Edgar Filing: VIRGINIA ELECTRIC & POWER CO

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

Form 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 March 31, 2011

¨	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.

Virginia Electric and Power 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 March 31, 2011, the latest practicable date for determination, Dominion Resources, Inc. had 575,797,529 shares of common stock outstanding and Virginia Electric and Power Company had 274,723 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		PAGE 3

	PART I. Financial Information

Item 1.	Financial Statements		PAGE 6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		PAGE 43
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		PAGE 55
Item 4.	Controls and Procedures		PAGE 56

	PART II. Other Information

Item 1.	Legal Proceedings		PAGE 56
Item 1A.	Risk Factors		PAGE 56
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		PAGE 57
Item 6.	Exhibits		PAGE 58

PAGE 2

GLOSSARY OF TERMS

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


Abbreviation or Acronym		Definition
2009 Base Rate Review		Order entered by the Virginia Commission in January 2009, pursuant to the Regulation Act, initiating reviews of the base rates and terms and conditions of all investor-owned utilities in Virginia
AFUDC		Allowance for funds used during construction
AOCI		Accumulated other comprehensive income (loss)
ARO		Asset retirement obligation
ASLB		Atomic Safety and Licensing Board
bcf		Billion cubic feet
Bear Garden		A 580 MW combined cycle, natural gas-fired power station under construction in Buckingham County, Virginia
BP		BP Wind Energy North America Inc.
BREDL		Blue Ridge Environmental Defense League
CEO		Chief Executive Officer
CFO		Chief Financial Officer
CO₂		Carbon dioxide
COL		Combined Construction Permit and Operating License
Companies		Dominion and Virginia Power, collectively
CONSOL		CONSOL Energy, Inc.
DEI		Dominion Energy, Inc.
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
East Ohio		The East Ohio Gas Company, doing business as Dominion East Ohio
E&P		Exploration & production
EPA		Environmental Protection Agency
EPS		Earnings per share
Fairless		Fairless power station
FERC		Federal Energy Regulatory Commission
Fowler Ridge		A wind-turbine facility joint venture between Dominion and BP Alternative Energy, Inc. in Benton County, Indiana
FTRs		Financial transmission rights
GAAP		U.S. generally accepted accounting principles

PAGE 3


Abbreviation or Acronym		Definition
GHG		Greenhouse gas
INPO		Institute of Nuclear Power Operations
ISO		Independent system operator
Kewaunee		Kewaunee nuclear power station
kV		Kilovolt
LNG		Liquefied natural gas
mcf		Million cubic feet
MD&A		Management’s Discussion and Analysis of Financial Condition and Results of Operations
Medicare Act		The Medicare Prescription Drug, Improvement and Modernization Act of 2003
Medicare Part D		Prescription drug benefit introduced in the Medicare Act
Millstone		Millstone nuclear power station
Moody’s		Moody’s Investors Service
Mt. Storm-to-Doubs Line		A 99-mile 500-kV transmission line in Virginia, West Virginia and Maryland
MW		Megawatt
MWh		Megawatt hour
NAAQS		National Ambient Air Quality Standards
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 nuclear power station
NO_X		Nitrogen oxide
NO₂		Nitrogen dioxide
NRC		Nuclear Regulatory Commission
ODEC		Old Dominion Electric Cooperative
Ohio Commission		Public Utilities Commission of Ohio
Peoples		The Peoples Natural Gas Company
PIPP		Percentage of Income Payment Plan
PIR		Pipeline Infrastructure Replacement program deployed by East Ohio
PJM		PJM Interconnection, LLC
PNG Companies LLC		An indirect subsidiary of SteelRiver Infrastructure Fund North America
Regulation Act		Legislation effective July 1, 2007, that amended the Virginia Electric Utility Restructuring Act and fuel factor statute, which legislation is also known as the Virginia Electric Utility Regulation 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 the 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 electric transmission-related expenditures

PAGE 4


Abbreviation or Acronym		Definition
ROE		Return on equity
RTO		Regional transmission organization
SEC		Securities and Exchange Commission
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
U.S.		United States of America
VIE		Variable interest entity
Virginia City Hybrid Energy Center		A 585 MW baseload carbon-capture compatible, clean coal powered electric generation facility under construction in Wise County, Virginia
Virginia Commission		Virginia State Corporation Commission
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
Virginia Settlement Approval Order		Order issued by the Virginia Commission in March 2010 concluding Virginia Power's 2009 Base Rate Review

PAGE 5

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DOMINION RESOURCES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended March 31,
	2011		2010
(millions, except per share amounts)
Operating Revenue	$	4,057	$	4,168

Operating Expenses
Electric fuel and other energy-related purchases		1,049		1,028
Purchased electric capacity		119		108
Purchased gas		642		792
Other operations and maintenance		861		1,068
Depreciation, depletion and amortization		262		269
Other taxes		161		169

Total operating expenses		3,094		3,434
Income from operations		963		734

Other income		57		71
Interest and related charges		227		183

Income from continuing operations including noncontrolling interests before income tax expense		793		622
Income tax expense		310		295

Income from continuing operations including noncontrolling interests		483		327
Loss from discontinued operations⁽¹⁾		—		(149	)

Net Income Including Noncontrolling Interests		483		178
Noncontrolling Interests		4		4

Net Income Attributable to Dominion	$	479	$	174

Amounts Attributable to Dominion:
Income from continuing operations, net of tax	$	479	$	323
Loss from discontinued operations, net of tax		—		(149	)

Net income attributable to Dominion	$	479	$	174

Earnings Per Common Share – Basic
Income from continuing operations	$	0.83	$	0.54
Loss from discontinued operations		—		(0.25	)

Net income attributable to Dominion	$	0.83	$	0.29

Earnings Per Common Share – Diluted
Income from continuing operations	$	0.82	$	0.54
Loss from discontinued operations		—		(0.25	)

Net income attributable to Dominion	$	0.82	$	0.29

Dividends paid per common share	$	0.4925	$	0.4575

(1)	Includes income tax expense of $12 million for the three months ended March 31, 2010.

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

PAGE 6

DOMINION RESOURCES, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	March 31, 2011			December 31, 2010⁽¹⁾
(millions)
ASSETS
Current Assets
Cash and cash equivalents	$	188		$	62
Customer receivables (less allowance for doubtful accounts of $28 and $26)		1,837			2,158
Other receivables (less allowance for doubtful accounts of $10 and $9)		116			88
Inventories		1,044			1,163
Derivative assets		553			739
Other		1,194			1,190

Total current assets		4,932			5,400

Investments
Nuclear decommissioning trust funds		3,017			2,897
Investment in equity method affiliates		567			571
Restricted cash equivalents		344			400
Other		288			283

Total investments		4,216			4,151

Property, Plant and Equipment
Property, plant and equipment		40,390			39,855
Accumulated depreciation, depletion and amortization		(13,308	)		(13,142	)

Total property, plant and equipment, net		27,082			26,713

Deferred Charges and Other Assets
Goodwill		3,141			3,141
Regulatory assets		1,443			1,446
Other		1,963			1,966

Total deferred charges and other assets		6,547			6,553

Total assets	$	42,777		$	42,817

(1)	Dominion’s Consolidated Balance Sheet at December 31, 2010 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 7

DOMINION RESOURCES, INC.

CONSOLIDATED BALANCE SHEETS—(Continued)

(Unaudited)


	March 31, 2011			December 31, 2010⁽¹⁾
(millions)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Securities due within one year	$	497		$	497
Short-term debt		848			1,386
Accounts payable		1,189			1,562
Accrued interest, payroll and taxes		720			849
Other		1,247			1,479

Total current liabilities		4,501			5,773

Long-Term Debt
Long-term debt		15,063			14,023
Junior subordinated notes payable to affiliates		268			268
Enhanced junior subordinated notes		1,467			1,467

Total long-term debt		16,798			15,758

Deferred Credits and Other Liabilities
Deferred income taxes and investment tax credits		4,910			4,708
Asset retirement obligations		1,598			1,577
Regulatory liabilities		1,429			1,392
Other		1,341			1,355

Total deferred credits and other liabilities		9,278			9,032

Total liabilities		30,577			30,563

Commitments and Contingencies (see Note 15)

Subsidiary Preferred Stock Not Subject to Mandatory Redemption		257			257

Common Shareholders’ Equity
Common stock – no par⁽²⁾		5,464			5,715
Other paid-in capital		194			194
Retained earnings		6,612			6,418
Accumulated other comprehensive loss		(327	)		(330	)

Total common shareholders’ equity		11,943			11,997

Total liabilities and shareholders’ equity	$	42,777		$	42,817

(1)	Dominion’s Consolidated Balance Sheet at December 31, 2010 has been derived from the audited Consolidated Financial Statements at that date.

(2)	1 billion shares authorized; 576 million and 581 million shares outstanding at March 31, 2011 and December 31, 2010, respectively.

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

PAGE 8

DOMINION RESOURCES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


Three Months Ended March 31,	2011			2010
(millions)
Operating Activities
Net income including noncontrolling interests	$	483		$	178
Adjustments to reconcile net income including noncontrolling interests to net cash provided by operating activities:
Loss from sale of Peoples		—			117
Charges related to workforce reduction program		—			338
Depreciation, depletion and amortization (including nuclear fuel)		318			320
Deferred income taxes and investment tax credits		227			(173	)
Other adjustments		(46	)		11
Changes in:
Accounts receivable		292			126
Inventories		119			213
Deferred fuel and purchased gas costs		(50	)		(7	)
Prepayments		54			260
Accounts payable		(299	)		(90	)
Accrued interest, payroll and taxes		(129	)		89
Margin deposit assets and liabilities		(120	)		114
Other operating assets and liabilities		63			154

Net cash provided by operating activities		912			1,650

Investing Activities
Plant construction and other property additions		(806	)		(904	)
Proceeds from the sale of Peoples		—			737
Proceeds from sale of securities		502			513
Purchases of securities		(522	)		(539	)
Restricted cash equivalents		56			—
Other		18			22

Net cash used in investing activities		(752	)		(171	)

Financing Activities
Repayment of short-term debt, net		(538	)		(1,000	)
Issuance and remarketing of long-term debt		1,060			—
Issuance of common stock		17			27
Repurchase of common stock		(274	)		(191	)
Common dividend payments		(285	)		(275	)
Subsidiary preferred dividend payments		(4	)		(4	)
Other		(10	)		(1	)

Net cash used in financing activities		(34	)		(1,444	)

Increase in cash and cash equivalents		126			35
Cash and cash equivalents at beginning of period		62			50

Cash and cash equivalents at end of period	$	188		$	85

Supplemental Cash Flow Information
Significant noncash investing activities:
Accrued capital expenditures	$	167		$	166

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

PAGE 9

VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended March 31,
	2011		2010
(millions)
Operating Revenue	$	1,757	$	1,739

Operating Expenses
Electric fuel and other energy-related purchases		593		632
Purchased electric capacity		118		107
Other operations and maintenance:
Affiliated suppliers		73		120
Other		229		399
Depreciation and amortization		174		163
Other taxes		59		64

Total operating expenses		1,246		1,485

Income from operations		511		254

Other income		29		14
Interest and related charges		92		88

Income before income tax expense		448		180
Income tax expense		170		85

Net Income		278		95
Preferred dividends		4		4

Balance available for common stock	$	274	$	91

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

PAGE 10

VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	March 31, 2011			December 31, 2010⁽¹⁾
(millions)
ASSETS
Current Assets
Cash and cash equivalents	$	80		$	5
Customer accounts receivable (less allowance for doubtful accounts of $10 and $11)		783			905
Other receivables (less allowance for doubtful accounts of $7 and $6)		49			54
Inventories (average cost method)		639			597
Prepayments		30			65
Other		334			355

Total current assets		1,915			1,981

Investments
Nuclear decommissioning trust funds		1,368			1,319
Restricted cash equivalents		113			169
Other		3			4

Total investments		1,484			1,492

Property, Plant and Equipment
Property, plant and equipment		27,985			27,607
Accumulated depreciation and amortization		(9,812	)		(9,712	)

Total property, plant and equipment, net		18,173			17,895

Deferred Charges and Other Assets
Intangible assets		211			212
Regulatory assets		407			370
Other		337			312

Total deferred charges and other assets		955			894

Total assets	$	22,527		$	22,262

(1)	Virginia Power’s Consolidated Balance Sheet at December 31, 2010 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 11

VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED BALANCE SHEETS—(Continued)

(Unaudited)


	March 31, 2011		December 31, 2010⁽¹⁾
(millions)
LIABILITIES AND SHAREHOLDER’S EQUITY
Current Liabilities
Securities due within one year	$	15	$	15
Short-term debt		582		600
Accounts payable		416		499
Payables to affiliates		45		76
Affiliated current borrowings		58		103
Accrued interest, payroll and taxes		239		214
Other		501		571

Total current liabilities		1,856		2,078

Long-Term Debt		6,861		6,702

Deferred Credits and Other Liabilities
Deferred income taxes and investment tax credits		2,807		2,672
Asset retirement obligations		678		669
Regulatory liabilities		1,208		1,174
Other		207		203

Total deferred credits and other liabilities		4,900		4,718

Total liabilities		13,617		13,498

Commitments and Contingencies (see Note 15)

Preferred Stock Not Subject to Mandatory Redemption		257		257

Common Shareholder’s Equity
Common stock – no par⁽²⁾		5,738		5,738
Other paid-in capital		1,111		1,111
Retained earnings		1,778		1,634
Accumulated other comprehensive income		26		24

Total common shareholder’s equity		8,653		8,507

Total liabilities and shareholder’s equity	$	22,527	$	22,262

(1)	Virginia Power’s Consolidated Balance Sheet at December 31, 2010 has been derived from the audited Consolidated Financial Statements at that date.

(2)	300,000 shares authorized; 274,723 shares outstanding at March 31, 2011 and December 31, 2010.

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

PAGE 12

VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


Three Months Ended March 31,	2011			2010
(millions)
Operating Activities
Net income	$	278		$	95
Adjustments to reconcile net income to net cash provided by operating activities:
Charges related to workforce reduction program		—			202
Depreciation and amortization (including nuclear fuel)		205			192
Deferred income taxes and investment tax credits		150			(59	)
Other adjustments		(61	)		(18	)
Changes in:
Accounts receivable		127			65
Affiliated accounts receivable and payable		(31	)		(20	)
Inventories		(42	)		43
Deferred fuel expenses		(32	)		5
Accounts payable		(69	)		22
Accrued interest, payroll and taxes		25			143
Other operating assets and liabilities		(26	)		99

Net cash provided by operating activities		524			769

Investing Activities
Plant construction and other property additions		(408	)		(567	)
Purchases of nuclear fuel		(49	)		(40	)
Purchases of securities		(362	)		(317	)
Proceeds from sales of securities		343			304
Restricted cash equivalents		56			—
Other		9			9

Net cash used in investing activities		(411	)		(611	)

Financing Activities
Repayment of short-term debt, net		(18	)		(442	)
Issuance (repayment) of affiliated current borrowings, net		(44	)		431
Remarketing of long-term debt		160			—
Common dividend payments		(130	)		(108	)
Preferred dividend payments		(4	)		(4	)
Other		(2	)		(1	)

Net cash used in financing activities		(38	)		(124	)

Increase in cash and cash equivalents		75			34
Cash and cash equivalents at beginning of period		5			19

Cash and cash equivalents at end of period	$	80		$	53

Supplemental Cash Flow Information
Significant noncash investing and financing activities:
Accrued capital expenditures	$	121		$	112
Settlement of debt and issuance of common stock to Dominion		—			433

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

PAGE 13

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.

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, 2010.

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 March 31, 2011 and their results of operations and cash flows for the three months ended March 31, 2011 and 2010. 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 2010 Consolidated Financial Statements and Notes have been reclassified to conform to the 2011 presentation for comparative purposes. The reclassifications did not affect the Companies’ net income, total assets, liabilities, shareholders’ equity or cash flows.

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. The transaction included 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 included a $134 million write-off of goodwill, recorded in the second quarter of 2010.

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 natural 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 in March 2010.

PAGE 14

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 $140 million, including post-closing adjustments, and a $79 million write-off of goodwill. The sale also resulted in after-tax expenses of approximately $27 million, including transaction and benefit-related costs. Prior to the sale, Peoples had income from operations of $12 million after-tax during 2010.

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


	Three Months Ended March 31, 2010
(millions)
Operating revenue	$	67
Loss before income taxes⁽¹⁾		(137	)

(1)	Includes pre-tax loss on the sale of $117 million.

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. Due to the April 2010 sale of substantially all of its Appalachian E&P operations, as of March 31, 2011, Dominion no longer has any significant gas and oil properties subject to the ceiling test calculation.

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.

Note 5. Operating Revenue

The Companies’ operating revenue consists of the following:


	Three Months Ended March 31,
	2011		2010
(millions)
Dominion
Electric sales:
Regulated	$	1,730	$	1,717
Nonregulated		941		945
Gas sales:
Regulated		139		145
Nonregulated		602		782
Gas transportation and storage		538		465
Other		107		114

Total operating revenue	$	4,057	$	4,168


Virginia Power
Regulated electric sales	$	1,730	$	1,717
Other		27		22

Total operating revenue	$	1,757	$	1,739

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
Three Months Ended March 31,	2011			2010			2011			2010
U.S. statutory rate		35.0	%		35.0	%		35.0	%		35.0	%
Increases (reductions) resulting from:
State taxes, net of federal benefit		3.7			3.8			3.9			4.1
Legislative changes		—			8.8			—			8.7
Other, net		0.4			(0.2	)		(0.9	)		(0.5	)

Effective tax rate		39.1	%		47.4	%		38.0	%		47.3	%

Dominion’s and Virginia Power’s effective tax rates in 2010 reflect the 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 2010, U.S. federal legislation was enacted that allows taxpayers to fully deduct qualifying capital expenditures incurred after September 8, 2010, through the end of 2011, when placed in service before 2013, and otherwise provides an extension of the fifty percent bonus depreciation allowance for qualifying capital expenditures through 2012. At December 31, 2010, there was uncertainty about the earliest date on which construction of property by or for a taxpayer could have begun in order to qualify for the full deduction of qualifying capital expenditures. Based on guidance issued by the U.S. Treasury Department in March 2011, Dominion’s and Virginia Power’s bonus depreciation allowance for 2010 has been reduced. Accordingly, Dominion and Virginia Power recorded adjustments in March 2011 to increase their income taxes payable and decrease their deferred tax liabilities by approximately $67 million and $33 million, respectively.

As of March 31, 2011, 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, 2010, 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.

Note 7. Earnings Per Share

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


	Three Months Ended March 31,
	2011		2010
(millions, except EPS)
Net income attributable to Dominion	$	479	$	174

Average shares of common stock outstanding – Basic		579.8		599.9
Net effect of potentially dilutive securities⁽¹⁾		0.7		1.0

Average shares of common stock outstanding – Diluted		580.5		600.9

Earnings Per Common Share – Basic	$	0.83	$	0.29
Earnings Per Common Share – Diluted	$	0.82	$	0.29

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

PAGE 16

There were no potentially dilutive securities excluded from the calculation of diluted EPS for the three months ended March 31, 2011 and 2010.

Note 8. Comprehensive Income

The following table presents Dominion’s total comprehensive income:


	Three Months Ended March 31,
	2011			2010
(millions)
Net income including noncontrolling interests	$	483		$	178
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⁽¹⁾		(72	)		106
Other, net of tax		75			64

Other comprehensive income		3			170

Comprehensive income including noncontrolling interests		486			348
Noncontrolling interests		4			4

Total comprehensive income attributable to Dominion	$	482		$	344

(1)	Principally reflects an increase in commodity prices in 2011 as compared to a decrease in 2010.

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


	Three Months Ended March 31,
	2011			2010
(millions)
Net income	$	278		$	95
Other comprehensive income (loss):
Net other comprehensive 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		(1	)		(5	)
Other, net of tax		3			2

Other comprehensive income (loss)		2			(3	)

Total comprehensive income	$	280		$	92

PAGE 17

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, 2010. See Note 10 in this report for further information about their derivatives and hedge accounting activities.

At March 31, 2011, Dominion’s and Virginia Power’s net balance of commodity derivatives categorized as Level 3 fair value measurements was a net liability of $163 million and $7 million, respectively. A hypothetical 10% increase in commodity prices would increase Dominion’s and Virginia Power’s Level 3 net liability by $73 million and $2 million, respectively, while a hypothetical 10% decrease in commodity prices would decrease Dominion’s and Virginia Power’s Level 3 net liability by $73 million and $2 million, respectively.

Non-recurring Fair Value Measurements

During March 2011, Dominion determined that it is unlikely that State Line will participate in the May 2011 PJM capacity base residual auction that would commit State Line’s capacity from June 2014 through May 2015. This determination reflects an expectation that margins for coal-fired generation will remain compressed in the 2014 and 2015 period in combination with the expectation that State Line may be impacted during the same time period by potential environmental regulations that would likely require significant capital expenditures. As a result, Dominion evaluated State Line for impairment since it is more likely than not that State Line will be retired before the end of its previously estimated useful life. As a result of this evaluation, Dominion recorded an impairment charge of $55 million ($39 million after-tax) reflected 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 less than $1 million. As management was not aware of any recent market transactions for comparable assets with sufficient transparency to develop a market approach to fair value, Dominion used the income approach (discounted cash flows) to estimate the fair value of State Line’s long-lived assets. This was considered a Level 3 fair value measurement due to the use of significant unobservable inputs including estimates of future power and other commodity prices.

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:

PAGE 18


	Level 1		Level 2		Level 3		Total
(millions)
At March 31, 2011
Assets
Derivatives:
Commodity	$	50	$	538	$	30	$	618
Interest rate		—		47		—		47
Investments⁽¹⁾:
Equity securities:
U.S.:
Large cap		1,822		—		—		1,822
Other		59		—		—		59
Non-U.S.:
Large cap		12		—		—		12
Fixed Income:
Corporate debt instruments		—		315		—		315
U.S. Treasury securities and agency debentures		308		156		—		464
State and municipal		—		260		—		260
Other		—		14		—		14
Cash equivalents and other		2		100		—		102
Restricted cash equivalents		—		344		—		344

Total assets	$	2,253	$	1,774	$	30	$	4,057

Liabilities
Derivatives:
Commodity		10		566		193		769
Interest Rate		—		17		—		17

Total liabilities	$	10	$	583	$	193	$	786


At December 31, 2010
Assets
Derivatives:
Commodity	$	62	$	734	$	47	$	843
Interest rate		—		54		—		54
Investments⁽¹⁾:
Equity securities:
U.S.:
Large cap		1,709		—		—		1,709
Other		56		—		—		56
Non-U.S.:
Large cap		12		—		—		12
Fixed Income:
Corporate debt instruments		—		327		—		327
U.S. Treasury securities and agency debentures		228		165		—		393
State and municipal		—		286		—		286
Other		—		19		—		19
Cash equivalents and other		25		97		—		122
Restricted cash equivalents		—		400		—		400

Total assets	$	2,092	$	2,082	$	47	$	4,221

Liabilities
Derivatives:
Commodity	$	12	$	716	$	97	$	825
Interest rate		—		5		—		5

Total liabilities	$	12	$	721	$	97	$	830

(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 March 31,
	2011⁽¹⁾			2010⁽¹⁾
(millions)
Beginning balance	$	(50	)	$	(66	)
Total realized and unrealized gains (losses):
Included in earnings		14			1
Included in other comprehensive income (loss)		(94	)		24
Included in regulatory assets/liabilities		(21	)		(5	)
Settlements		(16	)		(15	)
Transfers out of Level 3		4			1

Ending balance	$	(163	)	$	(60	)

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	$	4		$	(17	)

(1)	Represents derivative assets and liabilities presented on a net basis.

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 March 31, 2011
Total gains (losses) included in earnings	$	(2	)	$	16	$	—		$	14
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			—		—			4

Three Months Ended March 31, 2010
Total gains (losses) included in earnings	$	(16	)	$	21	$	(4	)	$	1
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		(14	)		—		(3	)		(17	)

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)
At March 31, 2011
Assets
Derivatives:
Commodity	$	—	$	6	$	2	$	8
Investments⁽¹⁾:
Equity securities:
U.S.:
Large cap		719		—		—		719
Other		26		—		—		26
Fixed income:
Corporate debt instruments		—		202		—		202
U.S. Treasury securities and agency debentures		149		61		—		210
State and municipal		—		73		—		73
Other		—		11		—		11
Cash equivalents and other		—		49		—		49
Restricted cash equivalents		—		113		—		113

Total assets	$	894	$	515	$	2	$	1,411

Liabilities
Derivatives:
Commodity	$	—	$	5	$	9	$	14

Total liabilities	$	—	$	5	$	9	$	14


At December 31, 2010
Assets
Derivatives:
Commodity	$	—	$	12	$	15	$	27
Investments⁽¹⁾:
Equity securities:
U.S.:
Large cap		676		—		—		676
Other		25		—		—		25
Fixed Income:
Corporate debt instruments		—		215		—		215
U.S. Treasury securities and agency debentures		80		63		—		143
State and municipal		—		102		—		102
Other		—		15		—		15
Cash equivalents and other		10		61		—		71
Restricted cash equivalents		—		169		—		169

Total assets	$	791	$	637	$	15	$	1,443

Liabilities
Derivatives:
Commodity	$	—	$	5	$	1	$	6

Total liabilities	$	—	$	5	$	1	$	6

(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 March 31,
	2011⁽¹⁾			2010⁽¹⁾
(millions)
Beginning balance	$	14		$	(10	)
Total realized and unrealized gains (losses):
Included in earnings		16			21
Included in regulatory assets/liabilities		(21	)		(5	)
Settlements		(16	)		(21	)

Ending balance	$	(7	)	$	(15	)

(1)	Represents derivative assets and liabilities presented on a net basis.

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 months ended March 31, 2011 and 2010. 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 months ended March 31, 2011 and 2010.

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:


	March 31, 2011				December 31, 2010
	Carrying Amount		Estimated Fair Value⁽¹⁾		Carrying Amount		Estimated Fair Value⁽¹⁾
(millions)
Dominion
Long-term debt, including securities due within one year⁽²⁾	$	15,560	$	17,097	$	14,520	$	16,112
Junior subordinated notes payable to affiliates		268		270		268		261
Enhanced junior subordinated notes		1,467		1,566		1,467		1,560
Subsidiary preferred stock⁽³⁾		257		251		257		249


Virginia Power
Long-term debt, including securities due within one year⁽²⁾	$	6,876	$	7,659	$	6,717	$	7,489
Preferred stock⁽³⁾		257		251		257		249

(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 March 31, 2011 and December 31, 2010, includes the valuation of certain fair value hedges associated with Dominion’s fixed rate debt of approximately $30 million and $49 million, respectively.

(3)	Includes issuance expenses of $2 million at March 31, 2011 and December 31, 2010.

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, 2010. See Note 9 in this report for further information about fair value measurements and associated valuation

PAGE 22

methods for derivatives.

Dominion

The following table presents the volume of Dominion’s derivative activity as of March 31, 2011. 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⁾		257		64
Basis		1,057		437
Electricity (MWh):
Fixed price⁽¹⁾		21,327,569		16,252,978
FTRs		21,251,968		1,429,952
Capacity (MW)		1,321,300		3,700,650
Liquids (gallons)⁽²⁾		146,622,000		331,506,000
Interest rate	$	500,000,000	$	2,000,000,000

(1)	Includes options.

(2)	Includes NGLs and oil.

For the three months ended March 31, 2011 and 2010, 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 months ended March 31, 2011 and 2010.

The following table presents selected information related to gains (losses) on cash flow hedges included in AOCI in Dominion’s Consolidated Balance Sheet at March 31, 2011:


	AOCI After-Tax			Amounts Expected to be Reclassified to Earnings during the next 12 Months After-Tax			Maximum Term
(millions)
Commodities:
Gas	$	(16	)	$	(8	)		45 months
Electricity		46			40			33 months
NGLs		(91	)		(33	)		45 months
Other		8			2			50 months
Interest rate		32			(6	)		366 months

Total	$	(21	)	$	(5	)

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 and interest rates.

The sale of the majority of Dominion’s remaining E&P operations during the first quarter of 2010 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 quarter 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 $40 million ($23 million after-tax) in the three months ended March 31, 2010.

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:

PAGE 23


	Fair Value – Derivatives under Hedge Accounting		Fair Value – Derivatives not under Hedge Accounting		Total Fair Value
(millions)
March 31, 2011
ASSETS
Current Assets
Commodity	$	221	$	300	$	521
Interest rate		32		—		32

Total current derivative assets		253		300		553

Noncurrent Assets
Commodity		43		54		97
Interest rate		15		—		15

Total noncurrent derivative assets⁽¹⁾		58		54		112

Total derivative assets	$	311	$	354	$	665

LIABILITIES
Current Liabilities
Commodity	$	202	$	353	$	555
Interest rate		1		—		1

Total current derivative liabilities⁽²⁾		203		353		556

Noncurrent Liabilities
Commodity		139		75		214
Interest rate		16		—		16

Total noncurrent derivative liabilities⁽³⁾		155		75		230

Total derivative liabilities	$	358	$	428	$	786


December 31, 2010
ASSETS
Current Assets
Commodity	$	291	$	425	$	716
Interest rate		23		—		23

Total current derivative assets		314		425		739

Noncurrent Assets
Commodity		44		83		127
Interest rate		31		—		31

Total noncurrent derivative assets⁽¹⁾		75		83		158

Total derivative assets	$	389	$	508	$	897

LIABILITIES
Current Liabilities
Commodity	$	178	$	455	$	633

Total current derivative liabilities⁽²⁾		178		455		633

Noncurrent Liabilities
Commodity		86		106		192
Interest rate		5		—		5

Total noncurrent derivative liabilities⁽³⁾		91		106		197

Total derivative liabilities	$	269	$	561	$	830

PAGE 24

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

(2)	Current derivative liabilities are presented in other current liabilities in Dominion's Consolidated Balance Sheets.

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

The following tables present the gains and losses on Dominion’s derivatives, as well as where the associated activity is presented in its Consolidated Balance Sheets and Statements of Income:


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 March 31, 2011
Derivative Type and Location of Gains (Losses)
Commodity:
Operating revenue				$	28
Purchased gas					(48	)
Electric fuel and other energy-related purchases					1
Purchased electric capacity					1

Total commodity	$	(142	)		(18	)	$	(5	)

Interest rate⁽³⁾		(1	)		—			(1	)

Total	$	(143	)	$	(18	)	$	(6	)

Three Months Ended March 31, 2010
Derivative Type and Location of Gains (Losses)
Commodity:
Operating revenue				$	181
Purchased gas					(97	)
Electric fuel and other energy-related purchases					(3	)
Purchased electric capacity					1

Total commodity	$	299			82		$	(13	)

Interest rate⁽³⁾		(3	)		40			(1	)
Foreign currency⁽⁴⁾		—			1			(1	)

Total	$	296		$	123		$	(15	)

(1)	Amounts deferred into AOCI have no associated effect in Dominion’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 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.

PAGE 25


	Amount of Gain (Loss) Recognized in Income on Derivatives⁽¹⁾
	Three Months Ended March 31,
Derivatives not designated as hedging instruments	2011			2010
(millions)
Derivative Type and Location of Gains (Losses)
Commodity
Operating revenue	$	19		$	40
Purchased gas		(11	)		(31	)
Electric fuel and other energy-related purchases		16			21

Total	$	24		$	30

(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.

Virginia Power

The following table presents the volume of Virginia Power’s derivative activity as of March 31, 2011. 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		14		—
Basis		7		—
Electricity (MWh):
Fixed price		608,800		—
FTRs		20,297,263		1,429,952
Capacity (MW)		225,700		213,000

The following table presents selected information related to gains on cash flow hedges included in AOCI in Virginia Power’s Consolidated Balance Sheet at March 31, 2011:


	AOCI After-Tax		Amounts Expected to be Reclassified to Earnings during the next 12 Months After-Tax		Maximum Term
(millions)
Interest rate	$	3	$	—		333 months
Other		—		—		38 months

Total	$	3	$	—

The amounts that will be reclassified from AOCI to earnings will generally be offset by the recognition of the hedged transactions (e.g., anticipated interest payments) 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 and interest rates.

PAGE 26

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)
March 31, 2011
ASSETS
Current Assets
Commodity	$	6	$	2	$	8

Total current derivative assets⁽¹⁾		6		2		8

Total derivative assets	$	6	$	2	$	8

LIABILITIES
Current Liabilities
Commodity	$	3	$	9	$	12

Total current derivative liabilities⁽²⁾		3		9		12

Noncurrent Liabilities
Commodity		2		—		2

Total noncurrent derivative liabilities⁽³⁾		2		—		2

Total derivative liabilities	$	5	$	9	$	14

December 31, 2010
ASSETS
Current Assets
Commodity	$	12	$	15	$	27

Total current derivative assets⁽¹⁾		12		15		27

Total derivative assets	$	12	$	15	$	27

LIABILITIES
Current Liabilities
Commodity	$	2	$	1	$	3

Total current derivative liabilities⁽²⁾		2		1		3

Noncurrent Liabilities
Commodity		3		—		3

Total noncurrent derivative liabilities⁽³⁾		3		—		3

Total derivative liabilities	$	5	$	1	$	6

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

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

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

PAGE 27

The following tables present the gains and losses on Virginia Power's derivatives, as well as where the associated activity is presented in its Consolidated Balance Sheets and Statements of Income:


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 March 31, 2011
Derivative Type and Location of Gains (Losses)
Commodity:
Purchased electric capacity				$	1

Total commodity	$	—			1		$	(5	)

Interest rate⁽³⁾		—			—			(1	)

Total	$	—		$	1		$	(6	)


Three Months Ended March 31, 2010
Derivative Type and Location of Gains (Losses)
Commodity:
Electric fuel and other energy-related purchases				$	(1	)
Purchased electric capacity					1

Total commodity	$	(3	)		—		$	(13	)

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

Total	$	(4	)	$	3		$	(15	)

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

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


	Amount of Gain (Loss) Recognized in Income on Derivatives⁽¹⁾
	Three Months Ended March 31,
Derivatives not designated as hedging instruments	2011		2010
(millions)
Derivative Type and Location of Gains (Losses)
Commodity⁽²⁾	$	16	$	21

Total	$	16	$	21

(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.

PAGE 28

Note 11. Investments

Dominion

Equity and Debt Securities

Rabbi Trust Securities

Marketable equity and debt securities and cash equivalents held in Dominion’s rabbi trusts and classified as trading totaled $95 million and $93 million at March 31, 2011 and December 31, 2010, respectively. Net unrealized gains on trading securities totaled $3 million and $2 million for the three months ended March 31, 2011 and 2010, respectively. Cost-method investments held in Dominion’s rabbi trusts totaled $18 million at both March 31, 2011 and December 31, 2010.

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 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)
March 31, 2011
Marketable equity securities
U.S.:
Large Cap	$	1,181	$	606	$	—		$	1,787
Other		40		13		—			53
Marketable debt securities:
Corporate bonds		301		15		(1	)		315
U.S. Treasury securities and agency debentures		453		12		(1	)		464
State and municipal		213		8		(3	)		218
Other		14		—		—			14
Cost method investments		112		—		—			112
Cash equivalents and other⁽²⁾		54		—		—			54

Total	$	2,368	$	654	$	(5	)⁽³⁾	$	3,017

December 31, 2010
Marketable equity securities:
U.S.:
Large Cap	$	1,161	$	515	$	—		$	1,676
Other		39		11		—			50
Marketable debt securities:
Corporate bonds		310		18		(1	)		327
U.S. Treasury securities and agency debentures		380		12		(1	)		391
State and municipal		244		7		(4	)		247
Other		19		—		—			19
Cost method investments		108		—		—			108
Cash equivalents and other⁽²⁾		79		—		—			79

Total	$	2,340	$	563	$	(6	)⁽³⁾	$	2,897

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

(2)	Includes pending purchases of securities of $48 million and $43 million at March 31, 2011 and December 31, 2010, respectively.

(3)	The fair value of securities in an unrealized loss position was $203 million and $252 million at March 31, 2011 and December 31, 2010, respectively.

PAGE 29

The fair value of Dominion’s marketable debt securities held in nuclear decommissioning trust funds at March 31, 2011 by contractual maturity is as follows:


	Amount
(millions)
Due in one year or less	$	91
Due after one year through five years		310
Due after five years through ten years		285
Due after ten years		325

Total	$	1,011

Presented below is selected information regarding Dominion’s marketable equity and debt securities held in nuclear decommissioning trust funds.


	Three Months Ended March 31,
	2011		2010
(millions)
Proceeds from sales	$	502	$	513
Realized gains⁽¹⁾		14		55
Realized losses⁽¹⁾		8		11

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

Dominion recorded other-than-temporary impairment losses on investments held in nuclear decommissioning trust funds as follows:


	Three Months Ended March 31,
	2011			2010
(millions)
Total other-than-temporary impairment losses⁽¹⁾	$	5		$	7
Losses recorded to decommissioning trust regulatory liability		(2	)		(3	)
Losses recognized in other comprehensive income (before taxes)		—			(1	)

Net impairment losses recognized in earnings	$	3		$	3

(1)	Amount includes other-than-temporary impairment losses for debt securities of $1 million and $2 million for the three months ended March 31, 2011 and 2010, respectively.

PAGE 30

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 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)
March 31, 2011
Marketable equity securities:
U.S.:
Large Cap	$	475	$	244	$	—		$	719
Other		20		6		—			26
Marketable debt securities:
Corporate bonds		195		8		(1	)		202
U.S. Treasury securities and agency debentures		207		3		—			210
State and municipal		73		1		(1	)		73
Other		11		—		—			11
Cost method investments		112		—		—			112
Cash equivalents and other⁽²⁾		15		—		—			15

Total	$	1,108	$	262	$	(2	)⁽³⁾	$	1,368

December 31, 2010
Marketable equity securities
U.S.:
Large Cap	$	469	$	207	$	—		$	676
Other		20		5		—			25
Marketable debt securities:
Corporate bonds		205		10		—			215
U.S. Treasury securities and agency debentures		141		2		—			143
State and municipal		103		1		(2	)		102
Other		15		—		—			15
Cost method investments		108		—		—			108
Cash equivalents and other⁽²⁾		35		—		—			35

Total	$	1,096	$	225	$	(2	)⁽³⁾	$	1,319

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

(2)	Includes pending purchases of securities of $34 million and $35 million at March 31, 2011 and December 31, 2010, respectively.

(3)	The fair value of securities in an unrealized loss position was $120 million and $159 million at March 31, 2011, and December 31, 2010, respectively.

The fair value of Virginia Power’s debt securities at March 31, 2011, by contractual maturity is as follows:


	Amount
(millions)
Due in one year or less	$	12
Due after one year through five years		162
Due after five years through ten years		184
Due after ten years		138

Total	$	496

PAGE 31

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


	Three Months Ended March 31,
	2011		2010
(millions)
Proceeds from sales	$	343	$	304
Realized gains⁽¹⁾		5		28
Realized losses⁽¹⁾		4		4

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

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


	Three Months Ended March 31,
	2011			2010
(millions)
Total other-than-temporary impairment losses⁽¹⁾	$	2		$	3
Losses recorded to decommissioning trust regulatory liability		(2	)		(3	)

Net impairment losses recognized in earnings		$—			$—

(1)	Amount includes other-than-temporary impairment losses for debt securities of $1 million for the three months ended March 31, 2011 and 2010.

Note 12. Regulatory Matters

Other than the following matters, there have been no significant developments regarding the pending regulatory matters disclosed in Note 14 to the Consolidated Financial Statements in Dominion’s and Virginia Power’s Annual Report on Form 10-K for the year ended December 31, 2010.

Virginia Regulation

Biennial Review

Pursuant to the Regulation Act, the Virginia Commission initiated a review of Virginia Power’s base rates, terms and conditions in 2009, including a review of Virginia Power’s earnings for test year 2008. In March 2010, the Virginia Commission issued the Virginia Settlement Approval Order, thus concluding the 2009 case and resolving open issues relating to Virginia Power’s fuel factor and Riders R, S, T, C1 and C2.

Pursuant to the Regulation Act and the Virginia Settlement Approval Order, in March 2011, Virginia Power submitted its base rate filings and accompanying schedules in support of the first biennial review of its rates, terms and conditions, as well as of its earnings for test years 2009 and 2010. As a result of the Virginia Settlement Approval Order and the Regulation Act, Virginia Power’s base rates are not subject to change based on the 2011 biennial review. The Virginia Commission will determine whether Virginia Power’s earnings for the 2009 and 2010 test years, considered as a whole, were within 50 basis points above the authorized ROE of 11.9% established in the Virginia Settlement Approval Order. If Virginia Power’s earnings for the test years are more than 50 basis points above the authorized ROE, the Virginia Commission will order a credit to customers of 60% of the earnings that exceeded an ROE of 12.4% for the biennial period. The Virginia Commission will also authorize an ROE for Virginia Power that will be applied to Riders R, S, C1 and C2 and that will also be utilized to measure base rate earnings prospectively. Virginia Power is requesting authorization of an ROE of 12.5%, inclusive of a performance incentive of 100 basis points as provided for by the Regulation Act. Pursuant to the Regulation Act, Virginia Power’s authorized ROE, exclusive of any performance or other statutory incentive, can be no lower than the average of the returns reported for the three previous years by not less than a majority of comparable utilities in the Southeastern U.S., with certain limitations as described in the Regulation Act. A final order in the 2011 biennial review for base rates must be issued no later than November 30, 2011.

Generation Riders R and S

In connection with the Bear Garden and Virginia City Hybrid Energy Center projects, in March 2011, the Virginia Commission approved annual updates for Riders R and S with revenue requirements of $78 million and $199 million, respectively, for the April 1, 2011 to March 31, 2012 rate year, utilizing the 12.3% placeholder ROE (inclusive of a 100 basis point statutory enhancement) pending the Virginia Commission’s determination in the 2011 biennial review. The approved revenue requirements for Riders R and S represent increases of approximately $14 million and $45 million, respectively, over the revenue requirements associated with the Riders R and S customer rates in effect through March 31, 2011.

PAGE 32

DSM Riders C1 and C2

In connection with Virginia Power’s five DSM programs approved by the Virginia Commission, in March 2011, the Virginia Commission approved the annual updates for Riders C1 and C2 with revenue requirements of approximately $6 million and $12 million, respectively, for the April 1, 2011 to March 31, 2012 rate year, utilizing an 11.3% placeholder ROE pending the Virginia Commission’s determination in the 2011 biennial review.

If the Virginia Commission’s future rate decisions, including actions relating to Virginia Power’s biennial review and rate adjustment clause filings, differ materially from Virginia Power’s expectations, it could adversely affect its results of operations, financial conditions and cash flows.

Mt. Storm-to-Doubs Line

Portions of the Mt. Storm-to-Doubs line and certain associated facilities are approaching the end of their expected service lives and require replacement with new facilities to maintain reliable service. Virginia Power owns, and has been designated by PJM to rebuild, 96 miles of the line in West Virginia and Virginia, and The Potomac Edison Company owns, and has been designated by PJM to rebuild, the remaining three miles of the line in Maryland. In January 2011, Virginia Power filed an application with the Virginia Commission for approval of the rebuild project. The approval of the West Virginia Commission is not required. Subject to applicable state and federal regulatory approvals, Virginia Power’s portion of the rebuild project is expected to cost approximately $300 million and is expected to be completed by June 2015.

North Anna Power Station

Virginia Power is considering the construction of a third nuclear unit at a site located at North Anna, which Virginia Power owns along with ODEC. In February 2011, ODEC informed Virginia Power of its intent to no longer participate in the development of a potential new unit at North Anna. Virginia Power and ODEC are currently working together to finalize the terms and conditions of such withdrawal.

If Virginia Power decides to build the new unit, it must first receive a COL from the NRC, the approval of the Virginia Commission and certain environmental permits and other approvals.

The NRC is required to conduct a hearing in all COL proceedings. In August 2008, the ASLB of the NRC permitted BREDL to intervene in the proceeding. All of BREDL’s previous contentions in this proceeding have been dismissed. In October 2010, BREDL submitted two new contentions that it seeks to litigate that Virginia Power opposed. The ASLB dismissed BREDL’s additional proposed contentions in April 2011. No other persons sought to intervene in the proceeding. Absent additional admitted contentions, the mandatory NRC hearing will be uncontested with respect to other issues.

On April 14, 2011, twenty-one organizations and individuals that had previously intervened opposing various reactor licensing proceedings filed a petition requesting that the NRC suspend all decisions regarding reactor licensing and design certification pending completion of an NRC task force review of the events at Fukushima, Japan, among other requested relief. The North Anna 3 COL proceeding is one of the pending proceedings identified in this petition, and BREDL served the petition in the North Anna 3 COL proceeding on April 18, 2011. Because the NRC has indicated that any lessons learned from the Fukushima incident will be applied in due course, and because a final decision in the North Anna 3 COL proceeding is not expected until 2013, Dominion does not expect this petition to be granted or to affect the North Anna 3 COL proceeding.

Virginia Power continues to pursue various environmental permits that would be needed to support future construction and operation of a third nuclear unit at North Anna.

Ohio Regulation

In March 2011, East Ohio filed a request with the Ohio Commission to accelerate the PIR program by nearly doubling its PIR spending to more than $200 million annually. East Ohio has identified 1,450 miles of pipeline that need to be replaced, in addition to the pipeline originally identified in the PIR project scope. East Ohio requested that the Ohio Commission reauthorize the PIR program for a five-year period effective upon approval of its application.

In March 2011, the Ohio Commission approved East Ohio’s annual update of the PIPP Rider, which reflected the elimination of accumulated arrearages and projected deferred program costs of approximately $112 million for the 12-month period from April 2011 to March 2012.

PAGE 33

Note 13. Variable Interest Entities

As discussed in Note 16 to the Consolidated Financial Statements in Dominion’s and Virginia Power’s Annual Report on Form 10-K for the year ended December 31, 2010, certain variable pricing terms in some of the Companies’ long-term power and capacity contracts cause them to be considered variable interests in the counterparties.

Virginia Power has long-term power and capacity contracts with four non-utility generators with an aggregate summer generation capacity of approximately 870 MW. These contracts contain certain variable pricing mechanisms in the form of partial fuel reimbursement that Virginia Power considers to be variable interests. After an evaluation of the information provided by these entities, Virginia Power was unable to determine whether they were VIEs. However, the information they provided, as well as Virginia Power's knowledge of generation facilities in Virginia, enabled Virginia Power to conclude that, if they were VIEs, it would not be the primary beneficiary. This conclusion reflects Virginia Power's determination that its variable interests do not convey the power to direct the most significant activities that impact the economic performance of the entities during the remaining terms of Virginia Power's contracts and for the years the entities are expected to operate after its contractual relationships expire. The contracts expire at various dates ranging from 2015 to 2021. Virginia Power is not subject to any risk of loss from these potential VIEs other than its remaining purchase commitments which totaled $1.5 billion as of March 31, 2011. Virginia Power paid $53 million and $54 million for electric capacity and $39 million and $41 million for electric energy to these entities in the three months ended March 31, 2011 and 2010, respectively.

Virginia Power purchased shared services from DRS, an affiliated VIE, of approximately $93 million and $141 million for the three months ended March 31, 2011 and 2010, respectively. Virginia Power determined that it is not the most closely associated entity with DRS and therefore not the primary beneficiary. DRS provides accounting, legal, finance and certain administrative and technical services to all Dominion subsidiaries, including Virginia Power. Virginia Power has no obligation to absorb more than its allocated share of DRS costs.

Note 14. Significant Financing Transactions

Credit Facilities and Short-term Debt

Dominion and Virginia Power use short-term debt to fund working capital requirements and as a bridge to long-term debt financings. The levels of borrowing may vary significantly during the course of the year, depending upon the timing and amount of cash requirements not satisfied by cash from operations. In addition, Dominion utilizes cash and letters of credit to fund collateral requirements. Collateral requirements are impacted by commodity prices, hedging levels, Dominion’s credit ratings and the credit quality of its counterparties.

At March 31, 2011, Dominion’s commercial paper and letters of credit outstanding, as well as capacity available under credit facilities, were as follows:

Facility
Limit

Outstanding
Commercial
Paper

Outstanding
Letters of
Credit

Facility
Capacity
Available

(millions)

Three-year joint revolving credit facility⁽¹⁾

3,000

848

2,151

Three-year joint revolving credit facility⁽²⁾

500

—

112

388

Total

3,500

848

113

2,539

(1)	This credit facility was entered into in September 2010 and terminates in September 2013. This credit facility can be used to support bank borrowings and the issuance of commercial paper, as well as to support up to $1.5 billion of letters of credit.

(2)	This credit facility was entered into in September 2010 and terminates in September 2013. This credit facility can be used to support bank borrowings, commercial paper and letter of credit issuances.

Virginia Power’s short-term financing is supported by two three-year joint revolving credit facilities with Dominion. These credit facilities are being used for working capital, as support for the combined commercial paper programs of Dominion and Virginia Power and for other general corporate purposes.

PAGE 34

At March 31, 2011, Virginia Power’s share of commercial paper and letters of credit outstanding, as well as its capacity available under its joint credit facilities with Dominion were as follows:


	Facility Sub-limit		Outstanding Commercial Paper		Outstanding Letters of Credit		Facility Capacity Available
(millions)
Three-year joint revolving credit facility⁽¹⁾	$	1,000	$	582	$	1	$	417
Three-year joint revolving credit facility⁽²⁾		250		—		87		163

Total	$	1,250	$	582	$	88	$	580

(1)

This credit facility was entered into in September 2010 and terminates in September 2013. This credit facility can be used to support bank borrowings and the issuance of commercial paper, as well as to support up to $1.5 billion (or the sub-limit, whichever is less) of letters of credit. Virginia Power’s applicable sub-limit under this credit facility can be increased or decreased multiple times per year.

(2)

This credit facility was entered into in September 2010 and terminates in September 2013. This credit facility can be used to support bank borrowings, commercial paper and letter of credit issuances. Virginia Power’s applicable sub-limit under this credit facility can be increased or decreased multiple times per year.

In addition to the credit facility commitments disclosed above, Virginia Power also has a three-year $120 million credit facility that was entered into in September 2010. The facility, which terminates in September 2013, supports certain tax-exempt financings of Virginia Power.

Long-term Debt

In March 2011, Dominion issued $500 million of 4.45% senior notes that mature in 2021 and $400 million of 1.80% senior notes that mature in 2014. The proceeds were used for general corporate purposes including the repayment of short-term debt.

In December 2010 and September 2009, Virginia Power borrowed $100 million and $60 million, respectively, in connection with the $160 million Industrial Development Authority of Wise County Solid Waste and Sewage Disposal Revenue Bonds, Series 2009 A, which mature in 2040. Due to unfavorable market conditions, Virginia Power acquired the bonds upon issuance with the intention of remarketing them to third parties at a later time. In March 2011, the bonds were remarketed to a third party and bear interest at a variable rate for the first five years, after which they will bear interest at a market rate to be determined at that time, using a remarketing process. The proceeds will be used to finance certain qualifying facilities at the Virginia City Hybrid Energy Center. These bonds had not been remarketed and thus were not reflected on the Consolidated Balance Sheet at December 31, 2010.

Convertible Securities

At March 31, 2011, Dominion had $202 million of outstanding contingent convertible senior notes that are convertible by holders into a combination of cash and shares of Dominion’s common stock under certain circumstances. The conversion feature requires that the principal amount of each note be repaid in cash, while amounts payable in excess of the principal amount will be paid in common stock. The conversion rate is subject to adjustment upon certain events such as subdivisions, splits, combinations of common stock or the issuance to all common stock holders of certain common stock rights, warrants or options and certain dividend increases. As of March 31, 2011, the conversion rate has been adjusted, primarily due to individual dividend payments above the level paid at issuance, to 28.6128 shares of common stock per $1,000 principal amount of senior notes, which represents a conversion price of $34.95.

As of December 31, 2010, the closing price of Dominion’s common stock was not equal to or higher than 120% of the conversion price for at least 20 out of the last 30 consecutive trading days; therefore, the senior notes were not eligible for conversion during the first quarter of 2011. As of March 31, 2011, the closing price of Dominion’s common stock was equal to or higher than 120% of the conversion price for at least 20 out of the last 30 consecutive trading days; therefore, the senior notes are eligible for conversion during the second quarter of 2011.

Issuance of Common Stock

Dominion maintains Dominion Direct^® and a number of employee savings plans through which employer and employee contributions may be invested in the Company's common stock. These shares may either be newly issued or purchased on the open market with proceeds contributed to these plans by employees and the Company.

Since February 2010, Dominion Direct^® and the Dominion employee savings plans have been purchasing Dominion common stock on the open market with the proceeds received through these programs, rather than having additional new common shares issued.

PAGE 35

During the three months ended March 31, 2011, Dominion issued 513,286 shares of common stock and received cash proceeds of $17 million through the exercise of employee stock options.

Repurchase of Common Stock

Dominion expects to repurchase between $600 million and $700 million of common stock with cash tax savings resulting from the extension of the bonus depreciation allowance, which is discussed in 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, 2010. In the first quarter of 2011, Dominion repurchased over 6 million shares of common stock for approximately $274 million on the open market under this program, at an average price of $45.30 per share. Dominion plans to continue the repurchases over the remainder of the year.

Note 15. Commitments and Contingencies

Other than the following matters, there have been no significant developments regarding the commitments and contingencies disclosed in Note 23 to the Consolidated Financial Statements in Dominion’s and Virginia Power’s Annual Report on Form 10-K for the year ended December 31, 2010.

Guarantees

Dominion

At March 31, 2011, Dominion had issued $128 million of guarantees, primarily to support equity method investees. No significant amounts related to these guarantees have been recorded. As of March 31, 2011, Dominion’s exposure under these guarantees was $52 million, primarily related to certain reserve requirements associated with non-recourse financing.

Dominion also enters into guarantee arrangements on behalf of its consolidated subsidiaries, primarily to facilitate their commercial transactions with third parties. To the extent that a liability subject to a guarantee has been incurred by one of Dominion's consolidated subsidiaries, that liability is included in its Consolidated Financial Statements. Dominion is not required to recognize liabilities for guarantees issued on behalf of its subsidiaries unless it becomes probable that it will have to perform under the guarantees. Terms of the guarantees typically end once obligations have been paid. Dominion currently believes it is unlikely that it would be required to perform or otherwise incur any losses associated with guarantees of its subsidiaries' obligations.

At March 31, 2011, Dominion had issued the following subsidiary guarantees:


	Stated Limit		Value⁽¹⁾
(millions)
Subsidiary debt⁽²⁾	$	126	$	126
Commodity transactions⁽³⁾		3,099		352
Lease obligation for power generation facility⁽⁴⁾		757		757
Nuclear obligations⁽⁵⁾		231		66
Other⁽⁶⁾		502		108

Total	$	4,715	$	1,409

(1)

Represents the estimated portion of the guarantee’s stated limit that is utilized as of March 31, 2011 based upon prevailing economic conditions and fact patterns specific to each guarantee arrangement. For those guarantees related to obligations that are recorded as liabilities by Dominion’s subsidiaries, the value includes the recorded amount.

(2)	Guarantees of debt of certain DEI subsidiaries. In the event of default by the subsidiaries, Dominion would be obligated to repay such amounts.

(3)

Guarantees related to energy trading and marketing activities and other commodity commitments of certain subsidiaries, including subsidiaries of Virginia Power and DEI. These guarantees were provided to counterparties in order to facilitate physical and financial transactions in gas, oil, electricity, pipeline capacity, transportation and related commodities and services. If any of these subsidiaries fail to perform or pay under the contracts and the counterparties seek performance or payment, Dominion would be obligated to satisfy such obligation. Dominion and its subsidiaries receive similar guarantees as collateral for credit extended to others. The value provided includes certain guarantees that do not have stated limits.

(4)	Guarantee of a DEI subsidiary’s leasing obligation for Fairless.

(5)

Guarantees related to certain DEI subsidiaries’ potential retrospective premiums that could be assessed if there is a nuclear incident under Dominion’s nuclear insurance programs and guarantees for a DEI subsidiary’s and Virginia Power’s commitment to buy nuclear fuel. Excludes Dominion’s agreement to provide up to $150 million and $60 million to two DEI subsidiaries to pay the operating expenses of

PAGE 36

Millstone and Kewaunee, respectively, in the event of a prolonged outage, as part of satisfying certain NRC requirements concerned with ensuring adequate funding for the operations of nuclear power stations.

(6)

Guarantees related to other miscellaneous contractual obligations such as leases, environmental obligations and construction projects. Also includes guarantees related to certain DEI subsidiaries' obligations for equity capital contributions and energy generation associated with Fowler Ridge and NedPower.

Virginia Power

As of March 31, 2011, Virginia Power had issued $16 million of guarantees primarily to support tax-exempt debt issued through conduits. No significant amounts related to these guarantees have been recorded.

Surety Bonds and Letters of Credit

As of March 31, 2011, Dominion had purchased $118 million of surety bonds, including $39 million at Virginia Power, and authorized the issuance of standby letters of credit by financial institutions of $113 million, including $88 million at Virginia Power, to facilitate commercial transactions by its subsidiaries with third parties. Under the terms of the surety bonds, the Companies are obligated to indemnify the respective surety bond company for any amounts paid.

Renewable Generation

Virginia Power announced it plans to convert three of its coal power plants to biomass as part of its larger strategy to diversify its portfolio in meeting customer energy needs and adding renewable energy. The power stations expected to be converted to biomass are located in Altavista, Hopewell and Southampton Counties in Virginia and will each provide approximately 50 MW of capacity. If the conversions are approved by local governments, the Virginia Department of Environmental Quality and the Virginia Commission, the power stations could begin burning renewable biomass in 2013.

Potential Kewaunee Divestiture

Dominion continually reviews its portfolio of assets to determine which assets fit strategically and support its objectives to improve return on invested capital and shareholder value. If Dominion identifies assets that do not support its objectives and believes they may be of greater value to another owner, Dominion may consider such assets for divestiture. In connection with this effort, in the first quarter of 2011, Dominion decided to pursue the sale of Kewaunee, a 556 MW nuclear merchant generation facility located in Wisconsin. If these efforts are successful, Dominion may be required to present Kewaunee's assets and liabilities that are subject to sale as held for sale in its Consolidated Balance Sheet and Kewaunee's results of operations in discontinued operations in its Consolidated Statements of Income. Held for sale classification would require that amounts be recorded at the lower of book value or sale price less costs to sell and could result in the recording of an impairment charge. Any sale of Kewaunee would be subject to the approval of Dominion's Board of Directors, as well as applicable state and federal approvals.

Note 16. Credit Risk

Credit risk is the risk of financial loss if counterparties fail to perform their contractual obligations. In order to minimize overall credit risk, credit policies are maintained, including the evaluation of counterparty financial condition, collateral requirements and the use of standardized agreements that facilitate the netting of cash flows associated with a single counterparty. In addition, counterparties may make available collateral, including letters of credit or cash held as margin deposits, as a result of exceeding agreed-upon credit limits, or may be required to prepay the transaction.

Dominion and Virginia Power maintain a provision for credit losses based on factors surrounding the credit risk of their customers, historical trends and other information. Management believes, based on credit policies and the provision for credit losses, that it is unlikely that a material adverse effect on financial position, results of operations or cash flows would occur as a result of counterparty nonperformance.

General

Dominion

As a diversified energy company, Dominion transacts primarily with major companies in the energy industry and with commercial and residential energy consumers. These transactions principally occur in the Northeast, mid-Atlantic and Midwest regions of the U.S. and Texas. Dominion does not believe that this geographic concentration contributes significantly to its overall exposure to credit risk. In addition, as a result of its large and diverse customer base, Dominion is not exposed to a significant concentration of credit risk for receivables arising from electric and gas utility operations.

Dominion’s exposure to credit risk is concentrated primarily within its energy marketing and price risk management activities, as Dominion transacts with a smaller, less diverse group of counterparties and transactions may involve large notional volumes and potentially volatile commodity prices. Energy marketing and price risk management activities include trading of energy-related commodities, marketing of merchant generation output, structured transactions and the use of financial contracts for

PAGE 37

enterprise-wide hedging purposes. Gross credit exposure for each counterparty is calculated as outstanding receivables plus any unrealized on- or off-balance sheet exposure, taking into account contractual netting rights. Gross credit exposure is calculated prior to the application of collateral. At March 31, 2011, Dominion’s gross credit exposure totaled $493 million. After the application of collateral, credit exposure is unchanged. Of this amount, investment grade counterparties, including those internally rated, represented 83%. One counterparty exposure represents 9% of Dominion’s total exposure and is a large financial institution rated investment grade.

Virginia Power

Virginia Power sells electricity and provides distribution and transmission services to customers in Virginia and northeastern North Carolina. Management believes that this geographic concentration risk is mitigated by the diversity of Virginia Power’s customer base, which includes residential, commercial and industrial customers, as well as rural electric cooperatives and municipalities. Credit risk associated with trade accounts receivable from energy consumers is limited due to the large number of customers. Virginia Power’s exposure to potential concentrations of credit risk results primarily from sales to wholesale customers. Virginia Power’s gross credit exposure for each counterparty is calculated as outstanding receivables plus any unrealized on- or off-balance sheet exposure, taking into account contractual netting rights. Gross credit exposure is calculated prior to the application of collateral. At March 31, 2011, Virginia Power’s exposure to potential concentrations of credit risk was not considered material.

Credit-Related Contingent Provisions

The majority of Dominion’s derivative instruments contain credit-related contingent provisions. These provisions require Dominion to provide collateral upon the occurrence of specific events, primarily a credit downgrade. If the credit-related contingent features underlying these instruments that are in a liability position and not fully collateralized with cash were fully triggered as of March 31, 2011 and December 31, 2010, Dominion would have been required to post an additional $103 million and $88 million, respectively, of collateral to its counterparties. The collateral that would be required to be posted includes the impacts of any offsetting asset positions and any amounts already posted for derivatives, non-derivative contracts and derivatives elected under the normal purchases and normal sales exception, per contractual terms. Dominion had posted $105 million in collateral, including $7 million of letters of credit at March 31, 2011 and $54 million in collateral, including $19 million of letters of credit at December 31, 2010, related to derivatives with credit-related contingent provisions that are in a liability position and not fully collateralized with cash. The collateral posted includes any amounts paid related to non-derivative contracts and derivatives elected under the normal purchases and normal sales exception, per contractual terms. The aggregate fair value of all derivative instruments with credit-related contingent provisions that are in a liability position and not fully collateralized with cash as of March 31, 2011 and December 31, 2010 was $257 million and $210 million, respectively, which does not include the impact of any offsetting asset positions. See Note 10 for further information about derivative instruments.

Note 17. Related Party Transactions

Virginia Power engages in related-party transactions primarily with other Dominion subsidiaries (affiliates). Virginia Power’s receivable and payable balances with affiliates are settled based on contractual terms or on a monthly basis, depending on the nature of the underlying transactions. Virginia Power is included in Dominion’s consolidated federal income tax return and participates in certain Dominion benefit plans. A discussion of significant related party transactions follows.

Transactions with Affiliates

Virginia Power transacts with affiliates for certain quantities of natural gas and other commodities in the ordinary course of business. Virginia Power also enters into certain commodity derivative contracts with affiliates. Virginia Power uses these contracts, which are principally comprised of commodity swaps, to manage commodity price risks associated with purchases of natural gas.

DRS provides accounting, legal, finance and certain administrative and technical services to Virginia Power. Presented below are significant transactions with DRS and other affiliates:


	Three Months Ended March 31,
	2011		2010
(millions)
Commodity purchases from affiliates	$	62	$	67
Services provided by affiliates		93		141

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Virginia Power has borrowed funds from Dominion under short-term borrowing arrangements. Virginia Power’s outstanding borrowings, net of repayments, under the Dominion money pool for its nonregulated subsidiaries totaled $58 million and $24 million, as of March 31, 2011 and December 31, 2010, respectively. Virginia Power’s short-term demand note borrowings from Dominion were $79 million as of December 31, 2010. There were no short-term demand note borrowings as of March 31, 2011. Virginia Power’s interest charges related to its borrowings from Dominion were immaterial for the periods ended March 31, 2011 and 2010.

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Note 18. Employee Benefit Plans

The components of Dominion’s provision for net periodic benefit cost were as follows:


	Pension Benefits						Other Postretirement Benefits
	2011			2010			2011			2010
(millions)
Three Months Ended March 31,
Service cost	$	27		$	27		$	12		$	14
Interest cost		64			66			23			25
Expected return on plan assets		(110	)		(99	)		(20	)		(17	)
Amortization of prior service cost (credit)		1			1			(3	)		(2	)
Amortization of net loss		24			15			3			3
Settlements and curtailments⁽¹⁾		—			84			—			38
Special termination benefits⁽²⁾		—			9			—			1

Net periodic benefit cost	$	6		$	103		$	15		$	62

(1)	Relates to the sale of Peoples and a workforce reduction program.

(2)	Represents a one-time special termination benefit for certain employees in connection with a workforce reduction program.

Employer Contributions

During the three months ended March 31, 2011, Dominion made no contributions to its defined benefit pension plans or other postretirement benefit plans. Dominion expects to contribute approximately $18 million, of which Virginia Power’s portion is expected to be $1 million, to its other postretirement benefit plans through Voluntary Employees’ Beneficiary Associations during the remainder of 2011.

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Note 19. Operating Segments

Dominion and Virginia Power are organized primarily on the basis of products and services sold in the U.S. A description of the operations included in the Companies’ primary operating segments is as follows:


Primary Operating Segment	Description of Operations	Dominion	Virginia Power
DVP	Regulated electric distribution	X	X
	Regulated electric transmission	X	X
	Nonregulated retail energy marketing (electric and gas)	X

Dominion Generation	Regulated electric fleet	X	X
	Merchant electric fleet	X

Dominion Energy	Gas transmission and storage	X
	Gas distribution	X
	LNG import and storage	X
	Producer services	X

In addition to the operating segments above, the Companies also report a Corporate and Other segment.

The Corporate and Other Segment of Dominion includes its corporate, service company and other functions (including unallocated debt) and certain specific items that are not included in profit measures evaluated by executive management in assessing segment performance or allocating resources among the segments.

In the three months ended March 31, 2011, Dominion reported after-tax net expenses of $62 million for specific items in the Corporate and Other segment, with $54 million of these net expenses attributable to its operating segments. In the three months ended March 31, 2010, Dominion reported after-tax net expenses of $402 million for specific items in the Corporate and Other segment, with $215 million of these net expenses attributable to its operating segments.

The net expenses for specific items in 2011 primarily related to the impact of the following items:

•

A $55 million ($39 million after-tax) impairment charge related to State Line, attributable to Dominion Generation; and

•

A $32 million ($19 million after-tax) loss from the operations of Kewaunee, attributable to Dominion Generation. Kewaunee's results of operations have been reflected in the Corporate and Other segment due to Dominion's decision in the first quarter of 2011 to pursue the sale of Kewaunee.

The net expenses for specific items in 2010 primarily related to the impact of the following items:

•

A $338 million ($206 million after-tax) charge primarily reflecting severance pay and other benefits related to a workforce reduction program, attributable to:

•

DVP ($67 million after-tax);

•

Dominion Energy ($24 million after-tax); and

•

Dominion Generation ($115 million after-tax); and

•

A $137 million ($149 million after-tax) loss from the discontinued operations of Peoples primarily reflecting a net loss on the sale, attributable to the Corporate and Other segment.

The Corporate and Other Segment of Virginia Power primarily includes certain specific items that are not included in profit measures evaluated by executive management in assessing segment performance or allocating resources among the segments. In the three months ended March 31, 2010, Virginia Power reported after-tax net expenses of $140 million for specific items attributable to its operating segments in the Corporate and Other segment. Virginia Power recorded no expenses in its Corporate and Other segment during the three months ended March 31, 2011.

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The net expenses for specific items in 2010 primarily related to the impact of the following:

•

A $202 million ($123 million after-tax) charge primarily reflecting severance pay and other benefits related to a workforce reduction program, attributable to:

•

DVP ($63 million after-tax); and

•

Dominion Generation ($60 million after-tax).

The following table presents segment information pertaining to Dominion’s operations:

DVP

Dominion
Generation

Dominion
Energy

Corporate
and Other

Adjustments/
Eliminations

Consolidated
Total

(millions)

Three Months Ended March 31,

2011

Total revenue from external customers

1,051

1,863

834

273

4,057

Intersegment revenue

208

143

(516

)

—