Edgar Filing: VIRGINIA ELECTRIC & POWER CO

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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 September 30, 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 x 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 September 30, 2011, the latest practicable date for determination, Dominion Resources, Inc. had 569,611,030 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 49
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		PAGE 65
Item 4.	Controls and Procedures		PAGE 66

	PART II. Other Information

Item 1.	Legal Proceedings		PAGE 66
Item 1A.	Risk Factors		PAGE 67
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		PAGE 67
Item 6.	Exhibits		PAGE 68

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
ARP		Acid Rain Program, a market-based initiative for emissions allowance trading, established pursuant to Title IV of the CAA
ASLB		Atomic Safety and Licensing Board
bcf		Billion cubic feet
Bear Garden		A 580 MW combined cycle, natural gas-fired power station in Buckingham County, Virginia
Brayton Point		Brayton Point power station
BREDL		Blue Ridge Environmental Defense League
CAA		Clean Air Act
CAIR		Clean Air Interstate Rule
CEO		Chief Executive Officer
CERCLA		Comprehensive Environmental Response, Compensation and Liability Act of 1980, also known as Superfund
CFO		Chief Financial Officer
CO₂		Carbon dioxide
COL		Combined Construction Permit and Operating License
Companies		Dominion and Virginia Power, collectively
CONSOL		CONSOL Energy, Inc.
Cooling degree days		Units measuring the extent to which the average daily temperature is greater than 65 degrees Fahrenheit, calculated as the difference between 65 degrees and the average temperature for that day
Cove Point		Dominion Cove Point LNG, LP
CSAPR		Cross State Air Pollution Rule
CWA		Clean Water Act
DEI		Dominion Energy, Inc.
DOE		Department of Energy
Dominion		The legal entity, Dominion Resources, Inc., one or more of Dominion Resources, Inc.’s consolidated subsidiaries (other than Virginia Power) or operating segments or the entirety of Dominion Resources, Inc. and its consolidated subsidiaries
Dominion Direct®		A dividend reinvestment and open enrollment direct stock purchase plan
DRS		Dominion Resources Services, Inc.
DSM		Demand-side management
DTI		Dominion Transmission, Inc.
DVP		Dominion Virginia Power operating segment
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

PAGE 3


Abbreviation or Acronym		Definition
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
GHG		Greenhouse gas
Heating degree days		Units measuring the extent to which the average daily temperature is less than 65 degrees Fahrenheit, calculated as the difference between 65 degrees and the average temperature for that day
IRP		Integrated Resource Plan
ISO		Independent system operator
June 2006 hybrids		2006 Series A Enhanced Junior Subordinated Notes due 2066
Juniper		Juniper Capital L.P.
Kewaunee		Kewaunee nuclear power station
Kincaid		Kincaid power station
LNG		Liquefied natural gas
Local 12502		United Steelworkers, Local 12502
Local G-555		The Gas Workers Union, Local G-555, Utility Workers Union of America, AFL-CIO
Manchester Street		Manchester Street power station
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		Virginia Power project to rebuild approximately 96 miles of an existing 500-kilovolt transmission line in Virginia and West Virginia
MW		Megawatt
MWh		Megawatt hour
NAAQS		National Ambient Air Quality Standard
NedPower		A wind-turbine facility joint venture between Dominion and Shell WindEnergy Inc. in Grant County, West Virginia
NGLs		Natural gas liquids
NHSM		Non-hazardous secondary material
North Anna		North Anna nuclear power station
North Carolina Commission		North Carolina Utilities Commission
NO_X		Nitrogen oxide
NPDES		National Pollutant Discharge Elimination System
NRC		Nuclear Regulatory Commission
ODEC		Old Dominion Electric Cooperative
Ohio Commission		Public Utilities Commission of Ohio

PAGE 4


Abbreviation or Acronym		Definition
OPEB		Other Postretirement Employee Benefits
Peoples		The Peoples Natural Gas Company
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
RCCs		Replacement Capital Covenants
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
RGGI		Regional Greenhouse Gas Initiative
Rider B		A rate adjustment clause associated with the recovery of costs related to the proposed conversion of three of Virginia Power’s coal-fired power stations to biomass
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 W		A rate adjustment clause associated with the recovery of costs related to the proposed Warren County, Virginia Power Station
		Rate adjustment clauses associated with the recovery of costs related to certain DSM programs
ROE		Return on equity
RPS		Renewable Portfolio Standard
RTO		Regional transmission organization
Salem Harbor		Salem Harbor power station
SEC		Securities and Exchange Commission
September 2006 hybrids		2006 Series B Enhanced Junior Subordinated Notes due 2066
SO₂		Sulfur dioxide
Standard & Poor’s		Standard & Poor’s Ratings Services, a division of the McGraw-Hill Companies, Inc.
State Line		State Line power station
Surry		Surry nuclear power station
TGP		Tennessee Gas Pipeline
U.S.		United States of America
UAO		Unilateral Administrative Order
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
VPDES		Virginia Pollutant Discharge Elimination System
VSWCB		Virginia State Water Control Board
Yorktown		Yorktown power station

PAGE 5

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DOMINION RESOURCES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
(millions, except per share amounts)
Operating Revenue	$	3,803	$	3,950	$	11,201	$	11,451

Operating Expenses
Electric fuel and other energy-related purchases		1,243		1,180		3,270		3,164
Purchased electric capacity		109		116		344		333
Purchased gas		335		367		1,342		1,550
Other operations and maintenance		885		788		2,523		2,709
Depreciation, depletion and amortization		268		263		785		794
Other taxes		130		117		416		405

Total operating expenses		2,970		2,831		8,680		8,955
Gain on sale of Appalachian E&P operations		—		—		—		2,467

Income from operations		833		1,119		2,521		4,963

Other income		16		63		112		109
Interest and related charges		249		229		692		600

Income from continuing operations including noncontrolling interests before income tax expense		600		953		1,941		4,472
Income tax expense		204		374		722		1,803

Income from continuing operations including noncontrolling interests		396		579		1,219		2,669
Loss from discontinued operations⁽¹⁾		—		—		—		(147	)

Net Income Including Noncontrolling Interests		396		579		1,219		2,522
Noncontrolling Interests		4		4		12		12

Net Income Attributable to Dominion	$	392	$	575	$	1,207	$	2,510

Amounts Attributable to Dominion:
Income from continuing operations, net of tax	$	392	$	575	$	1,207	$	2,657
Loss from discontinued operations, net of tax		—		—		—		(147	)

Net income attributable to Dominion	$	392	$	575	$	1,207	$	2,510

Earnings Per Common Share – Basic
Income from continuing operations	$	0.69	$	0.98	$	2.10	$	4.49
Loss from discontinued operations		—		—		—		(0.25	)

Net income attributable to Dominion	$	0.69	$	0.98	$	2.10	$	4.24

Earnings Per Common Share – Diluted
Income from continuing operations	$	0.69	$	0.98	$	2.10	$	4.48
Loss from discontinued operations		—		—		—		(0.25	)

Net income attributable to Dominion	$	0.69	$	0.98	$	2.10	$	4.23

Dividends declared per common share	$	0.4925	$	0.4575	$	1.4775	$	1.3725

(1)	Includes income tax expense of $13 million for the nine months ended September 30, 2010.

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

PAGE 6

DOMINION RESOURCES, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	September 30, 2011			December 31, 2010⁽¹⁾
(millions)
ASSETS
Current Assets
Cash and cash equivalents	$	212		$	62
Customer receivables (less allowance for doubtful accounts of $28 and $26)		1,646			2,158
Other receivables (less allowance for doubtful accounts of $8 and $9)		228			88
Inventories		1,326			1,163
Derivative assets		598			739
Other		1,257			1,190

Total current assets		5,267			5,400

Investments
Nuclear decommissioning trust funds		2,799			2,897
Investment in equity method affiliates		559			571
Restricted cash equivalents		204			400
Other		290			283

Total investments		3,852			4,151

Property, Plant and Equipment
Property, plant and equipment		42,155			39,855
Accumulated depreciation, depletion and amortization		(13,744	)		(13,142	)

Total property, plant and equipment, net		28,411			26,713

Deferred Charges and Other Assets
Goodwill		3,141			3,141
Regulatory assets		1,410			1,446
Other		1,949			1,966

Total deferred charges and other assets		6,500			6,553

Total assets	$	44,030		$	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)


	September 30, 2011			December 31, 2010⁽¹⁾
(millions)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Securities due within one year	$	1,327		$	497
Short-term debt		783			1,386
Accounts payable		1,138			1,562
Accrued interest, payroll and taxes		647			849
Other		1,601			1,479

Total current liabilities		5,496			5,773

Long-Term Debt
Long-term debt		15,418			14,023
Junior subordinated notes payable to affiliates		268			268
Enhanced junior subordinated notes		1,467			1,467

Total long-term debt		17,153			15,758

Deferred Credits and Other Liabilities
Deferred income taxes and investment tax credits		5,130			4,708
Asset retirement obligations		1,654			1,577
Regulatory liabilities		1,251			1,392
Other		1,457			1,355

Total deferred credits and other liabilities		9,492			9,032

Total liabilities		32,141			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⁾		5,171			5,715
Other paid-in capital		182			194
Retained earnings		6,778			6,418
Accumulated other comprehensive loss		(499	)		(330	)

Total common shareholders’ equity		11,632			11,997

Total liabilities and shareholders’ equity	$	44,030		$	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; 570 million and 581 million shares outstanding at September 30, 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)


Nine Months Ended September 30,	2011			2010
(millions)
Operating Activities
Net income including noncontrolling interests	$	1,219		$	2,522
Adjustments to reconcile net income including noncontrolling interests to net cash provided by operating activities:
Gain from sale of Appalachian E&P operations		—			(2,467	)
Loss from sale of Peoples		—			113
Charges (payments) related to workforce reduction program		(93	)		261
Impairment of merchant generation facility		55			163
Depreciation, depletion and amortization (including nuclear fuel)		951			946
Deferred income taxes and investment tax credits		643			310
Contribution to employee pension plans		—			(250	)
Rate refunds		(64	)		(413	)
Other adjustments		(3	)		(20	)
Changes in:
Accounts receivable		527			360
Inventories		(162	)		(23	)
Deferred fuel and purchased gas costs		(60	)		(147	)
Prepayments		(53	)		274
Accounts payable		(419	)		(51	)
Accrued interest, payroll and taxes		(201	)		270
Margin deposit assets and liabilities		(92	)		(23	)
Other operating assets and liabilities		150			59

Net cash provided by operating activities		2,398			1,884

Investing Activities
Plant construction and other property additions		(2,616	)		(2,509	)
Proceeds from the sale of Appalachian E&P operations		—			3,450
Proceeds from the sale of Peoples		—			741
Proceeds from sale of securities		1,404			1,938
Purchases of securities		(1,459	)		(2,470	)
Restricted cash equivalents		196			—
Other		111			75

Net cash provided by (used in) investing activities		(2,364	)		1,225

Financing Activities
Repayment of short-term debt, net		(602	)		(1,195	)
Issuance and remarketing of long-term debt		2,245			550
Repayment of long-term debt		(74	)		(414	)
Issuance of common stock		37			66
Repurchase of common stock		(601	)		(900	)
Common dividend payments		(848	)		(810	)
Subsidiary preferred dividend payments		(12	)		(12	)
Other		(29	)		2

Net cash provided by (used in) financing activities		116			(2,713	)

Increase in cash and cash equivalents		150			396
Cash and cash equivalents at beginning of period		62			50

Cash and cash equivalents at end of period	$	212		$	446

Supplemental Cash Flow Information
Significant noncash investing activities:
Accrued capital expenditures	$	237		$	192

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 September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
(millions)
Operating Revenue	$	2,177	$	2,111	$	5,691	$	5,561

Operating Expenses
Electric fuel and other energy-related purchases		746		694		1,922		1,915
Purchased electric capacity		108		116		342		331
Other operations and maintenance:
Affiliated suppliers		79		85		229		293
Other		435		319		943		947
Depreciation and amortization		184		171		533		499
Other taxes		57		53		172		170

Total operating expenses		1,609		1,438		4,141		4,155

Income from operations		568		673		1,550		1,406

Other income		25		25		64		67
Interest and related charges		114		88		290		259

Income before income tax expense		479		610		1,324		1,214
Income tax expense		182		230		508		472

Net Income		297		380		816		742
Preferred dividends		4		4		12		12

Balance available for common stock	$	293	$	376	$	804	$	730

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)


	September 30, 2011			December 31, 2010⁽¹⁾
(millions)
ASSETS
Current Assets
Cash and cash equivalents	$	24		$	5
Customer receivables (less allowance for doubtful accounts of $11 at both dates)		964			905
Other receivables (less allowance for doubtful accounts of $8 and $6)		137			54
Inventories (average cost method)		732			597
Prepayments		71			65
Other		450			355

Total current assets		2,378			1,981

Investments
Nuclear decommissioning trust funds		1,285			1,319
Restricted cash equivalents		38			169
Other		3			4

Total investments		1,326			1,492

Property, Plant and Equipment
Property, plant and equipment		28,986			27,607
Accumulated depreciation and amortization		(10,088	)		(9,712	)

Total property, plant and equipment, net		18,898			17,895

Deferred Charges and Other Assets
Intangible assets		176			212
Regulatory assets		387			370
Other		130			312

Total deferred charges and other assets		693			894

Total assets	$	23,295		$	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)


	September 30, 2011		December 31, 2010⁽¹⁾
(millions)
LIABILITIES AND SHAREHOLDER’S EQUITY
Current Liabilities
Securities due within one year	$	15	$	15
Short-term debt		550		600
Accounts payable		455		499
Payables to affiliates		84		76
Affiliated current borrowings		215		103
Accrued interest, payroll and taxes		287		214
Other		651		571

Total current liabilities		2,257		2,078

Long-Term Debt		6,853		6,702

Deferred Credits and Other Liabilities
Deferred income taxes and investment tax credits		3,074		2,672
Asset retirement obligations		705		669
Regulatory liabilities		1,029		1,174
Other		266		203

Total deferred credits and other liabilities		5,074		4,718

Total liabilities		14,184		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		1,990		1,634
Accumulated other comprehensive income		15		24

Total common shareholder’s equity		8,854		8,507

Total liabilities and shareholder’s equity	$	23,295	$	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)	500,000 shares and 300,000 shares authorized at September 30, 2011 and December 31, 2010, respectively; 274,723 shares outstanding at both September 30, 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)


Nine Months Ended September 30,	2011			2010
(millions)
Operating Activities
Net income	$	816		$	742
Adjustments to reconcile net income to net cash provided by operating activities:
Charges (payments) related to workforce reduction program		(41	)		98
Depreciation and amortization (including nuclear fuel)		625			584
Deferred income taxes and investment tax credits		449			399
Rate refunds		(64	)		(413	)
Contribution to employee pension plans		—			(119	)
Other adjustments		9			(32	)
Changes in:
Accounts receivable		14			(38	)
Affiliated accounts receivable and payable		7			1
Inventories		(135	)		10
Deferred fuel expenses		(58	)		(126	)
Accounts payable		6			80
Accrued interest, payroll and taxes		72			66
Prepayments		(6	)		(62	)
Other operating assets and liabilities		3			48

Net cash provided by operating activities		1,697			1,238

Investing Activities
Plant construction and other property additions		(1,392	)		(1,579	)
Purchases of nuclear fuel		(169	)		(114	)
Purchases of securities		(850	)		(976	)
Proceeds from sales of securities		838			959
Restricted cash equivalents		131			—
Other		11			2

Net cash used in investing activities		(1,431	)		(1,708	)

Financing Activities
Repayment of short-term debt, net		(50	)		(342	)
Issuance of affiliated current borrowings, net		112			897
Remarketing/issuance of long-term debt		160			300
Repayment of long-term debt		(10	)		(11	)
Common dividend payments		(448	)		(360	)
Preferred dividend payments		(12	)		(12	)
Other		1			1

Net cash provided by (used in) financing activities		(247	)		473

Increase in cash and cash equivalents		19			3
Cash and cash equivalents at beginning of period		5			19

Cash and cash equivalents at end of period	$	24		$	22

Supplemental Cash Flow Information
Significant noncash investing and financing activities:
Accrued capital expenditures	$	86		$	114
Settlement of debt and issuance of common stock to Dominion		—			636

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 and their Quarterly Reports on Form 10-Q for the quarters ended March 31, 2011 and June 30, 2011.

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 September 30, 2011, their results of operations for the three and nine months ended September 30, 2011 and 2010 and their cash flows for the nine months ended September 30, 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 September 30, 2010		Nine Months Ended September 30, 2010
(millions)
Operating revenue	$	—	$	67
Income (loss) before income taxes		—		(134	)

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 September 30, 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 September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
(millions)
Dominion
Electric sales:
Regulated	$	2,136	$	2,083	$	5,594	$	5,488
Nonregulated		915		1,072		2,650		2,857
Gas sales:
Regulated		25		25		208		209
Nonregulated		281		375		1,220		1,502
Gas transportation and storage		291		289		1,151		1,070
Other		155		106		378		325

Total operating revenue	$	3,803	$	3,950	$	11,201	$	11,451


Virginia Power
Regulated electric sales	$	2,136	$	2,083	$	5,594	$	5,488
Other		41		28		97		73

Total operating revenue	$	2,177	$	2,111	$	5,691	$	5,561

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
Nine Months Ended September 30,	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		3.6			4.5			3.9			3.9
Legislative changes		—			1.2			—			1.3
Other, net		(1.4	)		(0.4	)		(0.5	)		(1.3	)

Effective tax rate		37.2	%		40.3	%		38.4	%		38.9	%

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 addition, Dominion’s effective tax rate in 2010 reflects higher state income taxes due to the sale of its Appalachian E&P operations.

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 the Companies’ unrecognized tax benefits. During the nine months ended September 30, 2011, Dominion’s and Virginia Power’s unrecognized tax benefits changed as follows:


	Dominion			Virginia Power
(millions)
Balance at January 1, 2011	$	307		$	117
Increases – prior period positions		24			17
Decreases – prior period positions		(53	)		(33	)
Current period positions		41			23

Balance at September 30, 2011	$	319		$	124

With the expiration of statutes of limitations, completion of audits and possible settlements with tax authorities, it is reasonably possible that unrecognized tax benefits could decrease during the next 12 months by up to $60 million for Dominion and up to $30 million for Virginia Power. In addition, based on Dominion’s decision in October 2011 to file tax refund claims involving uncertainty in the reporting of asset dispositions, unrecognized tax benefits increased by $96 million.

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.

PAGE 16

Note 7. Earnings Per Share

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
(millions, except EPS)
Net income attributable to Dominion	$	392	$	575	$	1,207	$	2,510

Average shares of common stock outstanding – Basic		569.4		585.0		574.2		591.7
Net effect of potentially dilutive securities⁽¹⁾		1.8		1.4		1.4		1.1

Average shares of common stock outstanding – Diluted		571.2		586.4		575.6		592.8

Earnings Per Common Share – Basic	$	0.69	$	0.98	$	2.10	$	4.24
Earnings Per Common Share – Diluted	$	0.69	$	0.98	$	2.10	$	4.23

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

There were no potentially dilutive securities excluded from the calculation of diluted EPS for the three and nine months ended September 30, 2011 and 2010.

Note 8. Comprehensive Income

The following table presents Dominion’s total comprehensive income:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
(millions)
Net income including noncontrolling interests	$	396		$	579		$	1,219		$	2,522
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		(94	)⁽¹⁾		(56	)		(172	)⁽¹⁾		(61	)
Other, net of tax		(76	)⁽²⁾		70	⁽³⁾		3			86	⁽³⁾

Other comprehensive income (loss)		(170	)		14			(169	)		25

Comprehensive income including noncontrolling interests		226			593			1,050			2,547
Noncontrolling interests		4			4			12			12

Total comprehensive income attributable to Dominion	$	222		$	589		$	1,038		$	2,535

(1)	Primarily reflects unfavorable changes in fair value due to a decrease in interest rates.

(2)	Primarily reflects a net decrease in unrealized gains on investments held in nuclear decommissioning trusts.

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

PAGE 17

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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
(millions)
Net income	$	297		$	380		$	816		$	742
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		(3	)		(1	)		(4	)		(9	)
Other, net of tax		(8	)		6			(5	)		2

Other comprehensive income (loss)		(11	)		5			(9	)		(7	)

Total comprehensive income	$	286		$	385		$	807		$	735

PAGE 18

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 September 30, 2011, Dominion’s and Virginia Power’s net balance of commodity derivatives categorized as Level 3 fair value measurements was a net liability of $42 million and $21 million, respectively. A hypothetical 10% increase in commodity prices would increase Dominion’s and Virginia Power’s Level 3 net liability by $100 million and $7 million, respectively, while a hypothetical 10% decrease in commodity prices would decrease Dominion’s and Virginia Power’s Level 3 net liability by $101 million and $7 million, respectively.

Non-recurring Fair Value Measurements

In September 2010, Virginia Power evaluated its SO₂ emissions allowances not expected to be consumed by its generating units for potential impairment due to the significant decline in market prices since the July 2010 release of the EPA’s proposed replacement rule for CAIR, ultimately known as CSAPR. As a result of this evaluation, Virginia Power recorded an impairment charge of $13 million ($8 million after-tax) in other operations and maintenance expense in its Consolidated Statement of Income, to write down its SO₂ emissions allowances not expected to be consumed to their estimated fair value of less than $1 million. In the third quarter of 2011, Dominion and Virginia Power evaluated their SO₂ emissions allowances not expected to be consumed by generating units for potential impairment due to the EPA’s issuance of CSAPR as discussed in Note 15. Prior to the issuance of CSAPR, Dominion and Virginia Power held $57 million and $43 million, respectively, of SO₂ emissions allowances obtained for ARP and CAIR compliance. Due to CSAPR’s establishment of a new allowance program and the elimination of CAIR, Dominion and Virginia Power have more SO₂ emissions allowances than needed for ARP compliance. As a result of this evaluation, Dominion and Virginia Power recorded an impairment charge of $57 million ($34 million after-tax) and $43 million ($26 million after-tax), respectively, in other operations and maintenance expense in their Consolidated Statements of Income, to write down these emissions allowances to their estimated fair value of less than $1 million. To estimate the value of these emissions allowances in both impairment tests, Dominion utilized a market approach by obtaining broker quotes to validate CSAPR’s impact on emissions allowance prices. However, due to limited market activity for future SO₂ vintage year allowances, these are considered a Level 3 fair value measurement.

In June 2010, Dominion evaluated State Line for impairment due to the station’s relatively low level of profitability combined with the EPA’s issuance of a new stringent 1-hour primary NAAQS for SO₂ that would likely require significant environmental capital expenditures in the future. As a result of this evaluation, Dominion recorded an impairment charge of $163 million ($95 million after-tax) in other operations and maintenance expense in its Consolidated Statement of Income, to write down State Line’s long-lived assets to their estimated fair value of $59 million. During March 2011, Dominion determined that it was unlikely that State Line would 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 reflected 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 environmental regulations that would likely require significant capital expenditures. As a result, Dominion evaluated State Line for impairment since it was more likely than not that State Line would 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 in both impairment tests. These were considered Level 3 fair value measurements due to the use of significant unobservable inputs including estimates of future power and other commodity prices.

PAGE 19

Recurring Fair Value Measurements

Dominion

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


	Level 1		Level 2		Level 3		Total
(millions)
At September 30, 2011
Assets
Derivatives:
Commodity	$	34	$	623	$	107	$	764
Interest rate		—		103		—		103
Investments⁽¹⁾:
Equity securities:
U.S.:
Large cap		1,551		—		—		1,551
Other		45		—		—		45
Non-U.S.:
Large cap		11		—		—		11
Fixed Income:
Corporate debt instruments		—		310		—		310
U.S. Treasury securities and agency debentures		309		175		—		484
State and municipal		—		296		—		296
Other		—		29		—		29
Cash equivalents and other		1		69		—		70
Restricted cash equivalents		—		204		—		204

Total assets	$	1,951	$	1,809	$	107	$	3,867

Liabilities
Derivatives:
Commodity	$	7	$	728	$	149	$	884
Interest Rate		—		236		—		236

Total liabilities	$	7	$	964	$	149	$	1,120


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 20

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 September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
(millions)
Beginning balance	$	(122	)	$	32		$	(50	)	$	(66	)
Total realized and unrealized gains (losses):
Included in earnings		(16	)		27			(24	)		40
Included in other comprehensive income (loss)		75			(65	)		16			20
Included in regulatory assets/liabilities		(3	)		(13	)		(35	)		1
Settlements		24			(23	)		47			(41	)
Transfers out of Level 3		—			25			4			29

Ending balance	$	(42	)	$	(17	)	$	(42	)	$	(17	)

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	$	7		$	4		$	29		$	(3	)

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 September 30, 2011
Total gains (losses) included in earnings	$	(8	)	$	(8	)	$	—		$	(16	)
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		7			—			—			7

Three Months Ended September 30, 2010
Total gains (losses) included in earnings	$	5		$	22		$	—		$	27
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

Nine Months Ended September 30, 2011
Total gains (losses) included in earnings	$	(8	)	$	(16	)	$	—		$	(24	)
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		29			—			—			29

Nine Months Ended September 30, 2010
Total gains (losses) included in earnings	$	(5	)	$	49		$	(4	)	$	40
The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets/liabilities still held at the reporting date		(3	)		—			—			(3	)

PAGE 21

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 September 30, 2011
Assets
Derivatives:
Commodity	$	—	$	1	$	2	$	3
Investments⁽¹⁾:
Equity securities:
U.S.:
Large cap		613		—		—		613
Other		20		—		—		20
Fixed income:
Corporate debt instruments		—		189		—		189
U.S. Treasury securities and agency debentures		146		50		—		196
State and municipal		—		100		—		100
Other		—		22		—		22
Cash equivalents and other		—		47		—		47
Restricted cash equivalents		—		38		—		38

Total assets	$	779	$	447	$	2	$	1,228

Liabilities
Derivatives:
Commodity	$	—	$	6	$	23	$	29
Interest Rate		—		82		—		82

Total liabilities	$	—	$	88	$	23	$	111


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 22

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 September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
(millions)
Beginning balance	$	(18	)	$	5		$	14		$	(10	)
Total realized and unrealized gains (losses):
Included in earnings		(8	)		22			(16	)		48
Included in regulatory assets/liabilities		(3	)		(13	)		(35	)		2
Settlements		8			(22	)		16			(48	)

Ending balance	$	(21	)	$	(8	)	$	(21	)	$	(8	)

The gains and losses included in earnings in the Level 3 fair value category were classified in electric fuel and other energy-related purchases in Virginia Power’s Consolidated Statements of Income for the three and nine months ended September 30, 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 and nine months ended September 30, 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:


	September 30, 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⁾	$	16,745	$	19,381	$	14,520	$	16,112
Junior subordinated notes payable to affiliates		268		275		268		261
Enhanced junior subordinated notes		1,467		1,539		1,467		1,560
Subsidiary preferred stock⁽³⁾		257		262		257		249


Virginia Power
Long-term debt, including securities due within one year⁽²⁾	$	6,868	$	8,233	$	6,717	$	7,489
Preferred stock⁽³⁾		257		262		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 September 30, 2011 and December 31, 2010, includes the valuation of certain fair value hedges associated with Dominion’s fixed rate debt of approximately $103 million and $49 million, respectively.

(3)	Includes issuance expenses of $2 million at September 30, 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 methods for derivatives.

PAGE 23

Dominion

The following table presents the volume of Dominion’s derivative activity as of September 30, 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		67
Basis		891		405
Electricity (MWh):
Fixed price⁽¹⁾		20,137,147		23,255,392
FTRs		78,993,580		779,328
Capacity (MW)		155,416		289,585
Liquids (gallons)⁽²⁾		138,516,000		281,064,000
Interest rate	$	1,600,000,000	$	2,690,000,000

(1)	Includes options.

(2)	Includes NGLs and oil.

For the three and nine months ended September 30, 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 and nine months ended September 30, 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 September 30, 2011:


	AOCI After-Tax			Amounts Expected to be Reclassified to Earnings during the next 12 Months After-Tax			Maximum Term
(millions)
Commodities:
Gas	$	(19	)	$	(7	)		39 months
Electricity		38			21			51 months
NGLs		(39	)		(24	)		39 months
Other		6			1			44 months
Interest rate		(107	)		(5	)		375 months

Total	$	(121	)	$	(14	)

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

PAGE 24

Fair Value and Gains and Losses on Derivative Instruments

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


	Fair Value – Derivatives under Hedge Accounting		Fair Value – Derivatives not under Hedge Accounting		Total Fair Value
(millions)
September 30, 2011
ASSETS
Current Assets
Commodity	$	150	$	412	$	562
Interest rate		36		—		36

Total current derivative assets		186		412		598

Noncurrent Assets
Commodity		105		97		202
Interest rate		67		—		67

Total noncurrent derivative assets⁽¹⁾		172		97		269

Total derivative assets	$	358	$	509	$	867

LIABILITIES
Current Liabilities
Commodity	$	186	$	476	$	662
Interest rate		124		7		131

Total current derivative liabilities⁽²⁾		310		483		793

Noncurrent Liabilities
Commodity		119		103		222
Interest rate		74		31		105

Total noncurrent derivative liabilities⁽³⁾		193		134		327

Total derivative liabilities	$	503	$	617	$	1,120


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

(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.

PAGE 25

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 September 30, 2011
Derivative Type and Location of Gains (Losses)
Commodity:
Operating revenue				$	28
Purchased gas					(7	)
Electric fuel and other energy-related purchases					2

Total commodity	$	69			23		$	(1	)

Interest rate⁽³⁾		(204	)		(8	)		(76	)

Total	$	(135	)	$	15		$	(77	)

Three Months Ended September 30, 2010
Derivative Type and Location of Gains (Losses)
Commodity:
Operating revenue				$	88
Purchased gas					(6	)
Electric fuel and other energy-related purchases					4
Purchased electric capacity					1

Total commodity	$	(5	)		87		$	(6	)

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

Total	$	(5	)	$	87		$	(5	)

Nine Months Ended September 30, 2011
Derivative Type and Location of Gains (Losses)
Commodity:
Operating revenue				$	88
Purchased gas					(61	)
Electric fuel and other energy-related purchases					4
Purchased electric capacity					1

Total commodity	$	(24	)		32		$	(10	)

Interest rate⁽³⁾		(236	)		(8	)		(76	)

Total	$	(260	)	$	24		$	(86	)

Nine Months Ended September 30, 2010
Derivative Type and Location of Gains (Losses)
Commodity:
Operating revenue				$	383
Purchased gas					(122	)
Electric fuel and other energy-related purchases					(4	)
Purchased electric capacity					3

Total commodity	$	277			260		$	(17	)

Interest rate⁽³⁾		(3	)		109			(23	)
Foreign currency⁽⁴⁾		—			1			(2	)

Total	$	274		$	370		$	(42	)

PAGE 26

(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.


	Amount of Gain (Loss) Recognized in Income on Derivatives⁽¹⁾
	Three Months Ended September 30,						Nine Months Ended September 30,
Derivatives not designated as hedging instruments	2011			2010			2011			2010
(millions)
Derivative Type and Location of Gains (Losses)
Commodity
Operating revenue	$	15		$	45		$	56		$	71
Purchased gas		(10	)		(13	)		(28	)		(42	)
Electric fuel and other energy-related purchases		(8	)		23			(16	)		48
Interest rate⁽²⁾		(4	)		—			(4	)		(37	)

Total	$	(7	)	$	55		$	8		$	40

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

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

Virginia Power

The following table presents the volume of Virginia Power’s derivative activity as of September 30, 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		8		—
Basis		4		—
Electricity (MWh):
Fixed price		614,400		—
FTRs		78,565,145		779,328
Capacity (MW)		122,000		182,500
Interest rate	$	800,000,000	$	490,000,000

Gains (losses) on cash flow hedges included in AOCI in Virginia Power’s Consolidated Balance Sheet at September 30, 2011 were not material.

PAGE 27

Fair Value and Gains and Losses on Derivative Instruments

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


	Fair Value – Derivatives under Hedge Accounting		Fair Value – Derivatives not under Hedge Accounting		Total Fair Value
(millions)
September 30, 2011
ASSETS
Current Assets
Commodity	$	1	$	2	$	3

Total current derivative assets⁽¹⁾		1		2		3

Total derivative assets	$	1	$	2	$	3

LIABILITIES
Current Liabilities
Commodity	$	3	$	24	$	27
Interest rate		34		7		41

Total current derivative liabilities⁽²⁾		37		31		68

Noncurrent Liabilities
Commodity		2		—		2
Interest rate		10		31		41

Total noncurrent derivative liabilities⁽³⁾		12		31		43

Total derivative liabilities	$	49	$	62	$	111


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 28

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 September 30, 2011
Derivative Type and Location of Gains (Losses)
Commodity:
Electric fuel and other energy-related purchases				$	(1	)

Total commodity	$	(1	)		(1	)	$	(1	)

Interest rate⁽³⁾		(5	)		—			(76	)

Total	$	(6	)	$	(1	)	$	(77	)

Three Months Ended September 30, 2010
Derivative Type and Location of Gains (Losses)
Commodity:
Purchased electric capacity				$	1

Total commodity	$	(1	)		1		$	(6	)

Interest rate⁽³⁾		—			—			1

Total	$	(1	)	$	1		$	(5	)

Nine Months Ended September 30, 2011
Derivative Type and Location of Gains (Losses)
Commodity:
Purchased electric capacity				$	1

Total commodity	$	(1	)		1		$	(10	)

Interest rate⁽³⁾		(5	)		1			(76	)

Total	$	(6	)	$	2		$	(86	)

Nine Months Ended September 30, 2010
Derivative Type and Location of Gains (Losses)
Commodity:
Electric fuel and other energy-related purchases				$	(1	)
Purchased electric capacity					3

Total commodity	$	(2	)		2		$	(17	)

Interest rate⁽³⁾		(1	)		9			(23	)
Foreign currency⁽⁴⁾		—			—			(2	)

Total	$	(3	)	$	11		$	(42	)

(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.

PAGE 29


	Amount of Gain (Loss) Recognized in Income on Derivatives⁽¹⁾
	Three Months Ended September 30,					Nine Months Ended September 30,
Derivatives not designated as hedging instruments	2011			2010		2011			2010
(millions)
Derivative Type and Location of Gains (Losses)
Commodity⁽²⁾	$	(8	)	$	22	$	(16	)	$	49
Interest rate⁽³⁾		(4	)		—		(4	)		(3	)

Total	$	(12	)	$	22	$	(20	)	$	46

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

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

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

Note 11. Investments

Dominion

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 $89 million and $93 million at September 30, 2011 and December 31, 2010, respectively. Net unrealized losses on trading securities totaled $5 million and $1 million for the three and nine months ended September 30, 2011, respectively. Net unrealized losses on trading securities totaled $1 million for the nine months ended September 30, 2010. Cost-method investments held in Dominion’s rabbi trusts totaled $17 million and $18 million at September 30, 2011 and December 31, 2010, respectively.

PAGE 30

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)
September 30, 2011
Marketable equity securities
U.S.:
Large Cap	$	1,147	$	377	$	—		$	1,524
Other		36		4		—			40
Marketable debt securities:
Corporate bonds		294		18		(2	)		310
U.S. Treasury securities and agency debentures		460		24		(1	)		483
State and municipal		237		18		—			255
Other		29		1		(1	)		29
Cost method investments		113		—		—			113
Cash equivalents and other⁽²⁾		45		—		—			45

Total	$	2,361	$	442	$	(4	)⁽³⁾	$	2,799

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		—		—

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company