Edgar Filing: VIRGINIA ELECTRIC & POWER CO

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2010

¨	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	Exact name of registrants as specified in their charters, address of principal executive offices and registrants’ telephone number	I.R.S. Employer Identification Number

001-08489	DOMINION RESOURCES, INC.	54-1229715
001-02255	VIRGINIA ELECTRIC AND POWER COMPANY	54-0418825

	120 Tredegar Street Richmond, Virginia 23219 (804) 819-2000

State or other jurisdiction of incorporation or organization of the registrants: Virginia

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


Dominion Resources, Inc. Yes x No ¨		Virginia Electric and Power Company Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).


Dominion Resources, Inc. Yes x No ¨		Virginia Electric and Power Company Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Dominion Resources, Inc.


Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨

Virginia Electric and Power Company


Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	x (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


Dominion Resources, Inc. Yes ¨ No x		Virginia Electric and Power Company Yes ¨ No x

At June 30, 2010, the latest practicable date for determination, Dominion Resources, Inc. had 589,130,663 shares of common stock outstanding and Virginia Electric and Power Company had 256,310 shares of common stock outstanding. Dominion Resources, Inc. is the sole holder of Virginia Electric and Power Company’s common stock.

This combined Form 10-Q represents separate filings by Dominion Resources, Inc. and Virginia Electric and Power Company. Information contained herein relating to an individual registrant is filed by that registrant on its own behalf. Virginia Electric and Power Company makes no representations as to the information relating to Dominion Resources, Inc.’s other operations.

COMBINED INDEX


		Page Number

	Glossary of Terms	3

	PART I. Financial Information

Item 1.	Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	46

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	61

Item 4.	Controls and Procedures	62

	PART II. Other Information

Item 1.	Legal Proceedings	63

Item 1A.	Risk Factors	63

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64

Item 6.	Exhibits	65

PAGE 2

GLOSSARY OF TERMS

The following abbreviations or acronyms used in this Form 10-Q are defined below:


Abbreviation or Acronym		Definition
AOCI		Accumulated other comprehensive income (loss)
AMR		Automated meter reading program deployed by Dominion East Ohio
ARO		Asset retirement obligation
bcf		Billion cubic feet
bcfe		Billion cubic feet equivalent
Bear Garden		A 580 MW combined cycle, natural gas-fired power station under construction in Buckingham County, Virginia
BREDL		Blue Ridge Environmental Defense League
BP		BP Alternative Energy, Inc.
Brayton Point		Brayton Point power station
CAA		Clean Air Act
CEO		Chief Executive Officer
CFO		Chief Financial Officer
COL		Combined Construction Permit and Operating License
CONSOL		CONSOL Energy, Inc.
DD&A		Depreciation, depletion and amortization expense
DEI		Dominion Energy, Inc.
Dodd-Frank Act		the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
DOE		Department of Energy
Dominion		The legal entity, Dominion Resources, Inc., one or more of Dominion Resources, Inc.’s consolidated subsidiaries (other than Virginia Power) or operating segments or the entirety of Dominion Resources, Inc. and its consolidated subsidiaries
Dominion Direct^®		A dividend reinvestment and open enrollment direct stock purchase plan
DRS		Dominion Resources Services, Inc.
DSM		Demand-side management
DTI		Dominion Transmission, Inc.
DVP		Dominion Virginia Power operating segment
ECCP		Energy Conservation Council of Pennsylvania
E&P		Exploration & production
EPA		Environmental Protection Agency
EPS		Earnings per share
Fairless		Fairless power station
Fowler Ridge		A wind-turbine facility joint venture between Dominion and BP in Benton County, Indiana
FERC		Federal Energy Regulatory Commission
FTRs		Financial transmission rights
GAAP		U.S. generally accepted accounting principles
GHG		Greenhouse gas
Hope		Hope Gas, Inc.
Kewaunee		Kewaunee power station
kV		Kilovolt
kWh		Kilowatt-hour
LNG		Liquefied natural gas
Local 69		Utility Workers’ Union of America, AFL-CIO, Local 69
mcfe		Thousand cubic feet equivalent
MD&A		Management’s Discussion and Analysis of Financial Condition and Results of Operations
Meadow Brook-to-Loudoun line		Project to construct an approximately 270-mile 500-kV transmission line that begins in southwestern Pennsylvania, crosses West Virginia, and terminates in northern Virginia, of which Virginia Power will construct approximately 65 miles in Virginia and Trans-Allegheny Interstate Line Company will construct the remainder
Millstone		Millstone power station
Moody’s		Moody’s Investors Service
MW		Megawatt
MWh		Megawatt hour

PAGE 3


Abbreviation or Acronym		Definition
NAAQS		National Ambient Air Quality Standard
NedPower		A wind-turbine facility joint venture between Dominion and Shell WindEnergy Inc. in Grant County, West Virginia
NGLs		Natural gas liquids
North Anna		North Anna power station
NO_X		Nitrogen oxide
NO₂		Nitrogen dioxide
NRC		Nuclear Regulatory Commission
ODEC		Old Dominion Electric Cooperative
Pennsylvania Commission		Pennsylvania Public Utility Commission
Peoples		The Peoples Natural Gas Company
PIR		Pipeline infrastructure replacement program deployed by Dominion East Ohio
PJM		PJM Interconnection, LLC
PNG Companies LLC		An indirect subsidiary of SteelRiver Infrastructure Fund North America
RCRA		Resource Conservation and Recovery Act
Riders C1 and C2		Rate adjustment clauses associated with the recovery of costs related to certain DSM programs
Rider R		A rate adjustment clause associated with recovery of costs related to Bear Garden
Rider S		A rate adjustment clause associated with the recovery of costs related to the Virginia City Hybrid Energy Center
Rider T		A rate adjustment clause associated with the recovery of certain transmission-related expenditures
ROE		Return on equity
RTEP		Regional transmission expansion plan
RTO		Regional transmission organization
Salem Harbor		Salem Harbor power station
SEC		Securities and Exchange Commission
SELC		Southern Environmental Law Center
SO₂		Sulfur dioxide
Standard & Poor’s		Standard & Poor’s Ratings Services, a division of the McGraw-Hill Companies, Inc.
State Line		State Line power station
Surry		Surry power station
the Companies		Dominion and Virginia Power, collectively
U.S.		United States of America
US-APWR		Mitsubishi Heavy Industry’s Advanced Pressurized Water Reactor
VIE		Variable interest entity
Virginia Commission		Virginia State Corporation Commission
Virginia City Hybrid Energy Center		A 585 MW (nominal) carbon-capture compatible, clean coal powered electric generation facility under construction in Wise County, Virginia
Virginia Power		The legal entity, Virginia Electric and Power Company, one or more of its consolidated subsidiaries or operating segments or the entirety of Virginia Power and its consolidated subsidiaries
VPDES		Virginia Pollutant Discharge Elimination System
VPP		Volumetric production payment
West Virginia Commission		Public Service Commission of West Virginia

PAGE 4

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DOMINION RESOURCES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009⁽¹⁾			2010			2009⁽¹⁾
(millions, except per share amounts)
Operating Revenue	$	3,333		$	3,406		$	7,501		$	7,992

Operating Expenses
Electric fuel and other energy-related purchases		956			998			1,984			2,139
Purchased electric capacity		109			105			217			213
Purchased gas		391			351			1,183			1,358
Other operations and maintenance		853			685			1,921			1,919
Depreciation, depletion and amortization		262			271			531			550
Other taxes		119			107			288			260

Total operating expenses		2,690			2,517			6,124			6,439

Gain on sale of Appalachian E&P operations		2,467			—			2,467			—

Income from operations		3,110			889			3,844			1,553

Other income (loss)		(25	)		69			46			8
Interest and related charges		188			220			371			439

Income from continuing operations including noncontrolling interests before income tax expense		2,897			738			3,519			1,122
Income tax expense		1,134			265			1,429			406

Income from continuing operations including noncontrolling interests		1,763			473			2,090			716
Income (loss) from discontinued operations⁽²⁾		2			(15	)		(147	)		(6	)

Net Income Including Noncontrolling Interests		1,765			458			1,943			710
Noncontrolling Interests		4			4			8			8

Net Income Attributable to Dominion	$	1,761		$	454		$	1,935		$	702

Amounts Attributable to Dominion:
Income from continuing operations, net of tax	$	1,759		$	469		$	2,082		$	708
Income (loss) from discontinued operations, net of tax		2			(15	)		(147	)		(6	)

Net income attributable to Dominion	$	1,761		$	454		$	1,935		$	702

Earnings Per Common Share – Basic and Diluted
Income from continuing operations	$	2.98		$	0.79		$	3.50		$	1.20
Income (loss) from discontinued operations		—			(0.03	)		(0.25	)		(0.01	)

Net income attributable to Dominion	$	2.98		$	0.76		$	3.25		$	1.19

Dividends paid per common share	$	0.4575		$	0.4375		$	0.915		$	0.875

(1)	Our Consolidated Statements of Income for the three and six months ended June 30, 2009 have been recast to reflect Peoples as discontinued operations, as discussed in Note 3.

(2)	Includes income tax expense of $1 million and $28 million for the three months ended June, 2010 and 2009, respectively, and $13 million and $54 million for the six months ended June 30, 2010 and 2009, respectively.

The accompanying notes are an integral part of Dominion’s Consolidated Financial Statements.

PAGE 5

DOMINION RESOURCES, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	June 30, 2010			December 31, 2009⁽¹⁾
(millions)
ASSETS
Current Assets
Cash and cash equivalents	$	411		$	48
Customer receivables (less allowance for doubtful accounts of $32 and $31)		1,739			2,050
Other receivables (less allowance for doubtful accounts of $9 and $14)		135			130
Inventories		1,107			1,185
Derivative assets		1,029			1,128
Assets held for sale		—			1,018
Prepayments		107			405
Other investments		900			—
Other		947			853

Total current assets		6,375			6,817

Investments
Nuclear decommissioning trust funds		2,558			2,625
Investment in equity method affiliates		581			595
Other		275			272

Total investments		3,414			3,492

Property, Plant and Equipment
Property, plant and equipment		38,350			39,036
Accumulated depreciation, depletion and amortization		(12,892	)		(13,444	)

Total property, plant and equipment, net		25,458			25,592

Deferred Charges and Other Assets
Goodwill		3,141			3,354
Regulatory assets		1,271			1,390
Other		2,129			1,909

Total deferred charges and other assets		6,541			6,653

Total assets	$	41,788		$	42,554

(1)	Dominion’s Consolidated Balance Sheet at December 31, 2009 has been derived from the audited Consolidated Financial Statements at that date.

The accompanying notes are an integral part of Dominion’s Consolidated Financial Statements.

PAGE 6

DOMINION RESOURCES, INC.

CONSOLIDATED BALANCE SHEETS—(Continued)

(Unaudited)


	June 30, 2010			December 31, 2009⁽¹⁾
(millions)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Securities due within one year	$	895		$	1,137
Short-term debt		—			1,295
Accounts payable		1,286			1,401
Accrued taxes		1,083			152
Accrued interest and payroll		392			524
Derivative liabilities		717			679
Liabilities held for sale		—			428
Regulatory liabilities		362			536
Other		936			681

Total current liabilities		5,671			6,833

Long-Term Debt
Long-term debt		13,614			13,730
Junior subordinated notes payable to affiliates		268			268
Enhanced junior subordinated notes		1,467			1,483

Total long-term debt		15,349			15,481

Deferred Credits and Other Liabilities
Deferred income taxes and investment tax credits		4,000			4,244
Asset retirement obligations		1,540			1,605
Pension and other postretirement benefit liabilities		1,145			1,260
Regulatory liabilities		1,198			1,215
Other		482			474

Total deferred credits and other liabilities		8,365			8,798

Total liabilities		29,385			31,112

Commitments and Contingencies (see Note 15)
Subsidiary Preferred Stock Not Subject to Mandatory Redemption		257			257

Common Shareholders’ Equity
Common stock – no par⁽²⁾		6,079			6,525
Other paid-in capital		190			185
Retained earnings		6,077			4,686
Accumulated other comprehensive loss		(200	)		(211	)

Total common shareholders’ equity		12,146			11,185

Total liabilities and shareholders’ equity	$	41,788		$	42,554

(1)	Dominion’s Consolidated Balance Sheet at December 31, 2009 has been derived from the audited Consolidated Financial Statements at that date.

(2)	1 billion shares authorized; 589 million and 599 million shares outstanding at June 30, 2010 and December 31, 2009, respectively.

The accompanying notes are an integral part of Dominion’s Consolidated Financial Statements.

PAGE 7

DOMINION RESOURCES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


Six Months Ended June 30,	2010			2009
(millions)
Operating Activities
Net income including noncontrolling interests	$	1,943		$	710
Adjustments to reconcile net income including noncontrolling interests to net cash provided by operating activities:
Gain from sale of Appalachian E&P operations		(2,467	)		—
Loss from sale of Peoples		113			—
Accrued charges related to workforce reduction program		288			—
Impairment of merchant generation facility		163			—
Impairment of gas and oil properties		21			455
Depreciation, depletion and amortization (including nuclear fuel)		629			640
Deferred income taxes and investment tax credits		(210	)		(447	)
Contribution to employee pension plans		(250	)		—
Base rate case refunds		(203	)		—
Other adjustments		96			33
Changes in:
Accounts receivable		312			623
Inventories		91			40
Deferred fuel and purchased gas costs		(46	)		490
Prepayments		299			(13	)
Accounts payable		(131	)		(529	)
Accrued interest, payroll and taxes		791			(43	)
Margin deposit assets and liabilities		5			(137	)
Other operating assets and liabilities		(38	)		80

Net cash provided by operating activities		1,406			1,902

Investing Activities
Plant construction and other property additions		(1,654	)		(1,788	)
Proceeds from the sale of Appalachian E&P operations		3,450			—
Proceeds from the sale of Peoples		741			—
Proceeds from sale of securities		1,140			727
Purchases of securities		(2,064	)		(760	)
Other		48			33

Net cash provided by (used in) investing activities		1,661			(1,788	)

Financing Activities
Repayment of short-term debt, net		(1,295	)		(951	)
Issuance of long-term debt		—			1,195
Repayment of long-term debt		(411	)		(133	)
Issuance of common stock		48			314
Repurchase of common stock		(500	)		—
Common dividend payments		(544	)		(516	)
Subsidiary preferred dividend payments		(8	)		(8	)
Other		4			(20	)

Net cash used in financing activities		(2,706	)		(119	)

Increase (decrease) in cash and cash equivalents		361			(5	)
Cash and cash equivalents at beginning of period⁽¹⁾		50			71

Cash and cash equivalents at end of period⁽²⁾	$	411		$	66

Supplemental Cash Flow Information:
Significant noncash investing and financing activities
Accrued capital expenditures	$	215		$	189
Debt for equity exchange		—			56

(1)	2010 and 2009 amounts include $2 million and $5 million, respectively, of cash classified as held for sale in Dominion’s Consolidated Balance Sheets.

(2)	2009 amount includes $2 million of cash classified as held for sale in Dominion’s Consolidated Balance Sheet.

The accompanying notes are an integral part of Dominion’s Consolidated Financial Statements.

PAGE 8

VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2010		2009		2010		2009
(millions)
Operating Revenue	$	1,711	$	1,675	$	3,450	$	3,534

Operating Expenses
Electric fuel and other energy-related purchases		589		685		1,221		1,479
Purchased electric capacity		108		104		215		212
Other operations and maintenance:
Affiliated suppliers		88		100		208		201
Other		229		281		628		527
Depreciation and amortization		165		160		328		317
Other taxes		53		46		117		97

Total operating expenses		1,232		1,376		2,717		2,833

Income from operations		479		299		733		701

Other income		28		23		42		32
Interest and related charges		83		87		171		174

Income before income tax expense		424		235		604		559
Income tax expense		157		86		242		206

Net Income		267		149		362		353
Preferred dividends		4		4		8		8

Balance available for common stock	$	263	$	145	$	354	$	345

The accompanying notes are an integral part of Virginia Power’s Consolidated Financial Statements.

PAGE 9

VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	June 30, 2010			December 31, 2009⁽¹⁾
(millions)
ASSETS
Current Assets
Cash and cash equivalents	$	15		$	19
Customer accounts receivable (less allowance for doubtful accounts of $10 and $12)		859			880
Other receivables (less allowance for doubtful accounts of $6 at both dates)		64			72
Inventories (average cost method)		590			614
Prepayments		171			52
Other		347			459

Total current assets		2,046			2,096

Investments
Nuclear decommissioning trust funds		1,178			1,204
Other		3			4

Total investments		1,181			1,208

Property, Plant and Equipment
Property, plant and equipment		26,666			25,643
Accumulated depreciation and amortization		(9,567	)		(9,314	)

Total property, plant and equipment, net		17,099			16,329

Deferred Charges and Other Assets
Intangible assets		220			217
Regulatory assets		236			200
Other		236			68

Total deferred charges and other assets		692			485

Total assets	$	21,018		$	20,118

(1) Virginia Power’s Consolidated Balance Sheet at December 31, 2009 has been derived from the audited Consolidated Financial Statements at that date.

The accompanying notes are an integral part of Virginia Power’s Consolidated Financial Statements.

PAGE 10

VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED BALANCE SHEETS—(Continued)

(Unaudited)


	June 30, 2010		December 31, 2009⁽¹⁾
(millions)
LIABILITIES AND SHAREHOLDER’S EQUITY
Current Liabilities
Securities due within one year	$	363	$	245
Short-term debt		—		442
Accounts payable		436		390
Payables to affiliates		83		67
Affiliated current borrowings		763		2
Accrued interest, payroll and taxes		189		213
Regulatory liabilities		322		491
Other		439		358

Total current liabilities		2,595		2,208

Long-Term Debt		6,086		6,213

Deferred Credits and Other Liabilities
Deferred income taxes and investment tax credits		2,397		2,359
Asset retirement obligations		651		636
Regulatory liabilities		977		995
Other		296		277

Total deferred credits and other liabilities		4,321		4,267

Total liabilities		13,002		12,688

Commitments and Contingencies (see Note 15)
Preferred Stock Not Subject to Mandatory Redemption		257		257

Common Shareholder’s Equity
Common stock—no par⁽²⁾		5,171		4,738
Other paid-in capital		1,110		1,110
Retained earnings		1,464		1,299
Accumulated other comprehensive income		14		26

Total common shareholder’s equity		7,759		7,173

Total liabilities and shareholder’s equity	$	21,018	$	20,118

(1)	Virginia Power’s Consolidated Balance Sheet at December 31, 2009 has been derived from the audited Consolidated Financial Statements at that date.

(2)	300,000 shares authorized; 256,310 and 241,710 shares outstanding at June 30, 2010 and December 31, 2009, respectively.

The accompanying notes are an integral part of Virginia Power’s Consolidated Financial Statements.

PAGE 11

VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


Six Months Ended June 30,	2010			2009
(millions)
Operating Activities
Net income	$	362		$	353
Adjustments to reconcile net income to net cash provided by operating activities:
Accrued charges related to workforce reduction program		114			—
Depreciation and amortization (including nuclear fuel)		383			367
Deferred income taxes and investment tax credits		129			(103	)
Base rate case refunds		(203	)		—
Other adjustments		(29	)		(14	)
Changes in:
Accounts receivable		28			18
Affiliated accounts receivable and payable		18			(24	)
Inventories		23			(44	)
Deferred fuel expenses		(51	)		331
Accounts payable		20			(27	)
Accrued interest, payroll and taxes		(24	)		(18	)
Prepayments		(119	)		(61	)
Other operating assets and liabilities		(92	)		133

Net cash provided by operating activities		559			911

Investing Activities
Plant construction and other property additions		(1,041	)		(1,125	)
Purchases of nuclear fuel		(63	)		(69	)
Purchases of securities		(724	)		(346	)
Proceeds from sales of securities		711			330
Other		5			(47	)

Net cash used in investing activities		(1,112	)		(1,257	)

Financing Activities
Issuance (repayment) of short-term debt, net		(442	)		83
Issuance of affiliated current borrowings, net		1,194			105
Issuance of long-term debt		—			460
Repayment of long-term debt		(9	)		(119	)
Common dividend payments		(189	)		(176	)
Preferred dividend payments		(8	)		(8	)
Other		3			3

Net cash provided by financing activities		549			348

Increase (decrease) in cash and cash equivalents		(4	)		2
Cash and cash equivalents at beginning of period		19			27

Cash and cash equivalents at end of period	$	15		$	29

Supplemental Cash Flow Information
Significant noncash investing and financing activities:
Accrued capital expenditures	$	160		$	103
Conversion of short-term borrowings payable to Dominion to equity		433			—

The accompanying notes are an integral part of Virginia Power’s Consolidated Financial Statements.

PAGE 12

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Nature of Operations

Dominion, headquartered in Richmond, Virginia, is one of the nation’s largest producers and transporters of energy. Dominion’s operations are conducted through various subsidiaries, including Virginia Power, a regulated public utility that generates, transmits and distributes electricity for sale in Virginia and northeastern North Carolina.

As discussed in Note 3, Dominion completed the sales of its Pennsylvania gas distribution operations and substantially all of its Appalachian E&P operations in February and April 2010, respectively.

Note 2. Significant Accounting Policies

As permitted by the rules and regulations of the SEC, Dominion’s and Virginia Power’s accompanying unaudited Consolidated Financial Statements contain certain condensed financial information and exclude certain footnote disclosures normally included in annual audited consolidated financial statements prepared in accordance with GAAP. These unaudited Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes in Dominion’s and Virginia Power’s Annual Report on Form 10-K for the year ended December 31, 2009 and their Quarterly Report on Form 10-Q for the quarter ended March 31, 2010. Due to the sale of substantially all of Dominion’s Appalachian E&P operations during the second quarter of 2010, accounting for gas and oil operations is no longer considered a significant accounting policy. There have been no other material changes with regard to the significant accounting policies previously disclosed in Dominion’s and Virginia Power’s Annual Report on Form 10-K for the year ended December 31, 2009.

In Dominion’s and Virginia Power’s opinion, the accompanying unaudited Consolidated Financial Statements contain all adjustments necessary to present fairly their financial position as of June 30, 2010, their results of operations for the three and six months ended June 30, 2010 and 2009 and their cash flows for the six months ended June 30, 2010 and 2009. Such adjustments are normal and recurring in nature unless otherwise noted.

The Companies make certain estimates and assumptions in preparing their Consolidated Financial Statements in accordance with GAAP. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the periods presented. Actual results may differ from those estimates.

Dominion’s and Virginia Power’s accompanying unaudited Consolidated Financial Statements include, after eliminating intercompany transactions and balances, their accounts and those of their respective majority-owned subsidiaries.

The results of operations for interim periods are not necessarily indicative of the results expected for the full year. Information for quarterly periods is affected by seasonal variations in sales, rate changes, electric fuel and other energy-related purchases, purchased gas expenses and other factors.

Certain amounts in Dominion’s and Virginia Power’s 2009 Consolidated Financial Statements and Notes have been recast to conform to the 2010 presentation.

Amounts disclosed for Dominion are inclusive of Virginia Power, where applicable.

Note 3. Dispositions

Sale of Appalachian E&P Operations

In April 2010, Dominion completed the sale of substantially all of its Appalachian E&P operations to a newly-formed subsidiary of CONSOL for approximately $3.5 billion, subject to adjustments pursuant to the terms of the sale agreement.

The transaction includes the mineral rights to approximately 491,000 acres in the Marcellus Shale formation. Dominion retained certain oil and natural gas wells located on or near its natural gas storage fields. The transaction generated after-tax proceeds of approximately $2.2 billion and resulted in an after-tax gain of approximately $1.4 billion, which includes a $134 million write-off of goodwill. Proceeds from the sale will be used to pay taxes on the gain and to offset substantially all of Dominion’s equity needs for 2010 and its market equity issuances for 2011, repurchase common stock, fund contributions to Dominion’s pension plans and the Dominion Foundation, reduce debt and offset the majority of the impact of Virginia Power’s rate case settlement.

PAGE 13

The results of operations for Dominion’s Appalachian E&P business are not reported as discontinued operations in the Consolidated Statements of Income since Dominion did not sell its entire U.S. cost pool.

Due to the sale, hedge accounting was discontinued for certain cash flow hedges since it became probable that the forecasted sales of gas would not occur. In connection with the discontinuance of hedge accounting for these contracts, Dominion recognized a $42 million ($25 million after-tax) benefit, recorded in operating revenue in its Consolidated Statement of Income, reflecting the reclassification of gains from AOCI to earnings for these contracts for the three months ended March 31, 2010.

Sale of Peoples

In February 2010, Dominion completed the sale of Peoples to PNG Companies LLC and netted after-tax proceeds of approximately $542 million. The sale resulted in an after-tax loss of approximately $132 million, which included a $79 million write-off of goodwill and post-closing adjustments. The sale also resulted in after-tax expenses of approximately $27 million, including transaction and benefit-related costs. In addition, Peoples had income from operations of $12 million after-tax during 2010.

Prior to March 31, 2010, Dominion did not report Peoples as discontinued operations since it expected to have significant continuing cash flows related primarily to the sale of natural gas production from its Appalachian E&P business to Peoples. Due to the sale of its Appalachian E&P business, Dominion will not have significant continuing cash flows with Peoples; therefore, the results of Peoples were reclassified to discontinued operations in the Consolidated Statements of Income for all periods presented.

The carrying amounts of the major classes of assets and liabilities classified as held for sale in Dominion’s Consolidated Balance Sheet were as follows:


	December 31, 2009
(millions)
ASSETS
Current Assets
Customer receivables	$	87
Other		56

Total current assets		143

Property, Plant and Equipment
Property, plant and equipment		985
Accumulated depreciation, depletion and amortization		(284	)

Total property, plant and equipment, net		701

Deferred Charges and Other Assets
Regulatory assets		125
Other		49

Total deferred charges and other assets		174

Assets held for sale	$	1,018

LIABILITIES
Current Liabilities	$	133
Deferred Credits and Other Liabilities
Deferred income taxes and investment tax credits		238
Other		57

Total deferred credits and other liabilities		295

Liabilities held for sale	$	428

PAGE 14

The following table presents selected information regarding the results of operations of Peoples, which are reported as discontinued operations in the Consolidated Statements of Income:


	Three Months Ended June 30,				Six Months Ended June 30,
	2010		2009		2010			2009
(millions)
Operating revenue	$	—	$	63	$	67		$	290
Income (loss) before income taxes		3		13		(134	)		48

Note 4. Ceiling Test

Dominion follows the full cost method of accounting for its gas and oil E&P activities, which subjects capitalized costs to a quarterly ceiling test using hedge-adjusted prices.

At March 31, 2010, Dominion recorded a ceiling test impairment charge of $21 million ($13 million after-tax) in other operations and maintenance expense in its Consolidated Statement of Income primarily due to a decline in hedge-adjusted prices reflecting the discontinuance of hedge accounting for certain cash flow hedges, as discussed in Note 3.

During the six months ended June 30, 2009, Dominion recorded a ceiling test impairment charge of $455 million ($281 million after-tax) in other operations and maintenance expense in its Consolidated Statement of Income. Excluding the effects of hedge-adjusted prices in calculating the ceiling limitation, the impairment would have been $631 million ($378 million after-tax).

Note 5. Operating Revenue

The Companies’ operating revenue consists of the following:


	Three Months Ended June 30,				Six Months Ended June 30,
	2010		2009		2010		2009
(millions)
Dominion
Electric sales:
Regulated	$	1,688	$	1,647	$	3,405	$	3,472
Nonregulated		840		924		1,785		1,918
Gas sales:
Regulated		39		47		184		377
Nonregulated		345		389		1,127		1,320
Gas transportation and storage		316		289		781		682
Other		105		110		219		223

Total operating revenue	$	3,333	$	3,406	$	7,501	$	7,992

Virginia Power
Regulated electric sales	$	1,688	$	1,647	$	3,405	$	3,472
Other		23		28		45		62

Total operating revenue	$	1,711	$	1,675	$	3,450	$	3,534

PAGE 15

Note 6. Income Taxes

Continuing Operations

For continuing operations, including noncontrolling interests, the statutory U.S. federal income tax rate reconciles to Dominion’s and Virginia Power’s effective income tax rate as follows:


	Dominion				Virginia Power
Six Months Ended June 30,	2010		2009		2010		2009
U.S. statutory rate	35.0	%	35.0	%	35.0	%	35.0	%
Increases (reductions) resulting from:
Legislative changes	1.6		—		2.6		—
State taxes, net of federal benefit	4.5		4.0		3.9		3.8
Domestic production activities deduction	(0.6	)	(0.5	)	(0.9	)	(0.7	)
Non-deductible goodwill	0.9		—		—		—
Other, net	(0.8	)	(2.3	)	(0.5	)	(1.3	)

Effective tax rate	40.6	%	36.2	%	40.1	%	36.8	%

Dominion’s and Virginia Power’s effective tax rates in 2010 reflect a reduction of deferred tax assets resulting from the enactment of the Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act of 2010 which eliminated the employer’s deduction, beginning in 2013, for that portion of its retiree prescription drug coverage cost that is being reimbursed by the Medicare Part D subsidy. In addition, Dominion’s effective tax rate in 2010 includes the impact of goodwill written off with the sale of the Appalachian E&P operations that is not deductible for tax purposes.

As of June 30, 2010, there have been no material changes in Dominion’s and Virginia Power’s unrecognized tax benefits. See Note 6 to the Consolidated Financial Statements in Dominion’s and Virginia Power’s Annual Report on Form 10-K for the year ended December 31, 2009, for a discussion of these unrecognized tax benefits, including possible changes that could reasonably occur during the next twelve months.

Discontinued Operations

Income tax expense in 2010 for Dominion’s discontinued operations primarily reflects the impact of goodwill written off in the sale of Peoples that is not deductible for tax purposes and the reversal of deferred taxes for which the benefit was offset by the reversal of income tax-related regulatory assets.

Income tax expense in 2009 for Dominion’s discontinued operations also reflects the impact of these items. Since the sale of Peoples was expected to occur later in 2009, the tax effects related to the sale were included in the determination of Dominion’s estimated annual effective tax rate in 2009.

Note 7. Earnings Per Share

The following table presents the calculation of Dominion’s basic and diluted EPS:


	Three Months Ended June 30,				Six Months Ended June 30,
	2010		2009		2010		2009
(millions, except EPS)
Net income attributable to Dominion	$	1,761	$	454	$	1,935	$	702

Average shares of common stock outstanding – Basic		590.4		593.7		595.1		589.5
Net effect of potentially dilutive securities⁽¹⁾		1.0		0.3		1.0		0.4

Average shares of common stock outstanding – Diluted		591.4		594.0		596.1		589.9

Earnings Per Common Share – Basic and Diluted	$	2.98	$	0.76	$	3.25	$	1.19

(1)	Potentially dilutive securities consist of options, goal-based stock and contingently convertible senior notes.

Potentially dilutive securities with the right to acquire approximately 2.7 million and 2.2 million common shares for the three and six months ended June 30, 2009, respectively, were not included in the period’s calculation of diluted EPS because the exercise or purchase prices of those instruments were greater than the average market price of Dominion’s common shares. There were no potentially dilutive securities excluded from the calculation of diluted EPS for the three and six months ended June 30, 2010.

PAGE 16

Note 8. Comprehensive Income

The following table presents Dominion’s total comprehensive income:


	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
(millions)
Net income including noncontrolling interests	$	1,765		$	458		$	1,943		$	710
Other comprehensive income (loss):
Net other comprehensive income (loss) associated with effective portion of changes in fair value of derivatives designated as cash flow hedges, net of taxes and amounts reclassified to earnings		(111	)⁽¹⁾		(112	)⁽²⁾		(5	)		39
Other, net of tax		(48	)⁽³⁾		53	⁽⁴⁾		16			77	⁽⁴⁾

Other comprehensive income (loss)		(159	)		(59	)		11			116

Comprehensive income including noncontrolling interests		1,606			399			1,954			826
Noncontrolling interests		4			4			8			8

Total comprehensive income attributable to Dominion	$	1,602		$	395		$	1,946		$	818

(1)	Reflects the impact of changes in commodity prices and the reclassification of gains related to interest rate derivatives to earnings.

(2)	Principally reflects the reclassification of electricity-related derivative activity to earnings.

(3)	Primarily represents a net reduction in unrealized gains on investments held in nuclear decommissioning trusts.

(4)	Principally represents a net increase in unrealized gains on investments held in nuclear decommissioning trusts.

The following table presents Virginia Power’s total comprehensive income:


	Three Months Ended June 30,					Six Months Ended June 30,
	2010			2009		2010			2009
(millions)
Net income	$	267		$	149	$	362		$	353
Other comprehensive income (loss):
Net other comprehensive income (loss) associated with effective portion of changes in fair value of derivatives designated as cash flow hedges, net of taxes and amounts reclassified to earnings		(3	)		8		(8	)		8
Other, net of tax		(6	)		4		(4	)		7

Other comprehensive income (loss)		(9	)		12		(12	)		15

Total comprehensive income	$	258		$	161	$	350		$	368

Note 9. Fair Value Measurements

Dominion’s and Virginia Power’s fair value measurements are made in accordance with the policies discussed in Note 7 to the Consolidated Financial Statements in their Annual Report on Form 10-K for the year ended December 31, 2009. See Note 10 in this report for further information about their derivatives and hedge accounting activities.

Fair values are based on inputs and assumptions that market participants would use when pricing an asset or liability, including assumptions about risk and the risks inherent in valuation techniques and the inputs to valuations. The inputs and assumptions include the following:

For commodity and foreign currency derivative contracts:

•

Forward commodity prices

•

Forward foreign currency prices

•

Price volatility

•

Volumes

•

Commodity location

•

Interest rates

•

Credit quality of counterparties and Dominion and Virginia Power

•

Credit enhancements

•

Time value

PAGE 17

For interest rate derivative contracts:

•

Interest rate curves

•

Credit quality of counterparties and Dominion and Virginia Power

•

Credit enhancements

•

Time value

For investments:

•

Quoted securities prices

•

Securities trading information including volume and restrictions

•

Maturity

•

Interest rates

•

Credit quality

•

Net asset value (only for investments in partnerships)

Dominion and Virginia Power regularly evaluate and validate the inputs used to estimate fair value by a number of methods, including review and verification of models, as well as various market price verification procedures such as the use of pricing services and multiple broker quotes to support the market price of the various commodities in which the Companies transact.

For derivative contracts, Dominion and Virginia Power recognize transfers among Level 1, Level 2 and Level 3 based on fair values as of the first day of the month in which the transfer occurs. Transfers out of Level 3 represent assets and liabilities that were previously classified as Level 3 for which the inputs became observable based on the criteria discussed in Note 7 to the Consolidated Financial Statements in Dominion’s and Virginia Power’s Annual Report on Form 10-K for the year ended December 31, 2009 for classification in either Level 1 or Level 2. Because the activity and liquidity of commodity markets vary substantially between regions and time periods, the availability of observable inputs for substantially the full term and value of the Companies’ over-the-counter derivative contracts is subject to change.

At June 30, 2010, Dominion’s and Virginia Power’s net balance of commodity derivatives categorized as Level 3 fair value measurements was a net asset of $32 million and $5 million, respectively. A hypothetical 10% increase in commodity prices would decrease Dominion’s and Virginia Power’s Level 3 net asset by $54 million and $2 million, respectively, while a hypothetical 10% decrease in commodity prices would increase Dominion’s and Virginia Power’s Level 3 net asset by $54 million and $2 million, respectively.

Non-recurring Fair Value Measurements

In June 2010, Dominion evaluated State Line, a coal-fired merchant power station with minimal environmental controls, for impairment due to the station’s relatively low level of profitability combined with the EPA’s issuance in June 2010 of a new stringent 1-hour primary NAAQS for SO₂ that will likely require significant environmental capital expenditures in the future. As a result of this evaluation, Dominion recorded an impairment charge of $163 million ($95 million after-tax) in other operations and maintenance expense in its Consolidated Statement of Income, to write down State Line’s long-lived assets to their estimated fair value of $59 million. As management is not aware of any recent market transactions for comparable assets with sufficient transparency to develop a market approach to fair value, Dominion relied on the income approach (discounted cash flows) to estimate the fair value of State Line’s long-lived assets. This is considered a Level 3 fair value measurement due to the use of significant unobservable inputs including estimates of future power and other commodity prices.

During the first quarter of 2009, Dominion evaluated an equity method investment for impairment and recorded a $23 million impairment in other income (loss) in its Consolidated Statement of Income. The resulting fair value of $10 million was estimated using an expected present value cash flow model and was considered a Level 3 fair value measurement due to the use of significant unobservable inputs related to the timing and amount of future equity distributions based on the investee’s future financing structure, contractual and market based revenues and operating costs.

PAGE 18

Recurring Fair Value Measurements

Dominion

The following table presents Dominion’s assets and liabilities that are measured at fair value on a recurring basis for each hierarchy level, including both current and noncurrent portions:


	Level 1		Level 2		Level 3		Total
(millions)
As of June 30, 2010
Assets
Derivatives:
Commodity	$	106	$	1,038	$	104	$	1,248
Interest rate		—		56		—		56
Investments⁽¹⁾ :
Marketable equity securities		1,458		—		—		1,458
Marketable debt securities:
Corporate bonds		—		323		—		323
U.S. Treasury securities and agency debentures		269		152		—		421
State and municipal		—		263		—		263
Other		—		28		—		28
Cash equivalents and other		—		79		—		79

Total assets	$	1,833	$	1,939	$	104	$	3,876

Liabilities
Derivatives:
Commodity	$	11	$	778	$	72	$	861
Interest rate		—		24		—		24

Total liabilities	$	11	$	802	$	72	$	885

As of December 31, 2009
Assets
Derivatives:
Commodity	$	85	$	1,058	$	41	$	1,184
Interest rate		—		176		—		176
Foreign currency		—		2		—		2
Investments⁽¹⁾ :
Marketable equity securities		1,575		1		—		1,576
Marketable debt securities:
Corporate bonds		—		253		—		253
U.S. Treasury securities and agency debentures		216		78		—		294
State and municipal		—		434		—		434
Other		—		4		—		4
Cash equivalents and other		—		54		—		54

Total assets	$	1,876	$	2,060	$	41	$	3,977

Liabilities
Derivatives:
Commodity	$	17	$	736	$	107	$	860
Interest rate		—		1		—		1

Total liabilities	$	17	$	737	$	107	$	861

(1)	Includes investments held in the nuclear decommissioning and rabbi trusts.

PAGE 19

The following table presents the net change in Dominion’s assets and liabilities measured at fair value on a recurring basis and included in the Level 3 fair value category:


	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
(millions)
Beginning balance	$	(60	)	$	98		$	(66	)	$	99
Total realized and unrealized gains (losses):
Included in earnings		12			(69	)		13			(131	)
Included in other comprehensive income (loss)		61			(108	)		85			(88	)
Included in regulatory assets/liabilities		19			32			14			55
Purchases, issuances and settlements		(3	)		78			(18	)		112
Transfers out of Level 3		3			—			4			(16	)

Ending balance	$	32		$	31		$	32		$	31

The amount of gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets/liabilities still held at the reporting date	$	3		$	3		$	(11	)	$	(10	)

The following table presents Dominion’s gains and losses included in earnings in the Level 3 fair value category:


	Operating revenue			Electric fuel and other energy-related purchases			Purchased gas			Total
(millions)
Three Months Ended June 30, 2010
Total gains (losses) included in earnings	$	6		$	6		$	—		$	12
The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets/liabilities still held at the reporting date		3			—			—			3

Three Months Ended June 30, 2009
Total gains (losses) included in earnings	$	18		$	(87	)	$	—		$	(69	)
The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets/liabilities still held at the reporting date		3			—			—			3

Six Months Ended June 30, 2010
Total gains (losses) included in earnings	$	(10	)	$	26		$	(3	)	$	13
The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets/liabilities still held at the reporting date		(9	)		—			(2	)		(11	)

Six Months Ended June 30, 2009
Total gains (losses) included in earnings	$	14		$	(138	)	$	(7	)	$	(131	)
The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets/liabilities still held at the reporting date		(4	)		(1	)		(5	)		(10	)

PAGE 20

Virginia Power

The following table presents Virginia Power’s assets and liabilities that are measured at fair value on a recurring basis for each hierarchy level, including both current and noncurrent portions:


	Level 1		Level 2		Level 3		Total
(millions)
As of June 30, 2010
Assets
Derivatives:
Commodity	$	—	$	22	$	9	$	31
Interest rate		—		3		—		3
Investments⁽¹⁾ :
Marketable equity securities		579		—		—		579
Marketable debt securities:
Corporate bonds		—		216		—		216
U.S. Treasury securities and agency debentures		103		52		—		155
State and municipal		—		83		—		83
Other		—		25		—		25
Cash equivalents and other		—		47		—		47

Total assets	$	682	$	448	$	9	$	1,139

Liabilities
Derivatives:
Commodity	$	—	$	8	$	4	$	12
Interest rate		—		7		—		7

Total liabilities	$	—	$	15	$	4	$	19

As of December 31, 2009
Assets
Derivatives:
Commodity	$	—	$	30	$	2	$	32
Interest rate		—		86		—		86
Foreign currency		—		2		—		2
Investments⁽¹⁾ :
Marketable equity securities		634		—		—		634
Marketable debt securities:
Corporate bonds		—		161		—		161
U.S. Treasury securities and agency debentures		90		8		—		98
State and municipal		—		189		—		189
Other		—		3		—		3
Cash equivalents and other		—		16		—		16

Total assets	$	724	$	495	$	2	$	1,221

Liabilities
Derivatives:
Commodity	$	—	$	3	$	12	$	15

Total liabilities	$	—	$	3	$	12	$	15

(1)	Includes investments held in the nuclear decommissioning and rabbi trusts.

PAGE 21

The following table presents the net change in Virginia Power’s assets and liabilities measured at fair value on a recurring basis and included in the Level 3 fair value category:


	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
(millions)
Beginning balance	$	(15	)	$	(41	)	$	(10	)	$	(69	)
Total realized and unrealized gains (losses):
Included in earnings		6			(87	)		26			(138	)
Included in regulatory assets/liabilities		20			32			15			55
Purchases, issuances and settlements		(6	)		88			(26	)		142
Transfers out of Level 3		—			—			—			2

Ending balance	$	5		$	(8	)	$	5		$	(8	)

The gains and losses included in earnings in the Level 3 fair value category were classified in electric fuel and other energy-related purchases expense in Virginia Power’s Consolidated Statements of Income for the three and six months ended June 30, 2010 and 2009. There were no unrealized gains and losses included in earnings in the Level 3 fair value category relating to assets/liabilities still held at the reporting date for the three and six months ended June 30, 2010 and 2009.

PAGE 22

Fair Value of Financial Instruments

Substantially all of Dominion’s and Virginia Power’s financial instruments are recorded at fair value, with the exception of the instruments described below that are reported at historical cost. Estimated fair values have been determined using available market information and valuation methodologies considered appropriate by management. The carrying amount of cash and cash equivalents, customer and other receivables, short-term debt and accounts payable are representative of fair value because of the short-term nature of these instruments. For Dominion’s and Virginia Power’s financial instruments that are not recorded at fair value, the carrying amounts and estimated fair values are as follows:


	June 30, 2010				December 31, 2009
	Carrying Amount		Estimated Fair Value⁽¹⁾		Carrying Amount		Estimated Fair Value⁽¹⁾
(millions)
Dominion
Long-term debt, including securities due within one year⁽²⁾	$	14,509	$	16,265	$	14,867	$	15,970
Junior subordinated notes payable to affiliates		268		264		268		255
Enhanced junior subordinated notes		1,467		1,517		1,483		1,487
Subsidiary preferred stock⁽³⁾		257		255		257		251


Virginia Power
Long-term debt, including securities due within one year⁽²⁾	$	6,449	$	7,320	$	6,458	$	6,977
Preferred stock⁽³⁾		257		255		257		251

(1)

Fair value is estimated using market prices, where available, and interest rates currently available for issuance of debt with similar terms and remaining maturities. The carrying amount of debt issues with short-term maturities and variable rates refinanced at current market rates is a reasonable estimate of their fair value.

(2)	Includes amounts which represent the unamortized discount and premium. At June 30, 2010 and December 31, 2009, includes the valuation of certain fair value hedges associated with Dominion’s fixed rate debt of approximately $54 million and $23 million, respectively.

(3)	Includes issuance expenses of $2 million at June 30, 2010 and December 31, 2009.

Note 10. Derivatives and Hedge Accounting Activities

Dominion’s and Virginia Power’s accounting policies and objectives and strategies for using derivative instruments are discussed in Note 2 to the Consolidated Financial Statements in their Annual Report on Form 10-K for the year ended December 31, 2009. See Note 9 in this report for further information about fair value measurements and associated valuation methods for derivatives.

Dominion

The following table presents the volume of Dominion’s derivative activity as of June 30, 2010. These volumes are based on open derivative positions and represent the combined absolute value of their long and short positions, except in the case of offsetting deals, for which they represent the absolute value of the net volume of their long and short positions.


	Current		Noncurrent
Natural Gas (bcf):
Fixed price⁽¹⁾		568		146
Basis⁽¹⁾		1,229		591
Electricity (MWh):
Fixed price		19,001,154		11,021,011
FTRs		105,571,139		2,599,872
Capacity (MW)		1,512,600		4,659,850
Liquids (gallons)⁽²⁾		154,476,000		415,212,000
Interest rate	$	850,000,000	$	825,000,000
Foreign currency (euros)		4,301,400		—

(1)	Includes options.

(2)	Includes NGL and oil derivatives.

PAGE 23

For the three and six months ended June 30, 2010 and 2009, gains or losses on hedging instruments determined to be ineffective were not material. Amounts excluded from the assessment of effectiveness include gains or losses attributable to changes in the time value of options and changes in the differences between spot prices and forward prices and were not material for the three and six months ended June 30, 2010 and 2009.

The following table presents selected information related to gains (losses) on cash flow hedges included in AOCI in Dominion’s Consolidated Balance Sheet at June 30, 2010:


	AOCI After-Tax			Amounts Expected to be Reclassified to Earnings during the next 12 Months After-Tax			Maximum Term
(millions)
Commodities:
Gas	$	(15	)	$	(6	)	54 months
Electricity		214			177		35 months
NGLs		34			9		54 months
Other		10			3		59 months
Interest rate		33			(1	)	342 months

Total	$	276		$	182

The amounts that will be reclassified from AOCI to earnings will generally be offset by the recognition of the hedged transactions (e.g., anticipated sales) in earnings, thereby achieving the realization of prices contemplated by the underlying risk management strategies and will vary from the expected amounts presented above as a result of changes in market prices, interest rates and foreign exchange rates.

The sale of the majority of Dominion’s remaining E&P operations resulted in the discontinuance of hedge accounting for certain cash flow hedges, as discussed in Note 3.

In addition, changes to Dominion’s financing needs during the first and second quarters of 2010 resulted in the discontinuance of hedge accounting for certain cash flow hedges since it became probable that forecasted interest payments would not occur. In connection with the discontinuance of hedge accounting for these contracts, Dominion recognized a benefit recorded to interest and related charges reflecting the reclassification of gains from AOCI to earnings of $70 million ($43 million after-tax) in the three months ended June 30, 2010 and $110 million ($67 million after-tax) in the six months ended June 30, 2010. The reclassification of gains from AOCI to earnings was partially offset by subsequent changes in fair value of $37 million ($23 million after-tax) for the three and six months ended June 30, 2010.

PAGE 24

Fair Value and Gains and Losses on Derivative Instruments

The following table presents the fair values of Dominion’s derivatives and where they are presented in its Consolidated Balance Sheets:


	Fair Value – Derivatives under Hedge Accounting		Fair Value – Derivatives not under Hedge Accounting		Total Fair Value
(millions)
June 30, 2010
ASSETS
Current Assets
Commodity	$	465	$	542	$	1,007
Interest rate		22		—		22

Total current derivative assets		487		542		1,029

Noncurrent Assets
Commodity		158		83		241
Interest rate		34		—		34

Total noncurrent derivative assets⁽¹⁾		192		83		275

Total derivative assets	$	679	$	625	$	1,304

LIABILITIES
Current Liabilities
Commodity	$	142	$	551	$	693
Interest rate		—		24		24

Total current derivative liabilities		142		575		717

Noncurrent Liabilities
Commodity		61		107		168

Total noncurrent derivative liabilities⁽²⁾		61		107		168

Total derivative liabilities	$	203	$	682	$	885


December 31, 2009
ASSETS
Current Assets
Commodity	$	445	$	507	$	952
Interest rate		174		—		174
Foreign currency		2		—		2

Total current derivative assets		621		507		1,128

Noncurrent Assets
Commodity		132		100		232
Interest rate		2		—		2

Total noncurrent derivative assets⁽¹⁾		134		100		234

Total derivative assets	$	755	$	607	$	1,362

LIABILITIES
Current Liabilities
Commodity	$	147	$	532	$	679

Total current derivative liabilities		147		532		679

Noncurrent Liabilities
Commodity		61		120		181
Interest rate		1		—		1

Total noncurrent derivative liabilities⁽²⁾		62		120		182

Total derivative liabilities	$	209	$	652	$	861

(1)	Noncurrent derivative assets are presented in other deferred charges and other assets in Dominion’s Consolidated Balance Sheets.

(2)	Noncurrent derivative liabilities are presented in other deferred credits and other liabilities in Dominion’s Consolidated Balance Sheets.

PAGE 25


Derivatives in cash flow hedging relationships	Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion)⁽¹⁾			Amount of Gain (Loss) Reclassified from AOCI to Income			Increase (Decrease) in Derivatives Subject to Regulatory Treatment⁽²⁾
(millions)
Three Months Ended June 30, 2010
Derivative Type and Location of Gains (Losses)
Commodity:
Operating revenue				$	114
Purchased gas					(19	)
Electric fuel and other energy-related purchases					(5	)
Purchased electric capacity					1

Total commodity	$	(16	)		91		$	2

Interest rate⁽³⁾		—			70			(23	)
Foreign currency⁽⁴⁾		—			(1	)		(1	)

Total	$	(16	)	$	160		$	(22	)


Three Months Ended June 30, 2009
Derivative Type and Location of Gains (Losses)
Commodity:
Operating revenue				$	284
Purchased gas					(35	)
Electric fuel and other energy-related purchases					(2	)
Purchased electric capacity					1

Total commodity	$	(57	)		248		$	(4	)

Interest rate⁽³⁾		138			(1	)		86
Foreign currency⁽⁴⁾		1			—			2

Total	$	82		$	247		$	84


Six Months Ended June 30, 2010
Derivative Type and Location of Gains (Losses)
Commodity:
Operating revenue				$	295
Purchased gas					(116	)
Electric fuel and other energy-related purchases					(8	)
Purchased electric capacity					2

Total commodity	$	283			173		$	(11	)

Interest rate⁽³⁾		(3	)		110			(24	)
Foreign currency⁽⁴⁾		—			—			(2	)

Total	$	280		$	283		$	(37	)


Six Months Ended June 30, 2009
Derivative Type and Location of Gains (Losses)
Commodity:
Operating revenue				$	522
Purchased gas					(83	)
Electric fuel and other energy-related purchases					(7	)
Purchased electric capacity					3

Total commodity	$	374			435		$	1

Interest rate⁽³⁾		124			(2	)		73
Foreign currency⁽⁴⁾		1			1			—

Total	$	499		$	434		$	74

(1)	Amounts deferred into AOCI have no associated effect in Dominion’s Consolidated Statements of Income.

PAGE 26

(2)	Represents net derivative activity deferred into and amortized out of regulatory assets/liabilities. Amounts deferred into regulatory assets/liabilities have no associated effect in Dominion’s Consolidated Statements of Income.

(3)	Amounts recorded in Dominion’s Consolidated Statements of Income are classified in interest and related charges.

(4)	Amounts recorded in Dominion’s Consolidated Statements of Income are classified in electric fuel and other energy-related purchases.


	Amount of Gain (Loss) Recognized in Income on Derivatives⁽¹⁾
	Three Months Ended June 30,						Six Months Ended June 30,
Derivatives not designated as hedging instruments	2010			2009			2010			2009
(millions)
Derivative Type and Location of Gains (Losses)
Commodity
Operating revenue	$	(14	)	$	13		$	26		$	46
Purchased gas		2			(14	)		(29	)		(46	)
Electric fuel and other energy-related purchases		5			(86	)		26			(137	)
Interest Rate⁽²⁾		(37	)		—			(37	)		—

Total	$	(44	)	$	(87	)	$	(14	)	$	(137	)

(1)	Includes derivative activity amortized out of regulatory assets/liabilities. Amounts deferred into regulatory assets/liabilities have no associated effect in Dominion’s Consolidated Statements of Income.

(2)	Amounts are recorded in interest and related charges in Dominion’s Consolidated Statements of Income.

Virginia Power

The following table presents the volume of Virginia Power’s derivative activity as of June 30, 2010. These volumes are based on open derivative positions and represent the combined absolute value of their long and short positions, except in the case of offsetting deals, for which they represent the absolute value of the net volume of their long and short positions.


	Current		Noncurrent
Natural Gas (bcf):
Fixed price		10		—
Basis		5		—
Electricity (MWh):
Fixed price		723,200		—
FTRs		104,879,135		2,599,872
Capacity (MW)		417,000		350,500
Interest rate	$	300,000,000	$	75,000,000
Foreign currency (euros)		4,301,400		—

The following table presents selected information related to gains on cash flow hedges included in AOCI in Virginia Power’s Consolidated Balance Sheet at June 30, 2010:


	AOCI After-Tax		Amounts Expected to be Reclassified to Earnings during the next 12 Months After-Tax		Maximum Term
(millions)
Interest rate	$	3	$	—	342 months
Other		2		2	47 months

Total	$	5	$	2

PAGE 27

Fair Value and Gains and Losses on Derivative Instruments

The following table presents the fair values of Virginia Power’s derivatives and where they are presented in its Consolidated Balance Sheets:


	Fair Value – Derivatives under Hedge Accounting		Fair Value – Derivatives not under Hedge Accounting		Total Fair Value
(millions)
June 30, 2010
ASSETS
Current Assets
Commodity	$	22	$	9	$	31
Interest rate		3		—		3

Total current derivative assets⁽¹⁾		25		9		34

Total derivative assets	$	25	$	9	$	34

LIABILITIES
Current Liabilities
Commodity	$	4	$	4	$	8
Interest rate		—		7		7

Total current derivative liabilities⁽³⁾		4		11		15

Noncurrent Liabilities
Commodity		4		—		4

Total noncurrent derivative liabilities⁽⁴⁾		4		—		4

Total derivative liabilities	$	8	$	11	$	19


December 31, 2009
ASSETS
Current Assets
Commodity	$	20	$	2	$	22
Interest rate		86		—		86
Foreign currency		2		—		2

Total current derivative assets⁽¹⁾		108		2		110

Noncurrent Assets
Commodity		10		—		10

Total noncurrent derivative assets⁽²⁾		10		—		10

Total derivative assets	$	118	$	2	$	120

LIABILITIES
Current Liabilities
Commodity	$	1	$	12	$	13

Total current derivative liabilities⁽³⁾		1		12		13

Noncurrent Liabilities
Commodity		2		—		2

Total noncurrent derivative liabilities⁽⁴⁾		2		—		2

Total derivative liabilities	$	3	$	12	$	15

(1)	Current derivative assets are presented in other current assets in Virginia Power’s Consolidated Balance Sheets.

(2)	Noncurrent derivative assets are presented in other deferred charges and other assets in Virginia Power’s Consolidated Balance Sheets.

(3)	Current derivative liabilities are presented in other current liabilities in Virginia Power’s Consolidated Balance Sheets.

(4)	Noncurrent derivative liabilities are presented in other deferred credits and other liabilities in Virginia Power’s Consolidated Balance Sheets.

PAGE 28


Derivatives in cash flow hedging relationships	Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion)⁽¹⁾			Amount of Gain (Loss) Reclassified from AOCI to Income			Increase (Decrease) in Derivatives Subject to Regulatory Treatment⁽²⁾
(millions)
Three Months Ended June 30, 2010
Derivative Type and Location of Gains (Losses)
Commodity:
Purchased electric capacity				$	1

Total commodity	$	1			1		$	2

Interest rate⁽³⁾		—			6			(23	)
Foreign currency⁽⁴⁾		—			—			(1	)

Total	$	1		$	7		$	(22	)


Three Months Ended June 30, 2009
Derivative Type and Location of Gains (Losses)
Commodity:
Electric fuel and other energy-related purchases				$	(1	)
Purchased electric capacity					2

Total commodity	$	(1	)		1		$	(4	)

Interest rate⁽³⁾		14			—			86
Foreign currency⁽⁴⁾		1			—			2

Total	$	14		$	1		$	84


Six Months Ended June 30, 2010
Derivative Type and Location of Gains (Losses)
Commodity:
Electric fuel and other energy-related purchases				$	(1	)
Purchased electric capacity					2

Total commodity	$	(2	)		1		$	(11	)

Interest rate⁽³⁾		(1	)		9			(24	)
Foreign currency⁽⁴⁾		—			—			(2	)

Total	$	(3	)	$	10		$	(37	)


Six Months Ended June 30, 2009
Derivative Type and Location of Gains (Losses)
Commodity:
Electric fuel and other energy-related purchases				$	(6	)
Purchased electric capacity					3

Total commodity	$	(2	)		(3	)	$	1

Interest rate⁽³⁾		13			—			73
Foreign currency⁽⁴⁾		—			1			—

Total	$	11		$	(2	)	$	74

(1)	Amounts deferred into AOCI have no associated effect in Virginia Power’s Consolidated Statements of Income.

(2)	Represents net derivative activity deferred into and amortized out of regulatory assets/liabilities. Amounts deferred into regulatory assets/liabilities have no associated effect in Virginia Power’s Consolidated Statements of Income.

(3)	Amounts recorded in Virginia Power’s Consolidated Statements of Income are classified in interest and related charges.

(4)	Amounts recorded in Virginia Power’s Consolidated Statements of Income are classified in electric fuel and other energy-related purchases.

PAGE 29


	Amount of Gain (Loss) Recognized in Income on Derivatives⁽¹⁾
	Three Months Ended June 30,						Six Months Ended June 30,
Derivatives not designated as hedging instruments	2010			2009			2010			2009
(millions)
Derivative Type and Location of Gains (Losses)
Commodity⁽²⁾	$	5		$	(87	)	$	26		$	(138	)
Interest Rate⁽³⁾		(3	)		—			(3	)		—

Total	$	2		$	(87	)	$	23		$	(138	)

(1)	Includes derivative activity amortized out of regulatory assets/liabilities. Amounts deferred into regulatory assets/liabilities have no associated effect in Virginia Power’s Consolidated Statements of Income.

(2)	Amounts are recorded in electric fuel and other energy-related purchases in Virginia Power’s Consolidated Statements of Income.

(3)	Amounts are recorded in interest and related charges in Virginia Power’s Consolidated Statements of Income.

Note 11. Investments

Dominion

Rabbi Trust Securities

Marketable equity and debt securities and cash equivalents held in Dominion’s rabbi trusts and classified as trading totaled $91 million and $96 million at June 30, 2010 and December 31, 2009, respectively. Cost method investments held in Dominion’s rabbi trusts totaled $18 million and $17 million at June 30, 2010 and December 31, 2009, respectively.

Decommissioning Trust Securities

Dominion holds marketable equity and debt securities (classified as available-for-sale), cash equivalents and cost method investments in nuclear decommissioning trust funds in order to fund future decommissioning costs for its nuclear plants. Dominion’s decommissioning trust funds are summarized below.


	Amortized Cost		Total Unrealized Gains⁽¹⁾		Total Unrealized Losses⁽¹⁾			Fair Value
(millions)
June 30, 2010
Marketable equity securities	$	1,184	$	230	$	(1	)	$	1,413
Marketable debt securities:
Corporate bonds		308		16		(1	)		323
U.S. Treasury securities and agency debentures		403		18		—			421
State and municipal		208		11		(2	)		217
Other		28		—		—			28
Cost method investments		105		—		—			105
Cash equivalents and other⁽²⁾		51		—		—			51

Total	$	2,287	$	275	$	(4	)⁽³⁾	$	2,558

December 31, 2009
Marketable equity securities	$	1,191	$	338	$	—		$	1,529
Marketable debt securities:
Corporate bonds		241		13		(1	)		253
U.S. Treasury securities and agency debentures		281		13		(1	)		293
State and municipal		371		21		(3	)		389
Other		4		—		—			4
Cost method investments		97		—		—			97
Cash equivalents and other⁽²⁾		60		—		—			60

Total	$	2,245	$	385	$	(5	)⁽³⁾	$	2,625

(1)	Included in AOCI and the decommissioning trust regulatory liability.

(2)	At June 30, 2010 and December 31, 2009, reflects $28 million and $11 million, respectively, related to net pending sales and purchases of securities.

(3)	The fair value of securities in an unrealized loss position was $86 million and $169 million at June 30, 2010 and December 31, 2009, respectively.

PAGE 30

The fair value of Dominion’s marketable debt securities (classified as available for sale) at June 30, 2010 by contractual maturity is as follows:


	Amount
(millions)
Due in one year or less	$	81
Due after one year through five years		317
Due after five years through ten years		275
Due after ten years		316

Total	$	989

PAGE 31

Presented below is selected information regarding Dominion’s marketable equity and debt securities.


	Three Months Ended June 30,					Six Months Ended June 30,
	2010			2009		2010			2009
(millions)
Trading securities:
Net unrealized gain (loss)	$	(3	)	$	6	$	(1	)	$	2
Available-for-sale securities:
Proceeds from sales⁽¹⁾		627			438		1,140			727
Realized gains⁽²⁾		17			45		73			61
Realized losses⁽²⁾		28			16		54			159

(1)	The increase in proceeds primarily reflects changes in asset allocation and liquidation of positions in connection with changes in fund managers.

(2)	Includes realized gains or losses recorded to the decommissioning trust regulatory liability.

Dominion recorded other-than-temporary impairment losses on investments as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
(millions)
Total other-than-temporary impairment losses⁽¹⁾	$	41		$	15		$	48		$	156
Losses recorded to decommissioning trust regulatory liability		(13	)		(7	)		(16	)		(70	)
Losses recognized in other comprehensive income (before taxes)		(1	)		(1	)		(2	)		(1	)

Net impairment losses recognized in earnings	$	27		$	7		$	30		$	85

(1)	Amount includes other-than-temporary impairment losses for debt securities of $1 million and $2 million for the three months ended June 30, 2010 and 2009, respectively, and $3 million and $8 million for the six months ended June 30, 2010 and 2009, respectively.

Other Investments

In May 2010, using proceeds from the sale of the Appalachian E&P business, Dominion acquired $1.4 billion of short-term investments consisting of $700 million in time deposits and $700 million in Treasury Bills. As of June 30, 2010, $900 million of these investments are still held and are classified as other current investments on Dominion’s Consolidated Balance Sheet. There were no unrealized gains or losses for these investments as of June 30, 2010 and their amortized cost approximates fair value. Proceeds from the sale of these investments are expected to be used largely to pay the tax liability on the gain from the sale of the Appalachian E&P business.

Virginia Power

Decommissioning Trust Securities

Virginia Power holds marketable equity and debt securities (classified as available-for-sale), cash equivalents and cost method investments in nuclear decommissioning trust funds in order to fund future decommissioning costs for its nuclear plants. Virginia Power’s decommissioning trust funds are summarized below.


	Amortized Cost		Total Unrealized Gains⁽¹⁾		Total Unrealized Losses⁽¹⁾			Fair Value
(millions)
June 30, 2010
Marketable equity securities	$	488	$	91	$	—		$	579
Marketable debt securities:
Corporate bonds		208		9		(1	)		216
U.S. Treasury securities and agency debentures		151		4		—			155
State and municipal		80		2		—			82
Other		24		1		—			25
Cost method investments		105		—		—			105
Cash equivalents and other⁽²⁾		16		—		—			16

Total	$	1,072	$	107	$	(1	)⁽³⁾	$	1,178

PAGE 32


	Amortized Cost		Total Unrealized Gains⁽¹⁾		Total Unrealized Losses⁽¹⁾			Fair Value
(millions)
December 31, 2009
Marketable equity securities	$	499	$	135	$	—		$	634
Marketable debt securities:
Corporate bonds		153		9		(1	)		161
U.S. Treasury securities and agency debentures		95		3		—			98
State and municipal		181		9		(1	)		189
Other		3		—		—			3
Cost method investments		97		—		—			97
Cash equivalents and other⁽²⁾		22		—		—			22

Total	$	1,050	$	156	$	(2	)⁽³⁾	$	1,204

(1)	Included in AOCI and the decommissioning trust regulatory liability.

(2)	At June 30, 2010 and December 31, 2009, reflects $31 million and $6 million, respectively, related to net pending sales and purchases of securities.

(3)	The fair value of securities in an unrealized loss position was $60 million and $88 million at June 30, 2010, and December 31, 2009, respectively.

The fair value of Virginia Power’s marketable debt securities at June 30, 2010, by contractual maturity is as follows:


	Amount
(millions)
Due in one year or less	$	10
Due after one year through five years		167
Due after five years through ten years		160
Due after ten years		141

Total	$	478

Presented below is selected information regarding Virginia Power’s marketable equity and debt securities.


	Three Months Ended June 30,				Six Months Ended June 30,
	2010		2009		2010		2009
(millions)
Proceeds from sales⁽¹⁾	$	407	$	193	$	711	$	330
Realized gains⁽²⁾		8		15		37		23
Realized losses⁽²⁾

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