SEC Company Response from CONSOLIDATED NATURAL GAS — Dec 22, 2005
CONSOLIDATED NATURAL GAS CO/VA (CIK 0000023738)
Date: Dec. 22, 2005 · CIK: 0000023738 · Accession: 0000715957-05-000067
AI Filing Summary & Sentiment
Referenced dates: November 30, 2005, September 28, 2005, September 28, 2005
Letter
Division of Corporation Finance Filed February 28, 2005 Form 10-Q, for the three months ended June 30, 2005 Filed August 3, 2005 File No. 1-2255
Dear Mr. Allegretto:
Consolidated Natural Gas Company (CNG) and Virginia Electric and Power Company (Virginia Power) received the Staff's letter dated November 30, 2005, which provided comments on the above-referenced documents. Both CNG and Virginia Power are wholly-owned subsidiaries of Dominion Resources, Inc. This response letter has been filed on EDGAR, and a copy has been sent by express mail.
For your convenience, the Staff's comments are set forth below and are followed by our responses.
Consolidated Natural Gas Company Form 10-K for the year ended December 31,
1.
We note your response to comment seven of our letter dated September 28, 2005. Given the relative materiality, you may want to report the activity associated with your derivative assets and liabilities on your Consolidated Statements of Cash Flow as a separate line item. Furthermore, using the financial statements, please reconcile to the $165 million change in derivative assets and the $26 million change in regulatory assets to the related balance sheet change.
Response
A reconciliation of the $165 million change in derivative assets and liabilities follows:
(in millions)
12/31/2004
12/31/2003
Change
Dr/(Cr)
Balance Sheet:
Derivative assets - current
$
$
$
Derivative assets - noncurrent
Derivative liabilities - current
(1,237)
(620)
(617)
Derivative liabilities - noncurrent
(1,234)
(669)
(565)
Net derivative liabilities
$(1,426)
$(1,099)
$(327)
Statement of Cash Flows Presentation:
Noncash change in derivative assets and liabilities related to cash flow hedges offset against
the related noncash change in accumulated other comprehensive income (AOCI)
$(474)
Noncash change in derivative assets and liabilities related to fair value debt hedges offset
against the related noncash change in long-term debt
(18)
Remaining change in derivative assets and liabilities included in Other operating assets
and liabilities line item (includes unrealized gains/losses on energy-related derivatives)
Change in net derivative liabilities
$(327)
In its 2005 Quarterly Reports on Form 10-Q, CNG began presenting the change in derivative assets and liabilities resulting from net unrealized gains and losses on energy-related derivative instruments as a separate line item on its Consolidated Statements of Cash Flows. To date and in future filings, this presentation will result in less significant amounts being included as part of the change presented in the Other operating assets and liabilities line item. If those remaining amounts are material, CNG will report them as a separate line item.
A reconciliation of the $26 million change in regulatory assets follows:
(in millions)
12/31/2004
12/31/2003
Change
Dr/(Cr)
Balance Sheet:
Regulatory assets
$36
$328
$41
Statement of Cash Flows Presentation:
Noncash change in regulatory asset related to income taxes recoverable through
future rates offset against the related noncash change in deferred income taxes
$15
Remaining change in regulatory assets included in the Other operating assets and
liabilities line item
$41
2.
We note your response to comment 11 of our letter dated September 28, 2005. Please tell us the delivery reference point of the swaps and purchased call options as well as the actual place of delivery of the related commodity being hedged. If there are any basis differences, please explain how you concluded such items are "highly effective" in hedging the related risk.
Response
CNG’s swap and option derivative instruments used to hedge the sale of crude oil are generally priced based on the NYMEX crude oil futures contract, which is based on the Cushing, Oklahoma delivery point. CNG’s sale of crude oil is primarily at Gulf of Mexico offshore locations, as well as Midcontinent, Permian, South Louisiana and South Texas onshore locations. To conclude that changes in the fair value of the derivative hedging instruments are expected to be highly effective in offsetting the changes in the fair value of the hedged items, CNG performs regression analysis at inception and
on an ongoing basis. The regression analysis assesses the correlation of changes in the derivative instruments to the price of the commodity sale at each delivery point and considers both the coefficient of determination (R-squared) and the slope. In order to be considered highly effective, the hedging relationship must exhibit a coefficient of determination within the range of 80 to 100 percent and a slope within the range of 0.8 to 1.25. When measuring the effectiveness of the hedging relationship, ineffectiveness can be caused by differences in the delivery point for the derivative instrument and the delivery point for the specific sales transaction.
Virginia Electric and Power Company Form 10-K for the year ended December 31,
3.
We note your response to comment 20 of our letter dated September 28, 2005. Your response suggests that the revenue and expense items of the tolling arrangements are included in the segment that contains Virginia Power but the non-cash charges related to such contracts are included in Corporate and Other. If our understanding is incorrect, please clarify it. If otherwise, please tell us whether this represents an asymmetrical allocation and should be disclosed pursuant to paragraph 31.e of SFAS no. 131.
Response
The revenue and expense items of the tolling arrangements are included in Virginia Power’s Generation operating segment, while certain non-cash charges related to such contracts are included in the Corporate and Other segment. This does represent an asymmetrical allocation required to be disclosed pursuant to paragraph 31.e of SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information.
Virginia Power disclosed in Note 23 to the Consolidated Financial Statements the nature of the specific items excluded from its primary operating segments’ results of operations, including the charges related to the valuation of its interest in a long-term tolling contract and the termination of three long-term power purchase agreements. These charges are described in greater detail, including their quantification, in Note 19 to the Consolidated Financial Statements under the heading Long-Term Purchase Agreements. In addition, the excluded items are disclosed in the Corporate and Other Segment Results of Operations section of Management’s Discussion and Analysis of Results of Operations (MD&A). The MD&A disclosure also quantifies each item and identifies the operating segment to which it is attributable.
Virginia Power will prospectively enhance its segment footnote disclosure by including quantification of each item and by identifying the operating segment to which it is attributable.
4.
We note your response to comment 23 of our letter dated September 28, 2005. Prospectively, separately report the activity associated with your derivative assets and liabilities on your Consolidated Statements of Cash Flow. Furthermore, using the financial statements, please reconcile to the $194 million change that you reference.
Response
A reconciliation of the $194 million change in derivative assets and liabilities follows:
(in millions)
12/31/2004
12/31/2003
Change
Dr/(Cr)
Balance Sheet:
Derivative assets - current
$1,097
$1,096
$ 1
Derivative assets - noncurrent
(53)
Derivative liabilities - current
(1,304)
(1,123)
(181)
Derivative liabilities - noncurrent
(163)
(393)
Net derivative liabilities
$ (196)
$ (193)
$ (3)
Statement of Cash Flows Presentation:
Noncash change in derivative assets and liabilities related to cash flow hedges offset against
the related noncash change in AOCI
$ 24
Noncash change in derivative assets and liabilities related to the reversal of a long-term
power purchase agreement contract liability in conjunction with its termination offset
against a noncash assumption of long-term debt upon acquisition of the related nonutility
generating facility
Remaining change in derivative assets and liabilities included in Other operating assets and
liabilities line item (includes unrealized gains/losses on energy-related derivatives)
(194)
Change in net derivative liabilities
$ (3)
In its 2005 Quarterly Reports on Form 10-Q, Virginia Power began presenting the change in derivative assets and liabilities resulting from net unrealized gains and losses on energy-related derivative instruments as a separate line item on its Consolidated Statements of Cash Flows. To date and in future filings, this presentation will result in less significant amounts being included as part of the change presented in the Other operating assets and liabilities line item. If those remaining amounts are material, Virginia Power will report them as a separate line item.
Virginia Electric and Power Company Form 10-Q for the quarterly period ended June 30,
5.
We note your response to comment 27 of our letter dated September 28, 2005. We assume the nuclear decommissioning trust funds contain cash. Please tell us how you reflect such cash for the purposes of cash and cash equivalents in the statements of cash flows.
Response
The cash held in Virginia Power’s nuclear decommissioning trust funds is not included in cash and cash equivalents on the Consolidated Balance Sheets or the Consolidated Statements of Cash Flows since its use is restricted by the Nuclear Regulatory Commission. Footnote 1 of SFAS No. 95, Statement of Cash Flows, states, in part:
Cash also includes other kinds of accounts that have the general characteristics of demand deposits in that the customer may deposit additional funds at any time and may also effectively withdraw funds at any time without prior notice or penalty.
Since the cash held in the nuclear decommissioning trust funds does not meet the above definition, it represents an investment rather than a cash or cash equivalent, and accordingly, the change in its balance is reflected as an investing activity in the Consolidated Statements of Cash Flows.
If you have any questions or require
Show Raw Text
CORRESP
1
filename1.htm
SEC Comment Letter
December
22, 2005
Mr.
Jim
Allegretto
Senior
Assistant Chief Accountant
Division
of Corporation Finance
U.S.
Securities and Exchange Commission
100
F
Street, NE
Washington,
DC 20549
RE: Consolidated
Natural Gas Company
Form
10-K, for the year ended December 31, 2004
Filed
February 28, 2005
Form
10-Q, for the three months ended June 30, 2005
Filed
August 3, 2005
File
No. 1-3196
Virginia
Electric and Power Company
Form
10-K, for the year ended December 31, 2004
Filed
February 28, 2005
Form
10-Q, for the three months ended June 30, 2005
Filed
August 3, 2005
File
No. 1-2255
Dear
Mr.
Allegretto:
Consolidated
Natural Gas Company (CNG) and Virginia Electric and Power Company (Virginia
Power) received the Staff's letter dated November 30, 2005, which provided
comments on the above-referenced documents. Both CNG and Virginia Power are
wholly-owned subsidiaries of Dominion Resources, Inc. This response letter
has
been filed on EDGAR, and a copy has been sent by express mail.
For
your
convenience, the Staff's comments are set forth below and are followed by our
responses.
Consolidated
Natural Gas Company Form 10-K for the year ended December 31,
2004
1.
We
note your response to comment seven of our letter dated September
28,
2005. Given the relative materiality, you may want to report the
activity
associated with your derivative assets and liabilities on your
Consolidated Statements of Cash Flow as a separate line item. Furthermore,
using the financial statements, please reconcile to the $165 million
change in derivative assets and the $26 million change in regulatory
assets to the related balance sheet
change.
Response
A
reconciliation of the $165 million change in derivative assets and liabilities
follows:
(in
millions)
12/31/2004
12/31/2003
Change
Dr/(Cr)
Balance
Sheet:
Derivative
assets - current
$
504
$
106
$
398
Derivative
assets - noncurrent
541
84
457
Derivative
liabilities - current
(1,237)
(620)
(617)
Derivative
liabilities - noncurrent
(1,234)
(669)
(565)
Net
derivative liabilities
$(1,426)
$(1,099)
$(327)
Statement
of Cash Flows Presentation:
Noncash
change in derivative assets and liabilities related to cash flow
hedges
offset against
the related noncash change in accumulated other comprehensive
income
(AOCI)
$(474)
Noncash
change in derivative assets and liabilities related to fair value
debt
hedges offset
against the related noncash change in long-term debt
(18)
Remaining
change in derivative assets and liabilities included in Other
operating assets
and liabilities
line item (includes
unrealized gains/losses on energy-related derivatives)
165
Change
in net derivative liabilities
$(327)
In
its
2005 Quarterly Reports on Form 10-Q, CNG began presenting the change in
derivative assets and liabilities resulting from net unrealized gains and
losses
on energy-related derivative instruments as a separate line item on its
Consolidated Statements of Cash Flows. To date and in future filings, this
presentation will result in less significant amounts being included as
part of
the change presented in the Other
operating assets and liabilities
line
item. If those remaining amounts are material, CNG will report them as
a
separate line item.
A
reconciliation of the $26 million change in regulatory assets
follows:
(in
millions)
12/31/2004
12/31/2003
Change
Dr/(Cr)
Balance
Sheet:
Regulatory
assets
$36
$328
$41
Statement
of Cash Flows Presentation:
Noncash
change in regulatory asset related to income taxes recoverable
through
future rates offset against the related noncash change in deferred
income
taxes
$15
Remaining
change in regulatory assets included in the Other
operating assets and
liabilities line
item
26
$41
2.
We
note your response to comment 11 of our letter dated September 28,
2005.
Please tell us the delivery reference point of the swaps and purchased
call options as well as the actual place of delivery of the related
commodity being hedged. If there are any basis differences, please
explain
how you concluded such items are "highly effective" in hedging the
related
risk.
Response
CNG’s
swap and option derivative instruments used to hedge the sale of crude oil
are
generally priced based on the NYMEX crude oil futures contract, which is based
on the Cushing, Oklahoma delivery point. CNG’s sale of crude oil is primarily at
Gulf of Mexico offshore locations, as well as Midcontinent, Permian, South
Louisiana and South Texas onshore locations.
To
conclude that changes in the fair value of the derivative hedging instruments
are expected to be highly effective in offsetting the changes in the fair value
of the hedged items, CNG performs regression analysis at inception
and
2
on
an
ongoing basis. The regression analysis assesses the correlation of changes
in
the derivative instruments to the price of the commodity sale at each delivery
point and considers both the coefficient of determination (R-squared) and the
slope. In order to be considered highly effective, the hedging relationship
must
exhibit a coefficient of determination within the range of 80 to 100 percent
and
a slope within the range of 0.8 to 1.25. When measuring the effectiveness of
the
hedging relationship, ineffectiveness can be caused by differences in the
delivery point for the derivative instrument and the delivery point for the
specific sales transaction.
Virginia
Electric and Power Company Form 10-K for the year ended December 31,
2005
3.
We
note your response to comment 20 of our letter dated September 28,
2005.
Your response suggests that the revenue and expense items of the
tolling
arrangements are included in the segment that contains Virginia Power
but
the non-cash charges related to such contracts are included in Corporate
and Other. If our understanding is incorrect, please clarify it.
If
otherwise, please tell us whether this represents an asymmetrical
allocation and should be disclosed pursuant to paragraph 31.e of
SFAS no.
131.
Response
The
revenue and expense items of the tolling arrangements are included in Virginia
Power’s Generation operating segment, while certain non-cash charges related to
such contracts are included in the Corporate and Other segment. This does
represent an asymmetrical allocation required to be disclosed pursuant to
paragraph 31.e of SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information.
Virginia
Power disclosed in Note 23 to the Consolidated Financial Statements the nature
of the specific items excluded from its primary operating segments’ results of
operations, including the charges related to the valuation of its interest
in a
long-term tolling contract and the termination of three long-term power purchase
agreements. These charges are described in greater detail, including their
quantification, in Note 19 to the Consolidated Financial Statements under the
heading Long-Term
Purchase Agreements. In
addition, the excluded items are disclosed in the Corporate and Other Segment
Results of Operations section of Management’s Discussion and Analysis of Results
of Operations (MD&A). The MD&A disclosure also quantifies each item and
identifies the operating segment to which it is attributable.
Virginia
Power will prospectively enhance its segment footnote disclosure by including
quantification of each item and by identifying the operating segment to which
it
is attributable.
4.
We
note your response to comment 23 of our letter dated September 28,
2005.
Prospectively, separately report the activity associated with your
derivative assets and liabilities on your Consolidated Statements
of Cash
Flow. Furthermore, using the financial statements, please reconcile
to the
$194 million change that you
reference.
Response
A
reconciliation of the $194 million change in derivative assets and liabilities
follows:
3
(in
millions)
12/31/2004
12/31/2003
Change
Dr/(Cr)
Balance
Sheet:
Derivative
assets - current
$1,097
$1,096
$ 1
Derivative
assets - noncurrent
174
227
(53)
Derivative
liabilities - current
(1,304)
(1,123)
(181)
Derivative
liabilities - noncurrent
(163)
(393)
230
Net
derivative liabilities
$
(196)
$ (193)
$ (3)
Statement
of Cash Flows Presentation:
Noncash
change in derivative assets and liabilities related to cash
flow hedges
offset against
the
related noncash
change in AOCI
$ 24
Noncash
change in derivative assets and liabilities related to the
reversal of a
long-term
power
purchase
agreement contract liability in conjunction with its termination
offset
against
a noncash
assumption of long-term debt upon acquisition of the related
nonutility
generating
facility
167
Remaining
change in derivative assets and liabilities included in Other
operating assets and
liabilities
line item (includes unrealized gains/losses on energy-related
derivatives)
(194)
Change
in net derivative liabilities
$ (3)
In
its
2005 Quarterly Reports on Form 10-Q, Virginia Power began presenting the change
in derivative assets and liabilities resulting from net unrealized gains and
losses on energy-related derivative instruments as a separate line item on
its
Consolidated Statements of Cash Flows. To date and in future filings, this
presentation will result in less significant amounts being included as part
of
the change presented in the Other
operating assets and liabilities
line
item. If those remaining amounts are material, Virginia Power will report them
as a separate line item.
Virginia
Electric and Power Company Form 10-Q for the quarterly period ended June 30,
2005
5.
We
note your response to comment 27 of our letter dated September 28,
2005.
We assume the nuclear decommissioning trust funds contain cash. Please
tell us how you reflect such cash for the purposes of cash and cash
equivalents in the statements of cash
flows.
Response
The
cash
held in Virginia Power’s nuclear decommissioning trust funds is not included in
cash and cash equivalents on the Consolidated Balance Sheets or the Consolidated
Statements of Cash Flows since its use is restricted by the Nuclear Regulatory
Commission. Footnote 1 of SFAS No. 95, Statement
of Cash Flows,
states,
in part:
Cash
also
includes other kinds of accounts that have the general characteristics of demand
deposits in that the customer may deposit additional funds at any time and
may
also effectively withdraw funds at any time without prior notice or
penalty.
Since
the
cash held in the nuclear decommissioning trust funds does not meet the above
definition, it represents an investment rather than a cash or cash equivalent,
and accordingly, the change in its balance is reflected as an investing activity
in the Consolidated Statements of Cash Flows.
4
If
you
have any questions or require