power announced the implementation phase of its Vision 2000 program. During this phase, Virginia Power began reviewing operations with the objective of out sourcing services where economical and appropriate, and re- engineering the remaining functions to streamline operations. The re-engineering process is resulting in outsourcing, decentralization, reorganization and downsizing for portions of Virginia Power's operations. As part of this process, Virginia Power is reevaluating its utilization of capital resources in its operations to identify further opportunities for operational efficiencies through outsourcing or re-engineering of its processes. In 1995, restructuring charges of $121.5 million contains $117.9 million of Virginia Power's restructuring charges which included severance costs, purchased power contract cancellation and negotiated settlement costs, capital project cancellation costs, and other costs incurred directly as a result of the Vision 2000 initiatives. The Vision 2000 review of operations is expected to continue through 1996. At this time, Virginia Power management cannot estimate the restructuring costs yet to be incurred. In May 1995, Virginia Power established a comprehensive involuntary severance package for salaried employees who lose their positions as a result of these initiatives. Virginia Power is recognizing the cost associated with employee termi nations in accordance with Emerging Issues Task Force Consensus No. 94-3 as management identifies the positions to be eliminated. Severance payments will be made over a period not to exceed twenty months. Through December 31, 1995, management had decided to eliminate 1,018 positions. The recognition of severance costs resulted in a charge to operations in 1995 of $51.2 million. At December 31, 1995, 507 employees have been terminated and severance payments totaling $8.7 million have been paid. Virginia Power estimates that these staffing reductions will result in annual savings, net of outsourcing costs, in the range of $50 million to $60 million. These savings will be reflected in lower construction expenditures as well as lower operation and maintenance expenses. In an effort to minimize its exposure to potential stranded investment, Virginia Power is evaluating its long-term purchased power contracts and negotiating modifications to their terms, including cancellations, where it is determined to be 42 economically advantageous to do so. Virginia Power also negotiated settlements with several other parties to terminate their rights to sell power to Virginia Power. The cost of contract cancellations and negotiated settlements was $8.1 million in 1995. Based on contract terms and estimated quantities of power that would have otherwise been delivered, the cancellation of these contracts and rights to sell power to Virginia Power has the effect of reducing Virginia Power's future purchased power costs, including energy payments, by up to $214 million annually. The cost of alternative sources of power that might ultimately be required as a result of these settlements are expected to be significantly less than $214 million. Restructuring charges reported in 1995 included $37.3 million for the cancellation of a project to construct a facility to handle low level radioactive waste at Virginia Power's North Anna Power Station. As a result of reevaluating the handling of low level radioactive waste, Virginia Power concluded that the facility should not be completed due to the additional capital investment required, decreased Virginia Power volumes of low level radioactive waste resulting from improvements in station procedures and the availability of more economical offsite processing. As a regulated utility, Virginia Power provides service to its customers at rates based on its cost of operations and an opportunity to earn a return on its shareholder's investment. From time to time, Virginia Power reviews its cost of providing regulated services and files such information with certain regulatory commissions having jurisdiction. Virginia Power or the regulatory commissions may initiate proceedings to review rates charged to Virginia Power jurisdictional customers. The incurrence of restructuring charges and the savings resulting therefrom in subsequent periods are elements of Virginia Power's cost of operations. Accordingly, Vision 2000 costs and related savings will be considered in any future review of Virginia Power's overall regulatory cost of service. Note P Commitments and Contingecies As the result of issues generated in the course of daily business, the company is involved in legal, tax and regulatory proceedings before various courts, regulatory commissions and governmental agencies. While some of the proceedings involve substantial amounts of money, management believes that the final disposition of these proceedings will not have an adverse material effect on operations or the financial position of the company. Virginia Power Federal Energy Regulatory Commission Audit: The Federal Energy Regulatory Commission (FERC) has recently conducted a compliance audit of Virginia Power's financial statements for the years 1990 to 1994. Virginia Power has received a preliminary draft of the audit report from the FERC, in which certain compliance exceptions were noted. Virginia Power has supplied information to the FERC staff relating to these preliminary exceptions, but no final audit report has been issued. Based on information available at this time, the disposition of these issues is not expected to have a significant effect on Virginia Power's financial position or results of operations. Construction Program: Virginia Power has made substantial commitments in connection with its construction program and nuclear fuel expenditures, which are estimated to total $569.3 million (excluding AFC) for 1996. Additional financing is contemplated in connection with this program. Purchased Power Contracts: Since 1984, Virginia Power has entered into contracts for the long-term purchase of capacity and energy from other utilities, qualifying facilities and independent power producers. As of December 31, 1995, there were 67 nonutility generating facilities under contract to provide Virginia Power 3,493 megawatts of dependable summer capacity. Of these, 66 projects (aggregating 3,295 megawatts) were operational at the end of 1995, with the remaining project to become operational before 1998. The following table shows the minimum payments expected to be made under these contracts. The totals include payments for capacity, which are subject to generating performance as provided by the contracts, and payments for the minimum amounts of energy Virginia Power is obligated to buy and the producers provide. Commitment (millions) Capacity Other 1996 $738.3 $207.4 1997 784.7 213.2 1998 788.8 219.8 1999 791.6 224.2 2000 707.4 163.6 After 2000 11,106.3 1,200.9 Total $14,917.1 $2,229.1 Present value of the total $6,860.7 $1,243.4 43 In addition to the commitments listed above, under some contracts, Virginia Power may purchase, at its option, additional power as needed. Payments for purchased power (including economy, emergency, limited-term, short-term, and long-term purchases) for the years 1995, 1994 and 1993 were $1,093 million, $1,025 million and $958 million, respectively. Fuel Purchase Commitments: Virginia Power's estimated fuel purchase commitments for the next five years for system generation are as follows: 1996-$348 million; 1997-$319 million; 1998-$205 million; 1999-$137 million; and 2000-$151 million. Environmental Matters: Environmental costs have been historically recovered through the ratemaking process; however, should material costs be incurred and not recovered through rates, Virginia Power's results of operations and financial condition could be adversely impacted. The 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 $46.5 million to $134.6 million. Virginia Power's pro portionate share of the costs is expected to be in the range of $0.5 million to $6.7 million, based upon allocation formulas and the volume of waste shipped to the sites. As of December 31, 1995, Virginia Power accrued a reserve of $1.4 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. Virginia Power and Dominion Resources along with Consolidated Natural Gas have remedial action responsibilities remaining at two coal tar sites. Virginia Power and Dominion Resources have accrued a $2 million reserve to meet their estimated liability based on site studies and investigations performed at these sites. In addition, on December 13, 1995, a civil action was instituted against the City of Norfolk and Virginia Power by a landowner who alleges that his property has been contaminated by toxic pollutants originating from one of these sites, which is now owned by the City of Norfolk. The plaintiff seeks compensatory damages of $10 million and punitive damages of $5 million from Virginia Power. The Company filed its answer denying liability on January 10, 1996. Virginia Power generally seeks to recover its costs associated with environmental remediation from third party insurers. At December 31, 1995 pending claims were not recognized as an asset or offset against recorded obligations. Nuclear Insurance: The Price-Anderson Act limits the public liability of an owner of a nuclear power plant to $8.9 billion for a single nuclear incident. The Price Anderson Amendments Act of 1988 allows for an inflationary provision adjustment every five years. Virginia Power has purchased $200 million of coverage from commercial insurance pools with the remainder provided through a mandatory industry risk- sharing program. In the event of a nuclear incident at any licensed nuclear reactor in the United States, Virginia Power could be assessed up to $81.7 million (including a 3 percent insurance premium tax for Virginia) for each of its four licensed reactors not to exceed $10.3 million (including a 3 percent insurance premium tax for Virginia) per year per reactor. There is no limit to the number of incidents for which this retrospective premium can be assessed. Nuclear liability coverage for claims made by nuclear workers first hired on or after January 1, 1988, except those arising out of an extraordinary nuclear occurrence, is provided under the Master Worker insurance program. (Those first hired into the nuclear industry prior to January 1, 1988 are covered by the policy discussed above.) The aggregate limit of coverage for the industry is $400 million ($200 million policy limit with automatic reinstatements of an additional $200 million). Virginia Power's maximum retrospective assessment is approximately $12.5 million (including a 3 percent insurance premium tax for Virginia). Virginia Power's current level of property insurance coverage ($2.55 billion for North Anna and $2.4 billion for Surry) exceeds the NRC's minimum requirement for nuclear power plant licensees of $1.06 billion per reactor site, and includes coverage for premature decommissioning and functional total 44 loss. The NRC requires that the proceeds from this insurance be used first to return the reactor to and maintain it in a safe and stable condition, and second to decontaminate the reactor and station site in accordance with a plan approved by the NRC. Virginia Power's nuclear property insurance is provided by Nuclear Mutual Limited (NML) and Nuclear Electric Insurance Limited (NEIL), two mutual insurance companies, and is subject to retrospective premium assessments in any policy year in which losses exceed the funds available to these insurance companies. The maximum assessment at the first incident of the current policy period is $42.7 million. The maximum assessment related to a second incident is an additional $15.4 million. Based on the severity of the incident, the boards of directors of Virginia Power's nuclear insurers have the discretion to lower the maximum retrospective premium assessment or eliminate either or both completely. For any losses that exceed the limits, or for which insurance proceeds are not available because they must first be used for stabilization and decontamination, Virginia Power has the financial responsibility. Virginia Power purchases insurance from NEIL to cover the cost of replacement power during the prolonged outage of a nuclear unit due to direct physical damage of the unit. Under this program, Virginia Power is subject to a retrospective premium assessment for any policy year in which losses exceed funds available to NEIL. The current policy period's maximum assessment is $9 million. As a joint owner of the North Anna Power Station, ODEC is responsible for its proportionate share (11.6 percent) of the insurance premiums applicable to that station, including any retrospective premium assessments and any losses not covered by insurance. Dominion Resources Under the terms of an investment agreement, Dominion Resources must provide contingent equity support to Dominion Energy in the amount of $56.5 million. Management believes the possibility of such support to Dominion Energy is remote. Dominion Energy Dominion Energy has general partnership interests in certain of its energy ventures. Accordingly, Dominion Energy may be called upon to fund future operation of these investments to the extent operating cash flow is insufficient. Note Q Quarterly Financial and Common Stock Data (Unaudited) The following amounts reflect all adjustments, consisting of only normal recurring accruals (except as disclosed below), necessary in the opinion of Dominion Resources' management for a fair statement of the results for the interim periods. Quarterly Financial and Common Stock Data--Unaudited 1995 1994 (in millions, except per share amounts) Revenues First Quarter $1,129.3 $1,167.0 Second Quarter 1,042.8 1,109.7 Third Quarter 1,345.0 1,209.8 Fourth Quarter 1,134.6 1,004.6 Year $4,651.7 $4,491.1 Income before provision for Federal Income Taxes First Quarter $151.9 $197.5 Second Quarter 107.3 188.9 Third Quarter 295.1 234.5 Fourth Quarter 52.8 28.3 Year $607.1 $649.2 Net Income First Quarter $108.5 $141.4 Second Quarter 78.1 136.2 Third Quarter 197.9 161.3 Fourth Quarter 40.5 39.3 Year $425.0 $478.2 Earnings Per Share First Quarter $0.63 $0.84 Second Quarter 0.45 0.80 Third Quarter 1.14 0.94 Fourth Quarter 0.23 0.23 Year $2.45 $2.81 Dividends Per Share First Quarter $0.645 $0.635 Second Quarter 0.645 0.635 Third Quarter 0.645 0.635 Fourth Quarter 0.645 0.645 Year $2.580 $2.550 Stock Price Range First Quarter 39-1/4-35-1/2 45-3/8-39-5/8 Second Quarter 38-5/8-35-7/8 42-1/2-35-7/8 Third Quarter 37-7/8-34-7/8 38-3/8-34-7/8 Fourth Quarter 41-5/8-37-5/8 38-1/8-35-1/8 Year 41-5/8-34-7/8 45-3/8-34-7/8 45 As part of the Vision 2000 program (see Note O), Virginia Power recorded $117.9 million of restructuring charges in 1995. Restructuring charges included severance costs, purchase power contract cancellation and negotiated settlement costs, capital project cancellation costs, and other costs incurred directly as a result of the Vision 2000 initiatives. Virginia Power expensed $3.5 million, $1.8 million, $30.6 million and $82 million during the first, second, third and fourth quarters, respectively. The impact of the write-off reduced net income by $2.3 million, $1.1 million, $19.9 million and $53.3 million for the first, second, third, and fourth quarters, respectively. In the fourth quarter of 1995, Dominion Resources incurred at the holding company restructuring expenses amounting to $3.6 million and other charges amounting to $8.8 million. The other charges included litigation costs which were incurred to resolve the shareholder claims made in 1994. The impact of the restructuring expenses reduced net income by $2.3 million and the other charges reduced net income by $5.8 million. During December 1995, Dominion Energy settled certain outstanding disputes with a supplier and renegotiated the terms of related long term supply contracts. As a result, the fourth quarter earnings include gains from these changes which total $6.2 million, net of tax. In June 1995, Dominion Resources Black Warrior Trust units were sold to third parties amounting to a gain of $5.4 million, net of tax. These were the remaining ownership units of a trust established in June 1994 when Dominion Energy transferred from Dominion Black Warrior Basin to Dominion Resources Black Warrior Trust a 65 percent overriding royalty interest in coal seam gas properties. In 1994, Virginia Power offered an early retirement program to employees aged 50 or older and offered a voluntary separation program to all regular full-time employees. Approximately 1,400 employees accepted offers under these programs. The costs associated with these programs were $90.1 million. Virginia Power capitalized $25.9 million to construction work in progress based upon regulatory precedent and expensed $2.8 million, $10.4 million and $51 million during the second, third and fourth quarters, respectively. The impact of the write-off was to reduce net income by $1.8 million, $6.7 million and $33.1 million for the second, third and fourth quarters, respectively. On June 28, 1994, Dominion Energy transferred a 65% overriding royalty interest in coal seam gas properties then owned by Dominion Black Warrior Basin, a wholly owned subsidiary of Dominion Energy, to Dominion Resources Black Warrior Trust, which is sponsored by Dominion Resources. Units in the trust were sold in the second quarter to third parties, culminating in a gain of $28.9 million, net of tax. Total federal and state taxes for this transaction amounted to $20.1 million. 46 Report of Management's Responsibilities The management of Dominion Resources, Inc. is responsible for all information and representations contained in the Consolidated Financial Statements and other sections of the annual report. The Consolidated Financial Statements, which include amounts based on estimates and judgments of management, have been prepared in conformity with generally accepted accounting principles. Other financial information in the annual report is consistent with that in the Consolidated Financial Statements. Management maintains a system of internal accounting controls designed to provide reasonable assurance, at a reasonable cost, that Dominion Resources' and its subsidiaries' assets are safeguarded against loss from unauthorized use or disposition and that transactions are executed and recorded in accordance with established procedures. Management recognizes the inherent limitations of any system of internal accounting control, and therefore cannot provide absolute assurance that the objectives of the established internal accounting controls will be met. This system includes written policies, an organizational structure designed to ensure appropriate segregation of responsibilities, careful selection and training of qualified personnel, and internal audits. Management believes that during 1995 the system of internal control was adequate to accomplish the intended objectives. The Consolidated Financial Statements have been audited by Deloitte & Touche LLP, independent auditors, whose designation by the Board of Directors was ratified by the shareholders. Their audits were conducted in accordance with generally accepted auditing standards and include a review of Dominion Resources' and its subsidiaries' accounting systems, procedures and internal controls, and the performance of tests and other auditing procedures sufficient to provide reasonable assurance that the Consolidated Financial Statements are not materially misleading and do not contain material errors. The Audit Committees of the Boards of Directors, composed entirely of directors who are not officers or employees of Dominion Resources or its subsidiaries, meet periodically with independent auditors, the internal auditors and management to discuss auditing, internal accounting control and financial reporting matters and to ensure that each is properly discharged. Both independent auditors and the internal auditors periodically meet alone with the Audit Committees and have free access to the Committees at any time. Management recognizes its responsibility for fostering a strong ethical climate so that Dominion Resources' affairs are conducted according to the highest standards of personal corporate conduct. This responsibility is characterized and reflected in Dominion Resources' Code of Ethics, which addresses potential conflicts of interest, compliance with all domestic and foreign laws, the confidentiality of proprietary information, and full disclosure of public information. Dominion Resources, Inc. /S/THOS. E. CAPPS /S/JAMES L. TRUEHEART Thos. E. Capps James L. Trueheart Chairman, President and Vice President and Controller Chief Executive Officer 47 Report of Independent Auditors To the Shareholders and Board of Directors of Dominion Resources, Inc. We have audited the accompanying consolidated balance sheets of Dominion Resources, Inc. and subsidiaries as of December 31, 1995 and 1994 and the related consolidated statements of income and retained earnings and of cash flows for each of the three years in the period ended December 31, 1995. These Consolidated Financial Statements are the responsibility of the company's management. Our responsibility is to express an opinion on these Consolidated Financial Statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such Consolidated Financial Statements present fairly, in all material respects, the consolidated financial position of Dominion Resources, Inc. and subsidiaries as of December 31, 1995 and 1994 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. /S/DELOITTE & TOUCHE LLP Richmond, Virginia February 2, 1996 [Deloitte & Touche LLP logo] EX-22 5 EXHIBIT 22 DOMINION RESOURCES, INC. SUBSIDIARIES OF THE REGISTRANT JURISDICTION OF NAME UNDER WHICH NAME INCORPORATION BUSINESS IS CONDUCTED Virgina Power in Virginia Virginia Electric and and North Carolina Power Power Company Virginia in North Carolina Dominion Energy, Inc. Virginia Dominion Energy, Inc. Dominion Capital, Inc. Virginia Dominion Capital, Inc. EX-23 6 EXHIBIT 23(I) EXHIBIT 23(i) [Hunton & Williams Letterhead] 951 East Byrd Street Richmond, Virginia 23219-4074 March 12, 1996 Dominion Resources, Inc. Richmond, Virginia 23261 Dominion Resources, Inc. Form 10-K Gentlemen: We consent to the incorporation by reference into the registration statements of Dominion Resources, Inc. on Form S-3 (File No. 33-58219 and File No. 33-60673) of the statements, included in this Annual Report on Form 10-K, made in regard to our firm that relate to franchises, title to properties, rate, environmental and other regulatory matters and litigation. Sincerely, /s/ HUNTON & WILLIAMS HUNTON & WILLIAMS EX-23 7 EXHIBIT 23(II) EXHIBIT 23(ii) [Jackson & Kelly Letterhead] P.O. Box 553 Charleston, West Virginia 25322 March 12, 1996 Dominion Resources, Inc. Richmond, Virginia 23261 Re: Dominion Resources, Inc. Form 10-K Gentlemen: We consent to the incorporation by reference into the registration statements of Dominion Resources, Inc., on Form S-3 (File No. 33-58219 and File No. 33-60673) of the statements, included in this Annual Report on Form 10-K, made in regard to our firm that are governed by the laws of West Virginia and that relate to franchises, title to properties, rate and other regulatory matters, and litigation. Sincerely yours, /s/ JACKSON & KELLY JACKSON & KELLY EX-23 8 EXHIBIT 23(III) EXHIBIT 23(iii) CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in Registration Statement File No. 33-58219 and File No. 33-60673 of Dominion Resources, Inc. on Form S-3 and Registration Statement File No. 33-55403 and File No. 33-62705 of Dominion Resources, Inc. on Form S-8 of our report dated February 2, 1996, appearing in an incorporated by reference in the Annual Report on Form 10-K of Dominion Resources, Inc., for the year ended December 31, 1995. /s/ DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP Richmond, Virginia March 12, 1996 EX-27 9 EXHIBIT 27
UT 1,000,000 12-MOS DEC-31-1995 DEC-31-1995 PER-BOOK 9,573 2,191 1,097 1,042 0 13,903 3,303 18 1,421 4,742 180 509 4,612 237 0 0 421 0 0 0 3,202 13,903 4,652 187 3,621 3,626 1,026 7 1,033 382 425 44 0 449 216 1,171 2.45 2.45
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