Business Context and Reporting Period
This Form 10-K covers the fiscal year ended December 31, 1997, for Dominion Resources, Inc. (Dominion Resources), a holding company organized in 1983 with principal offices in Richmond, Virginia. The company operates through four primary subsidiaries: Virginia Power (regulated utility serving Virginia and North Carolina), Dominion Energy (non-utility generation and oil/gas exploration), Dominion Capital (financial services), and East Midlands (UK electricity distribution and supply, acquired in Q1 1997). As of December 31, 1997, the company employed 15,458 full-time workers.
Key Financial Metrics
Note: Specific consolidated revenue, net income, cash flow, and debt figures are not provided in the text of this filing. The document incorporates the 1997 Annual Report to Shareholders by reference for detailed financial statements (Items 6, 7, and 8).
- Market Capitalization: The aggregate market value of voting stock held by nonaffiliates was $7,767,853,323 as of February 27, 1998.
- Shares Outstanding: 194,805,099 shares of Common Stock as of February 28, 1998.
- Shareholders: 215,685 registered common shareholders as of December 31, 1997.
- Generating Capacity (Virginia Power): Total capability of 18,392 MW (including net purchases and non-utility generation).
- Reserves (Dominion Energy): Net proved oil and natural gas reserves totaled approximately 461 billion cubic feet equivalent (BCFE) at year-end, with 119 BCFE added in 1997.
- Fuel Costs (Virginia Power): Average fuel cost was 12.67 mills/kWh in 1997, down from 13.47 mills/kWh in 1996.
Material Changes and Operational Highlights
- Acquisition: Completed the purchase of East Midlands Electricity plc in the first quarter of 1997, adding a regulated distribution monopoly and competitive supply business serving 2.3 million customers in the UK.
- Asset Sales: Sold 49% of its interest in a Peruvian generation business (Inversiones Dominion Peru S.A.) in August 1997. Completed the sale of the Kincaid Power Station to Commonwealth Edison in February 1998 (agreement signed in 1996).
- Regulatory Rate Changes: Virginia Power's base rates were made interim and subject to refund as of March 1, 1997, due to a regulatory finding that rates would yield an excess return. A proposed Alternative Regulatory Plan (ARP) was withdrawn in December 1997 pending legislative action.
- Fuel Factor Adjustments: Virginia Power implemented a fuel factor increase of $48.2 million effective December 1996, followed by a proposed reduction of $93.8 million effective December 1997 (with additional reductions approved in March 1998).
- UK Deregulation: East Midlands faces the end of its exclusive franchise supply rights in late 1998, transitioning to a fully competitive market.
Outlook, Risks, and Management Commentary
Regulatory and Competitive Risks
- Virginia Rate Proceeding: Management cannot predict the outcome of the ongoing Virginia Commission proceeding regarding base rates. Opposing parties have recommended rate reductions exceeding $200 million, which could materially impact results of operations.
- FERC Market-Based Rates: FERC authorized Virginia Power to sell power at market-based rates but scheduled a hearing (commencing June 1998) to determine if transmission constraints grant the company generation dominance, which could limit this authority.
- Industry Deregulation: Both US and UK markets are shifting toward less regulation and more competition. Utilities risk being unable to recover prudently incurred costs if market prices fall below their cost structures.
Environmental and Nuclear Contingencies
- Spent Nuclear Fuel: The Department of Energy (DOE) is not expected to begin accepting spent nuclear fuel in 1998 as contractually obligated. A federal court ruled in November 1997 that the DOE's obligation is unconditional, but the DOE has petitioned for rehearing. Virginia Power anticipates on-site storage will be adequate until DOE acceptance begins.
- Superfund Liabilities: The company may be designated as a potentially responsible party (PRP) for Superfund sites, though management does not believe currently identified sites will result in significant liabilities.
Strategic Initiatives
Virginia Power is pursuing "non-traditional" businesses including energy services, fossil/hydro services, nuclear services, and telecommunications to adapt to a competitive environment. The company is also evaluating long-term purchased power contracts to mitigate exposure to above-market rates.
Investor Verification Checklist
- Rate Case Outcome: Verify the final ruling of the Virginia Commission regarding the $95.6 million to $200+ million potential rate reduction and its impact on future cash flows.
- FERC Hearing: Monitor the June 1998 FERC hearing regarding transmission constraints and market-based rate authority for Virginia Power.
- UK Competitive Transition: Assess East Midlands' ability to retain market share and profitability as its exclusive franchise supply rights expire in December 1998.
- Spent Fuel Resolution: Track the status of the DOE's obligation to accept spent nuclear fuel and any associated cost recovery mechanisms.
- Consolidated Financials: Review the incorporated 1997 Annual Report to Shareholders for specific revenue, net income, and debt figures not detailed in this 10-K text.