Edgar Filing: DOMINION RESOURCES INC /VA/

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

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 June 30, 2013

¨	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 June 30, 2013, the latest practicable date for determination, Dominion Resources, Inc. had 579,020,114 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		3

	PART I. Financial Information

Item 1.	Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		61
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		79
Item 4.	Controls and Procedures		80

	PART II. Other Information

Item 1.	Legal Proceedings		81
Item 1A.	Risk Factors		81
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		82
Item 6.	Exhibits		83

PAGE2

GLOSSARY OF TERMS

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


Abbreviation or Acronym		Definition
AFUDC		Allowance for funds used during construction

AMR		Automated meter reading program deployed by East Ohio

AOCI		Accumulated other comprehensive income (loss)

Appalachian Gateway Project		DTI project completed in September 2012 to provide approximately 484,000 Dth per day of firm transportation services for new Appalachian gas supplies in West Virginia and southwestern Pennsylvania to an interconnection with Texas Eastern Transmission, LP at Oakford, Pennsylvania

AROs		Asset retirement obligations

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

Biennial Review Order		Order issued by the Virginia Commission in November 2011 concluding the 2009-2010 biennial review of Virginia Power’s base rates, terms and conditions

Blue Racer		Blue Racer Midstream, LLC, a joint venture with Caiman

BOD		Board of Directors

BP		BP Wind Energy North America Inc.

Brayton Point		Brayton Point power station, a 1,528 MW power station in Somerset, Massachusetts, with three coal-fired units and one unit fired by natural gas or oil

BREDL		Blue Ridge Environmental Defense League

Brunswick County		Brunswick County power station, a 1,358 MW combined cycle, natural gas-fired power station in Brunswick County, Virginia

CAA		Clean Air Act

Caiman		Caiman Energy II, LLC

CAIR		Clean Air Interstate Rule

Carson-to-Suffolk line		Virginia Power 60-mile 500 kV transmission line in southeastern Virginia

CEO		Chief Executive Officer

CERCLA		Comprehensive Environmental Response, Compensation and Liability Act of 1980

CFO		Chief Financial Officer

CO₂		Carbon dioxide

COL		Combined Construction Permit and Operating License

Companies		Dominion and Virginia Power, collectively

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 its consolidated subsidiaries (other than Virginia Power) or operating segments or the entirety of Dominion Resources, Inc. and its consolidated subsidiaries

DRS		Dominion Resources Services, Inc.

DTI		Dominion Transmission, Inc.

Dth		Dekatherm

DVP		Dominion Virginia Power operating segment

East Ohio		The East Ohio Gas Company, doing business as Dominion East Ohio

Elwood		Elwood power station, a 1,424 MW power station outside Chicago, Illinois, with nine 158 MW natural gas-fired combustion turbines, in which Dominion owns a 50 percent interest (712 MW)

Energy Capital Partners		A private equity firm with offices in Short Hills, New Jersey and San Diego, California

EPA		Environmental Protection Agency

EPS		Earnings per share

ESBWR		General Electric-Hitachi’s Economic Simplified Boiling Water Reactor

Fairless		Fairless power station

PAGE3


Abbreviation or Acronym		Definition
FERC		Federal Energy Regulatory Commission

Fowler Ridge		A wind-turbine facility joint venture between Dominion and BP in Benton County, Indiana

FTRs		Financial transmission rights

GAAP		U.S. generally accepted accounting principles

Gal		Gallon

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

IDA		Industrial Development Authority

Illinois Gas Contracts		A Dominion Retail natural gas book of business consisting of residential and commercial customers in Illinois

INPO		Institute of Nuclear Power Operations

ISO		Independent system operator

ISO-NE		ISO New England

Kewaunee		Kewaunee nuclear power station

Kincaid		Kincaid power station, a 1,158 MW power station in Kincaid, Illinois, with two 579 MW coal-fired units

kV		Kilovolt

kWh		Kilowatt-hour

Line TL-388		A 37-mile, 24-inch gathering line extending from Texas Eastern, LP in Noble County, Ohio to its terminus at Dominion’s Gilmore Station in Tuscarawas County, Ohio

Line TL-404		An approximately 26-mile, 24- and 30- inch gas gathering pipeline that extends from Wetzel County, West Virginia to Monroe County, Ohio

LNG		Liquefied natural gas

MD&A		Management’s Discussion and Analysis of Financial Condition and Results of Operations

MDFA		Massachusetts Development Finance Agency

Meadow Brook-to-Loudoun line		Virginia Power 65-mile 500 kV transmission line that begins in Warren County, Virginia and terminates in Loudoun County, Virginia

Millstone		Millstone nuclear power station

MISO		Midcontinent Independent Transmission System Operator, Inc.

Moody’s		Moody’s Investors Service

MW		Megawatt

MWh		Megawatt hour

NCEMC		North Carolina Electric Membership Corporation

NedPower		A wind-turbine facility joint venture between Dominion and Shell in Grant County, West Virginia

NEIL		Nuclear Electric Insurance Limited

NGLs		Natural gas liquids

North Anna		North Anna nuclear power station

North Carolina Commission		North Carolina Utilities Commission

Northeast Expansion Project		DTI project completed in November 2012 to provide approximately 200,000 Dth per day of firm transportation services; this project moves supplies from various receipt points in central and southwestern Pennsylvania to a nexus of market pipelines and storage facilities in Leidy, Pennsylvania

NO_x		Nitrogen oxide

NPDES		National Pollutant Discharge Elimination System

NRC		Nuclear Regulatory Commission

NSPS		New Source Performance Standards

ODEC		Old Dominion Electric Cooperative

Ohio Commission		Public Utilities Commission of Ohio

Order 1000		Order issued by FERC adopting new requirements for transmission planning, cost allocation and development

PADEP		Pennsylvania Department of Environmental Protection

PIPP		Percentage of Income Payment Plan

PIR		Pipeline Infrastructure Replacement program deployed by East Ohio

PAGE4


Abbreviation or Acronym		Definition
PJM		PJM Interconnection, L.L.C.

ppb		Parts-per-billion

Radnor Heights Project		Virginia Power project to construct three new 230 kV underground transmission lines totaling approximately 6 miles and the associated Radnor Heights substation in Arlington County, Virginia

RGGI		Regional Greenhouse Gas Initiative

Rider B		A rate adjustment clause associated with the recovery of costs related to the conversion of three of Virginia Power’s coal-fired power stations to biomass

Rider BW		A rate adjustment clause associated with the recovery of costs related to Brunswick County

Rider S		A rate adjustment clause associated with the recovery of costs related to the Virginia City Hybrid Energy Center

Rider T1		A rate adjustment clause to recover the difference between revenues produced from the transmission component of base rates, and the total revenue requirement to recover costs for transmission services and demand response programs

Rider W		A rate adjustment clause associated with the recovery of costs related to Warren County

ROE		Return on equity

RSN		Remarketable subordinated note

RTO		Regional transmission organization

Salem Harbor		Salem Harbor power station

SEC		Securities and Exchange Commission

Shell		Shell WindEnergy, Inc.

SO₂		Sulfur dioxide

Standard & Poor’s		Standard & Poor’s Ratings Services, a division of McGraw Hill Financial, Inc.

State Line		State Line power station

Surry		Surry nuclear power station

U.S.		United States of America

UAO		Unilateral Administrative Order

UEX Rider		Uncollectible Expense Rider

VIE		Variable interest entity

Virginia City Hybrid Energy Center		A 600 MW baseload carbon-capture compatible, clean coal powered electric generation facility 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

Warren County		Warren County power station, a 1,329 MW combined-cycle, natural gas-fired power station under construction in Warren County, Virginia

Waxpool-Brambleton-BECO line		Virginia Power project to construct an approximately 1.5-mile double circuit 230 kV line to a new Waxpool substation, and a new 230 kV line between the Brambleton and BECO substations

PAGE5

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DOMINION RESOURCES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012⁽¹⁾			2013			2012⁽¹⁾
(millions, except per share amounts)
Operating Revenue	$	2,980		$	3,005		$	6,503		$	6,402

Operating Expenses
Electric fuel and other energy-related purchases		875			895			1,826			1,807
Purchased electric capacity		88			98			176			211
Purchased gas		297			215			764			627
Other operations and maintenance		728			753			1,351			1,360
Depreciation, depletion and amortization		303			275			600			548
Other taxes		141			141			308			303

Total operating expenses		2,432			2,377			5,025			4,856

Income from operations		548			628			1,478			1,546

Other income		49			44			136			118
Interest and related charges		203			209			431			421

Income from continuing operations including noncontrolling interests before income tax expense		394			463			1,183			1,243
Income tax expense		116			166			404			435

Income from continuing operations including noncontrolling interests		278			297			779			808
Loss from discontinued operations⁽²⁾		(70	)		(32	)		(69	)		(42	)

Net Income Including Noncontrolling Interests		208			265			710			766
Noncontrolling Interests		6			7			13			14

Net Income Attributable to Dominion	$	202		$	258		$	697		$	752

Amounts Attributable to Dominion:
Income from continuing operations, net of tax	$	272		$	290		$	766		$	794
Loss from discontinued operations, net of tax		(70	)		(32	)		(69	)		(42	)

Net income attributable to Dominion	$	202		$	258		$	697		$	752

Earnings Per Common Share-Basic
Income from continuing operations	$	0.47		$	0.51		$	1.33		$	1.39
Loss from discontinued operations		(0.12	)		(0.06	)		(0.12	)		(0.07	)

Net income attributable to Dominion	$	0.35		$	0.45		$	1.21		$	1.32

Earnings Per Common Share-Diluted
Income from continuing operations	$	0.47		$	0.51		$	1.33		$	1.38
Loss from discontinued operations		(0.12	)		(0.06	)		(0.12	)		(0.07	)

Net income attributable to Dominion	$	0.35		$	0.45		$	1.21		$	1.31

Dividends declared per common share	$	0.5625		$	0.5275		$	1.1250		$	1.0550

(1)	Recast to reflect Brayton Point and Kincaid as discontinued operations, as discussed in Note 3.

(2)	Includes income tax benefit of $49 million and $26 million for the three months ended June 30, 2013 and 2012, respectively, and $49 million and $36 million for the six months ended June 30, 2013 and 2012, respectively.

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

PAGE6

DOMINION RESOURCES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
(millions)
Net income including noncontrolling interests	$	208		$	265		$	710		$	766
Other comprehensive income (loss), net of taxes:
Net deferred gains on derivatives-hedging activities⁽¹⁾		122			2			32			130
Changes in unrealized net gains (losses) on investment securities⁽²⁾		3			(23	)		81			61
Changes in unrecognized pension and other postretirement benefit costs⁽³⁾		228			1			228			2
Amounts reclassified to net income:
Net derivative (gains) losses-hedging activities⁽⁴⁾		(17	)		(31	)		59			(47	)
Net realized gains on investment securities⁽⁵⁾		(9	)		(5	)		(36	)		(14	)
Net pension and other postretirement benefit costs⁽⁶⁾		10			12			30			23

Total other comprehensive income (loss)		337			(44	)		394			155

Comprehensive income including noncontrolling interests		545			221			1,104			921
Comprehensive income attributable to noncontrolling interests		6			7			13			14

Comprehensive income attributable to Dominion	$	539		$	214		$	1,091		$	907

(1)	Net of $(76) million and $(1) million tax for the three months ended June 30, 2013 and 2012, respectively, and net of $(22) million and $(81) million tax for the six months ended June 30, 2013 and 2012, respectively.

(2)	Net of $— million and $16 million tax for the three months ended June 30, 2013 and 2012, respectively, and net of $(51) million and $(41) million tax for the six months ended June 30, 2013 and 2012, respectively.

(3)	Net of $(148) million and $(1) million tax for the three months ended June 30, 2013 and 2012, respectively, and net of $(148) million and $(1) million tax for the six months ended June 30, 2013 and 2012, respectively.

(4)	Net of $9 million and $11 million tax for the three months ended June 30, 2013 and 2012, respectively, and net of $(39) million and $23 million tax for the six months ended June 30, 2013 and 2012, respectively

(5)	Net of $5 million and $3 million tax for the three months ended June 30, 2013 and 2012, respectively, and net of $23 million and $10 million tax for the six months ended June 30, 2013 and 2012, respectively.

(6)	Net of $(11) million and $(8) million tax for the three months ended June 30, 2013 and 2012, respectively, and net of $(20) million and $(17) million tax for the six months ended June 30, 2013 and 2012, respectively.

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

PAGE7

DOMINION RESOURCES, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	June 30, 2013			December 31, 2012⁽¹⁾
(millions)
ASSETS
Current Assets
Cash and cash equivalents	$	190		$	248
Customer receivables (less allowance for doubtful accounts of $26 and $28)		1,514			1,621
Other receivables (less allowance for doubtful accounts of $3 and $4)		133			96
Inventories		1,154			1,259
Derivative assets		1,040			518
Assets held for sale		347			—
Other		1,485			1,398

Total current assets		5,863			5,140

Investments
Nuclear decommissioning trust funds		3,551			3,330
Investment in equity method affiliates		560			558
Other		276			303

Total investments		4,387			4,191

Property, Plant and Equipment
Property, plant and equipment		44,610			43,364
Property, plant and equipment, VIE		957			957
Accumulated depreciation, depletion and amortization		(14,013	)		(13,548	)

Total property, plant and equipment, net		31,554			30,773

Deferred Charges and Other Assets
Goodwill		3,125			3,130
Regulatory assets		1,473			1,717
Other		2,024			1,887

Total deferred charges and other assets		6,622			6,734

Total assets	$	48,426		$	46,838

(1)	Dominion’s Consolidated Balance Sheet at December 31, 2012 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.

PAGE8

DOMINION RESOURCES, INC.

CONSOLIDATED BALANCE SHEETS—(Continued)

(Unaudited)


	June 30, 2013			December 31, 2012⁽¹⁾
(millions)
LIABILITIES AND EQUITY
Current Liabilities
Securities due within one year	$	1,090		$	1,363
Securities due within one year, VIE		844			860
Short-term debt		2,105			2,412
Accounts payable		909			1,137
Derivative liabilities		950			510
Liabilities held for sale		37			—
Other		1,442			1,481

Total current liabilities		7,377			7,763

Long-Term Debt
Long-term debt		15,592			15,478
Junior subordinated notes		1,373			1,373
Remarketable subordinated notes		1,078			—

Total long-term debt		18,043			16,851

Deferred Credits and Other Liabilities
Deferred income taxes and investment tax credits		6,525			5,800
Asset retirement obligations		1,592			1,641
Pension and other postretirement benefit liabilities		1,299			1,831
Regulatory liabilities		1,616			1,514
Other		657			556

Total deferred credits and other liabilities		11,689			11,342

Total liabilities		37,109			35,956

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

Equity
Common stock – no par⁽²⁾		5,650			5,493
Other paid-in capital		—			162
Retained earnings		5,836			5,790
Accumulated other comprehensive loss		(483	)		(877	)

Total common shareholders’ equity		11,003			10,568

Noncontrolling interest		57			57

Total equity		11,060			10,625

Total liabilities and equity	$	48,426		$	46,838

(1)	Dominion’s Consolidated Balance Sheet at December 31, 2012 has been derived from the audited Consolidated Financial Statements at that date.

(2)	1 billion shares authorized; 579 million shares and 576 million shares outstanding at June 30, 2013 and December 31, 2012, respectively.

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

PAGE9

DOMINION RESOURCES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


Six Months Ended June 30,	2013			2012
(millions)
Operating Activities
Net income including noncontrolling interests	$	710		$	766
Adjustments to reconcile net income including noncontrolling interests to net cash provided by operating activities:
Depreciation, depletion and amortization (including nuclear fuel)		729			704
Deferred income taxes and investment tax credits		395			444
Rate refunds		(5	)		(103	)
Other adjustments		(32	)		(68	)
Changes in:
Accounts receivable		92			363
Inventories		(10	)		75
Deferred fuel and purchased gas costs, net		48			312
Prepayments		(88	)		(70	)
Accounts payable		(149	)		(265	)
Accrued interest, payroll and taxes		(67	)		(76	)
Margin deposit assets and liabilities		21			177
Other operating assets and liabilities		147			139

Net cash provided by operating activities		1,791			2,398

Investing Activities
Plant construction and other property additions (including nuclear fuel)		(1,950	)		(1,960	)
Proceeds from sales of securities		862			764
Purchases of securities		(885	)		(763	)
Restricted cash equivalents		23			71
Other		65			24

Net cash used in investing activities		(1,885	)		(1,864	)

Financing Activities
Repayment of short-term debt, net		(307	)		(284	)
Issuance of long-term debt		2,350			450
Repayment of long-term debt, including redemption premiums		(1,185	)		(168	)
Repayment of junior subordinated notes		(258	)		—
Issuance of common stock		144			139
Common dividend payments		(650	)		(603	)
Subsidiary preferred dividend payments		(8	)		(8	)
Other		(50	)		—

Net cash provided by (used in) financing activities		36			(474	)

Increase (decrease) in cash and cash equivalents		(58	)		60
Cash and cash equivalents at beginning of period		248			102

Cash and cash equivalents at end of period	$	190		$	162

Supplemental Cash Flow Information
Significant noncash investing activities:
Accrued capital expenditures	$	172		$	262

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

PAGE10

VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
(millions)
Operating Revenue	$	1,710	$	1,756	$	3,491	$	3,510

Operating Expenses
Electric fuel and other energy-related purchases		528		602		1,098		1,216
Purchased electric capacity		88		97		176		210
Other operations and maintenance:
Affiliated suppliers		81		82		155		165
Other		274		360		519		583
Depreciation and amortization		211		188		418		376
Other taxes		65		66		132		131

Total operating expenses		1,247		1,395		2,498		2,681

Income from operations		463		361		993		829

Other income		27		17		52		40
Interest and related charges		84		100		177		200

Income before income tax expense		406		278		868		669
Income tax expense		141		106		316		254

Net Income		265		172		552		415
Preferred dividends		4		4		8		8

Balance available for common stock	$	261	$	168	$	544	$	407

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

PAGE11

VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended June 30,					Six Months Ended June 30,
	2013		2012			2013			2012
(millions)
Net income	$	265	$	172		$	552		$	415
Other comprehensive income (loss), net of taxes:
Net deferred gains (losses) on derivatives-hedging activities⁽¹⁾		1		(2	)		3			(3	)
Changes in unrealized net gains (losses) on nuclear decommissioning trust funds⁽²⁾		—		(2	)		8			6
Amounts reclassified to net income:
Net derivative losses-hedging activities⁽³⁾		—		1			—			2
Net realized gains on nuclear decommissioning trust funds⁽⁴⁾		—		(1	)		(1	)		(1	)

Other comprehensive income (loss)		1		(4	)		10			4

Comprehensive income	$	266	$	168		$	562		$	419

(1)	Net of $(1) million and $2 million tax for the three months ended June 30, 2013 and 2012, respectively, and net of $(2) million and $2 million tax for the six months ended June 30, 2013 and 2012, respectively.

(2)	Net of $— million and $1 million tax for the three months ended June 30, 2013 and 2012, respectively, and net of $(5) million and $(5) million tax for the six months ended June 30, 2013 and 2012, respectively.

(3)	Net of $— million and $— million tax for the three months ended June 30, 2013 and 2012, respectively, and net of $— million and $(1) million tax for the six months ended June 30, 2013 and 2012, respectively.

(4)	Net of $— million and $— million tax for the three months ended June 30, 2013 and 2012, respectively, and net of $1 million and $1 million tax for the six months ended June 30, 2013 and 2012, respectively.

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

PAGE12

VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	June 30, 2013			December 31, 2012⁽¹⁾
(millions)
ASSETS
Current Assets
Cash and cash equivalents	$	14		$	28
Customer receivables (less allowance for doubtful accounts of $10 at both dates)		897			849
Other receivables (less allowance for doubtful accounts of $2 and $3)		55			51
Inventories (average cost method)		793			789
Prepayments		70			23
Other		275			241

Total current assets		2,104			1,981

Investments
Nuclear decommissioning trust funds		1,612			1,515
Other		14			14

Total investments		1,626			1,529

Property, Plant and Equipment
Property, plant and equipment		31,684			30,631
Accumulated depreciation and amortization		(10,327	)		(10,014	)

Total property, plant and equipment, net		21,357			20,617

Deferred Charges and Other Assets
Intangible assets, net		184			181
Regulatory assets		405			396
Other		113			107

Total deferred charges and other assets		702			684

Total assets	$	25,789		$	24,811

(1)	Virginia Power’s Consolidated Balance Sheet at December 31, 2012 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.

PAGE13

VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED BALANCE SHEETS—(Continued)

(Unaudited)


	June 30, 2013		December 31, 2012⁽¹⁾
(millions)
LIABILITIES AND SHAREHOLDER’S EQUITY
Current Liabilities
Securities due within one year	$	58	$	418
Short-term debt		1,084		992
Accounts payable		361		430
Payables to affiliates		75		67
Affiliated current borrowings		50		435
Accrued interest, payroll and taxes		205		204
Other		403		461

Total current liabilities		2,236		3,007

Long-Term Debt		7,398		6,251

Deferred Credits and Other Liabilities
Deferred income taxes and investment tax credits		4,037		3,879
Asset retirement obligations		718		705
Regulatory liabilities		1,371		1,285
Other		253		194

Total deferred credits and other liabilities		6,379		6,063

Total liabilities		16,013		15,321

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		1,113		1,113
Retained earnings		2,633		2,357
Accumulated other comprehensive income		35		25

Total common shareholder’s equity		9,519		9,233

Total liabilities and shareholder’s equity	$	25,789	$	24,811

(1)	Virginia Power’s Consolidated Balance Sheet at December 31, 2012 has been derived from the audited Consolidated Financial Statements at that date.

(2)	500,000 shares authorized; 274,723 shares outstanding at June 30, 2013 and December 31, 2012.

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

PAGE14

VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


Six Months Ended June 30,	2013			2012
(millions)
Operating Activities
Net income	$	552		$	415
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization (including nuclear fuel)		499			444
Deferred income taxes and investment tax credits		199			188
Rate refunds		(5	)		(103	)
Other adjustments		(34	)		(36	)
Changes in:
Accounts receivable		(52	)		33
Affiliated accounts receivable and payable		8			11
Inventories		(4	)		41
Deferred fuel expenses		(4	)		293
Accounts payable		(30	)		(11	)
Accrued interest, payroll and taxes		1			(21	)
Other operating assets and liabilities		(15	)		97

Net cash provided by operating activities		1,115			1,351

Investing Activities
Plant construction and other property additions		(1,217	)		(956	)
Purchases of nuclear fuel		(90	)		(125	)
Purchases of securities		(354	)		(361	)
Proceeds from sales of securities		324			353
Other		—			5

Net cash used in investing activities		(1,337	)		(1,084	)

Financing Activities
Issuance (repayment) of short-term debt, net		92			(429	)
Repayment of affiliated current borrowings, net		(385	)		—
Issuance of long-term debt		1,250			450
Repayment of long-term debt		(459	)		(9	)
Common dividend payments		(268	)		(269	)
Preferred dividend payments		(8	)		(8	)
Other		(14	)		(4	)

Net cash provided by (used in) financing activities		208			(269	)

Decrease in cash and cash equivalents		(14	)		(2	)
Cash and cash equivalents at beginning of period		28			29

Cash and cash equivalents at end of period	$	14		$	27

Supplemental Cash Flow Information
Significant noncash investing activities:
Accrued capital expenditures	$	100		$	126

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

PAGE15

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, 2012 and their Quarterly Report on Form 10-Q for the quarter ended March 31, 2013.

In Dominion’s and Virginia Power’s opinion, the accompanying unaudited Consolidated Financial Statements contain all adjustments necessary to present fairly their financial position as of June 30, 2013, their results of operations for the three and six months ended June 30, 2013 and 2012 and their cash flows for the six months ended June 30, 2013 and 2012. 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 and those VIEs where Dominion has been determined to be the primary beneficiary.

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 2012 Consolidated Financial Statements and Notes have been reclassified to conform to the 2013 presentation for comparative purposes. The reclassifications did not affect the Companies’ net income, total assets, liabilities, equity or cash flows.

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

Note 3. Dispositions

Sale of Illinois Gas Contracts

In June 2013, Dominion completed the sale of Illinois Gas Contracts. The sales price was approximately $32 million, subject to post-closing adjustments. The sale resulted in a gain of approximately $29 million ($18 million after-tax) net of a $3 million write-off of goodwill, and is included in other operations and maintenance expense in Dominion’s Consolidated Statement of Income. The sale of Illinois Gas Contracts did not qualify for discontinued operations classification as it is not considered a component under applicable accounting guidance.

Sale of Brayton Point, Kincaid and Equity Method Investment in Elwood

In March 2013, Dominion entered into an agreement with Energy Capital Partners to sell Brayton Point, Kincaid, and its 50% interest in Elwood, which is an equity method investment.

PAGE16

Necessary approvals required to close the transaction have been received, with the exception of FERC approval. Dominion expects to receive FERC approval and close the transaction during the third quarter of 2013. The sales price is approximately $472 million, subject to customary closing adjustments. In the first quarter of 2013, Brayton Point’s and Kincaid’s assets and liabilities to be disposed of were classified as held for sale and adjusted to their estimated fair value less cost to sell, resulting in an impairment charge of $37 million ($22 million after-tax), which is included in discontinued operations in Dominion’s Consolidated Statements of Income. As of June 30, 2013, Dominion remeasured the fair value less costs to sell of the net assets held for sale, resulting in an additional impairment charge of $11 million ($6 million after-tax), which is included in discontinued operations in Dominion’s Consolidated Statements of Income. In both periods, Dominion used the market approach to estimate the fair value of Brayton Point’s and Kincaid’s long-lived assets. These were considered Level 2 fair value measurements given that they were based on the agreed-upon sales price. The carrying amounts of the major classes of assets and liabilities classified as held for sale in Dominion’s Consolidated Balance Sheet are as follows:


At June 30,	2013
(millions)
Assets
Current assets	$	140
Property, plant and equipment, net		192
Other assets		15

Total assets	$	347

Liabilities
Current liabilities	$	17
Asset retirement obligations		19
Other liabilities		1

Total liabilities	$	37

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
(millions)
Operating revenue	$	63		$	49		$	217		$	114
Loss before income taxes⁽¹⁾		(119	)		(26	)		(118	)		(48	)

(1)	2013 results include $64 million of charges related to the early redemption of Brayton Point and Kincaid debt. See Note 14 in this report for more information.

Dominion’s 50% interest in Elwood is an equity method investment and therefore, in accordance with applicable accounting guidance, the carrying amount of this investment is not classified as held for sale nor are the equity earnings from this investment reported as discontinued operations.

Sale of Salem Harbor and State Line

In August 2012, Dominion completed the sale of Salem Harbor. During the second quarter of 2012, Dominion completed the sale of State Line, which ceased operations in March 2012.

The following table presents selected information regarding the results of operations of Salem Harbor and State Line, which are classified in discontinued operations in Dominion’s Consolidated Statements of Income:


	Three Months Ended June 30, 2012			Six Months Ended June 30 2012,
(millions)
Operating revenue	$	22		$	52
Loss before income taxes		(32	)		(30	)

PAGE17

Note 4. Operating Revenue

The Companies’ operating revenue consists of the following:


	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
(millions)
Dominion
Electric sales:
Regulated	$	1,687	$	1,725	$	3,448	$	3,449
Nonregulated		545		626		1,203		1,269
Gas sales:
Regulated		49		33		181		132
Nonregulated		208		165		553		563
Gas transportation and storage		360		305		827		710
Other		131		151		291		279

Total operating revenue	$	2,980	$	3,005	$	6,503	$	6,402

Virginia Power
Regulated electric sales	$	1,687	$	1,725	$	3,448	$	3,449
Other		23		31		43		61

Total operating revenue	$	1,710	$	1,756	$	3,491	$	3,510

Note 5. Income Taxes

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


	Dominion						Virginia Power
Six Months Ended June 30,	2013			2012			2013			2012
U.S. statutory rate		35.0	%		35.0	%		35.0	%		35.0	%
Increases (reductions) resulting from:
State taxes, net of federal benefit		1.9			4.1			2.6			3.9
Investment and production tax credits		(1.5	)		(0.5	)		—			—
Valuation allowances		—			(1.8	)		—			—
AFUDC – equity		(0.8	)		(0.7	)		(1.4	)		(1.1	)
Other, net		(0.5	)		(1.1	)		0.2			0.1

Effective tax rate		34.1	%		35.0	%		36.4	%		37.9	%

Dominion’s and Virginia Power’s 2013 state income tax expense reflects changes in the amount of income apportioned among states.

Dominion’s effective tax rate in 2012 reflects a $22 million reduction of valuation allowance related to state operating loss carryforwards attributable to Fairless. After considering the results of Fairless’ operations in recent years and a forecast of future operating results reflecting Dominion’s planned purchase of the facility, Dominion concluded that it was more likely than not that the tax benefit of the operating losses would be realized. Significant assumptions included future commodity prices, in particular, those for electric energy produced by Fairless and those for natural gas, as compared to other fuels used for the generation of electricity, which would significantly influence the extent to which Fairless is dispatched by PJM.

PAGE18

See Note 5 to the Consolidated Financial Statements in Dominion’s and Virginia Power’s Annual Report on Form 10-K for the year ended December 31, 2012, for a discussion of the Companies’ unrecognized tax benefits. During the six months ended June 30, 2013, Dominion’s and Virginia Power’s unrecognized tax benefits changed as follows:


	Dominion			Virginia Power
(millions)
Balance at January 1, 2013	$	293		$	57
Increases – prior period positions		2			2
Decreases – prior period positions		(42	)		(14	)
Current period positions		15			5
Settlements		(2	)		(2	)
Expiration of statutes of limitations		(4	)		—

Balance at June 30, 2013	$	262		$	48

During the twelve-month period ending June 30, 2014, it is reasonably possible that settlements with and payments to tax authorities and the expiration of statutes of limitations could reduce unrecognized tax benefits for Dominion and Virginia Power by up to $65 million and $35 million, respectively. Otherwise, Dominion and Virginia Power cannot estimate the range of reasonably possible changes to unrecognized tax benefits that may occur.

Note 6. Earnings Per Share

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
(millions, except EPS)
Net income attributable to Dominion	$	202	$	258	$	697	$	752

Average shares of common stock outstanding – Basic		578.1		572.0		577.3		571.3
Net effect of dilutive securities⁽¹⁾		0.8		1.1		0.9		1.2

Average shares of common stock outstanding – Diluted		578.9		573.1		578.2		572.5

Earnings Per Common Share – Basic	$	0.35	$	0.45	$	1.21	$	1.32
Earnings Per Common Share – Diluted	$	0.35	$	0.45	$	1.21	$	1.31

(1)	Dilutive securities consist primarily of contingently convertible senior notes. See Note 14 in this report for more information.

Dominion’s 2013 Series A Equity Units and 2013 Series B Equity Units issued in June 2013 are potentially dilutive securities but were excluded from the calculation of diluted EPS for the three and six months ended June 30, 2013. See Note 14 in this report for more information. There were no potentially dilutive securities excluded from the calculation of diluted EPS for the three and six months ended June 30, 2012.

PAGE19

Note 7. Accumulated Other Comprehensive Income

The following table presents Dominion’s changes in AOCI by component, net of tax:


	Deferred gains and losses on derivatives- hedging activities			Unrealized gains and losses on investment securities			Unrecognized pension and other postretirement benefit costs			Total
(millions)
Three Months Ended June 30, 2013
Beginning balance	$	(136	)	$	377		$	(1,061	)	$	(820	)
Other comprehensive income before reclassifications: gains (losses)		122			3			228			353
Amounts reclassified from accumulated other comprehensive income⁽¹⁾: (gains) losses		(17	)		(9	)		10			(16	)

Net current-period other comprehensive income (loss)		105			(6	)		238			337

Ending balance	$	(31	)	$	371		$	(823	)	$	(483	)

Six Months Ended June 30, 2013
Beginning balance	$	(122	)	$	326		$	(1,081	)	$	(877	)
Other comprehensive income before reclassifications: gains (losses)		32			81			228			341
Amounts reclassified from accumulated other comprehensive income⁽¹⁾: (gains) losses		59			(36	)		30			53

Net current-period other comprehensive income (loss)		91			45			258			394

Ending balance	$	(31	)	$	371		$	(823	)	$	(483	)

(1)	See table below for details about these reclassifications.

PAGE20

The following table presents Dominion’s reclassifications out of AOCI by component:


Details about AOCI components	Amounts reclassified from AOCI			Affected line item in the Consolidated Statements of Income
(millions)
Three Months Ended June 30, 2013
Deferred (gains) and losses on derivatives-hedging activities:
Commodity contracts	$	(29	)	Operating revenue
Interest rate contracts		3		Interest and related charges

		(26	)
Tax		9		Income tax expense

	$	(17	)

Unrealized (gains) and losses on investment securities:
Realized (gain) loss on sale of securities	$	(17	)	Other income
Impairment		3		Other income

		(14	)
Tax		5		Income tax expense

	$	(9	)

Unrecognized pension and other postretirement benefit costs:
Prior service costs	$	(6	)	Other operations and maintenance
Actuarial losses		27		Other operations and maintenance

		21
Tax		(11	)	Income tax expense

	$	10

Six Months Ended June 30, 2013
Deferred (gains) and losses on derivatives-hedging activities:
Commodity contracts	$	55		Operating revenue
		34		Purchased gas
		3		Electric fuel and other energy-related purchases
Interest rate contracts		6		Interest and related charges

		98
Tax		(39	)	Income tax expense

	$	59

Unrealized (gains) and losses on investment securities:
Realized (gain) loss on sale of securities	$	(64	)	Other income
Impairment		5		Other income

		(59	)
Tax		23		Income tax expense

	$	(36	)

Unrecognized pension and other postretirement benefit costs:
Prior service costs	$	(6	)	Other operations and maintenance
Actuarial losses		56		Other operations and maintenance

		50
Tax		(20	)	Income tax expense

	$	30

PAGE21

Note 8. Fair Value Measurements

Dominion’s and Virginia Power’s fair value measurements are made in accordance with the policies discussed in Note 6 to the Consolidated Financial Statements in their Annual Report on Form 10-K for the year ended December 31, 2012. See Note 9 in this report for further information about their derivatives and hedge accounting activities.

Dominion and Virginia Power enter into certain physical and financial forwards and futures, options, and full requirements contracts, which are considered Level 3 as they have one or more inputs that are not observable and are significant to the valuation. The discounted cash flow method is used to value Level 3 physical and financial forwards, futures, and full requirements contracts. An option model is used to value Level 3 physical and financial options. The discounted cash flow model for forwards and futures calculates mark-to-market valuations based on forward market prices, original transaction prices, volumes, risk-free rate of return, and credit spreads. Full requirements contracts add load shaping and usage factors in addition to the discounted cash flow model inputs. The option model calculates mark-to-market valuations using variations of the Black-Scholes option model. The inputs into the models are the forward market prices, implied price volatilities, mean reversions, risk-free rate of return, the option expiration dates, the option strike prices, price correlations, the original sales prices, and volumes. For Level 3 fair value measurements, forward market prices, implied price volatilities, price correlations, load shaping, and usage factors are considered unobservable. The unobservable inputs are developed and substantiated using historical information, available market data, third-party data, and statistical analysis. Periodically, inputs to valuation models are reviewed and revised as needed, based on historical information, updated market data, market liquidity and relationships, and changes in third-party pricing sources.

The following table presents Dominion’s and Virginia Power’s quantitative information about Level 3 fair value measurements. The range and weighted average are presented in dollars for market price inputs and percentages for price volatility, price correlations, load shaping, and usage factors.


	Fair Value (millions)		Valuation Techniques	Unobservable Input	Range			Weighted Average⁽¹⁾

At June 30, 2013
Assets:
Physical and Financial Forwards and Futures:
Natural Gas⁽²⁾	$	19	Discounted Cash Flow	Market Price (per Dth)⁽⁴⁾		(1) - 5			2
Electricity		1	Discounted Cash Flow	Market Price (per MWh)⁽⁴⁾		26 - 109⁽¹⁰⁾			44
FTRs⁽³⁾		1	Discounted Cash Flow	Market Price (per MWh)⁽⁴⁾		(2) - 5			0
Liquids		40	Discounted Cash Flow	Market Price (per Gal)⁽⁴⁾		0 - 2			1
Physical and Financial Options:
Natural Gas		5	Option Model	Market Price (per Dth)⁽⁴⁾		3 - 5			4
				Price Volatility⁽⁵⁾		20% - 32%			22	%
				Price Correlation⁽⁶⁾		(9)% - 100%			36	%
				Mean Reversion⁽⁷⁾		0 - 58			4

Full Requirements Contracts:
Electricity		10	Discounted Cash Flow	Market Price (per MWh)⁽⁴⁾		11 -495⁽¹⁰⁾			42
				Load Shaping⁽⁸⁾		0% - 10%			3	%
				Usage Factor⁽⁹⁾		2% - 9%			7	%

Total assets	$	76

Liabilities:
Physical and Financial Forwards and Futures:
Natural Gas⁽²⁾	$	29	Discounted Cash Flow	Market Price (per Dth)⁽⁴⁾		(1) - 6			1
Electricity		2	Discounted Cash Flow	Market Price (per MWh)⁽⁴⁾		21 -112	⁽¹⁰⁾		42
FTRs⁽³⁾		26	Discounted Cash Flow	Market Price (per MWh)⁽⁴⁾		(2) - 18			1
Liquids		8	Discounted Cash Flow	Market Price (per Gal)⁽⁴⁾		0 - 2			2
Physical and Financial Options:
Natural Gas		9	Option Model	Market Price (per Dth)⁽⁴⁾		3 - 9			5
				Price Volatility⁽⁵⁾		19% -32%			25	%
				Price Correlation⁽⁶⁾		(9)% - 100%			36	%
				Mean Reversion⁽⁷⁾		0 - 58			4

Total liabilities	$	74

PAGE22

(1)	Averages weighted by volume.

(2)	Includes basis.

(3)	Information represents Virginia Power’s quantitative information about Level 3 fair value measurements.

(4)	Represents market prices beyond defined terms for Levels 1 & 2.

(5)	Represents volatilities unrepresented in published markets.

(6)	Represents intra-price correlations for which markets do not exist.

(7)	Represents mean-reverting property in price simulation modeling.

(8)	Converts block monthly loads to 24-hour load shapes.

(9)	Represents expected increase (decrease) in sales volumes compared to historical usage.

(10)	The range in market prices is the result of large variability in hourly power prices during peak and off-peak hours.

Sensitivity of the fair value measurements to changes in the significant unobservable inputs is as follows:


Significant Unobservable Inputs	Position	Change to Input	Impact on Fair Value Measurement
Market Price	Buy	Increase (decrease)	Gain (loss)
Market Price	Sell	Increase (decrease)	Loss (gain)
Price Volatility	Buy	Increase (decrease)	Gain (loss)
Price Volatility	Sell	Increase (decrease)	Loss (gain)
Price Correlation	Buy	Increase (decrease)	Loss (gain)
Price Correlation	Sell	Increase (decrease)	Gain (loss)
Mean Reversion	Buy	Increase (decrease)	Loss (gain)
Mean Reversion	Sell	Increase (decrease)	Gain (loss)
Load Shaping	Sell⁽¹⁾	Increase (decrease)	Loss (gain)
Usage Factor	Sell⁽²⁾	Increase (decrease)	Gain (loss)

(1)	Assumes the contract is in a gain position and load increases during peak hours.

(2)	Assumes the contract is in a gain position.

Non-recurring Fair Value Measurements

In June 2013, Dominion purchased certain natural gas infrastructure facilities that were previously leased from third parties. The purchase price was based on terms in the lease, which exceeded current market pricing. As a result of the purchase price and expected losses, Dominion recorded an impairment charge of $49 million ($29 million after-tax) in other operations and maintenance expense in its Consolidated Statements of Income, to write down the long-lived assets to their estimated fair values 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 the assets in this impairment test. This was considered a Level 3 fair value measurement due to the use of significant unobservable inputs, including estimates of future production and other commodity prices.

See Note 3 for non-recurring fair value measurements related to Brayton Point and Kincaid.

PAGE23

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 June 30, 2013
Assets:
Derivatives:
Commodity	$	16	$	1,103	$	76	$	1,195
Interest rate		—		136		—		136
Investments⁽¹⁾:
Equity securities:
U.S.:
Large cap		2,111		—		—		2,111
Other		70		—		—		70
Non-U.S.:
Large cap		13		—		—		13
Fixed income:
Corporate debt instruments		—		372		—		372
U.S. Treasury securities and agency debentures		418		174		—		592
State and municipal		—		311		—		311
Other		—		4		—		4
Cash equivalents and other		4		71		—		75
Restricted cash equivalents		—		10		—		10

Total assets	$	2,632	$	2,181	$	76	$	4,889

Liabilities:
Derivatives:
Commodity	$	13	$	1,012	$	74	$	1,099
Interest rate		—		1		—		1

Total liabilities	$	13	$	1,013	$	74	$	1,100

At December 31, 2012
Assets:
Derivatives:
Commodity	$	12	$	639	$	84	$	735
Interest rate		—		93		—		93
Investments⁽¹⁾:
Equity securities:
U.S.:
Large cap		1,973		—		—		1,973
Other		59		—		—		59
Non-U.S.:
Large cap		12		—		—		12
Fixed income:
Corporate debt instruments		—		325		—		325
U.S. Treasury securities and agency debentures		391		152		—		543
State and municipal		—		315		—		315
Other		—		7		—		7
Cash equivalents and other		13		67		—		80
Restricted cash equivalents		—		33		—		33

Total assets	$	2,460	$	1,631	$	84	$	4,175

Liabilities:
Derivatives:
Commodity	$	8	$	528	$	59	$	595
Interest rate		—		66		—		66

Total liabilities	$	8	$	594	$	59	$	661

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

PAGE24

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
(millions)
Beginning balance	$	9		$	(61	)	$	25		$	(71	)
Total realized and unrealized gains (losses):
Included in earnings		(10	)		12			2			(23	)
Included in other comprehensive income (loss)		26			166			36			171
Included in regulatory assets/liabilities		(22	)		18			(27	)		29
Settlements		(1	)		21			(26	)		51
Transfers out of Level 3		—			(1	)		(8	)		(2	)

Ending balance	$	2		$	155		$	2		$	155

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	)	$	33		$	(11	)	$	33

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


	Operating revenue			Electric fuel and other energy-related purchases			Total
(millions)
Three Months Ended June 30, 2013
Total gains (losses) included in earnings	$	(2	)	$	(8	)	$	(10	)
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		(2	)		(2	)		(4	)

Three Months Ended June 30, 2012
Total gains (losses) included in earnings	$	32		$	(20	)	$	12
The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets/liabilities still held at the reporting date		33			—			33

Six Months Ended June 30, 2013
Total gains (losses) included in earnings	$	7		$	(5	)	$	2
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		(10	)		(1	)		(11	)

Six Months Ended June 30, 2012
Total gains (losses) included in earnings	$	23		$	(46	)	$	(23	)
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		33			—			33

PAGE25

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 June 30, 2013
Assets:
Derivatives:
Commodity	$	—	$	—	$	1	$	1
Interest rate		—		43		—		43
Investments⁽¹⁾:
Equity securities:
U.S.:
Large cap		889		—		—		889
Other		30		—		—		30
Fixed income:
Corporate debt instruments		—		221		—		221
U.S. Treasury securities and agency debentures		153		66		—		219
State and municipal		—		122		—		122
Other		—		1		—		1
Cash equivalents and other		—		29		—		29
Restricted cash equivalents		—		10		—		10

Total assets	$	1,072	$	492	$	1	$	1,565

Liabilities:
Derivatives:
Commodity	$	—	$	6	$	26	$	32
Interest rate		—		1		—		1

Total liabilities	$	—	$	7	$	26	$	33

At December 31, 2012
Assets:
Derivatives:
Commodity	$	—	$	1	$	5	$	6
Investments⁽¹⁾:
Equity securities:
U.S.:
Large cap		779		—		—		779
Other		27		—		—		27
Fixed income:
Corporate debt instruments		—		196		—		196
U.S. Treasury securities and agency debentures		168		66		—		234
State and municipal		—		118		—		118
Other		—		1		—		1
Cash equivalents and other		7		31		—		38
Restricted cash equivalents		—		10		—		10

Total assets	$	981	$	423	$	5	$	1,409

Liabilities:
Derivatives:
Commodity	$	—	$	6	$	3	$	9
Interest rate		—		25		—		25

Total liabilities	$	—	$	31	$	3	$	34

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

PAGE26

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
(millions)
Beginning balance	$	(3	)	$	(17	)	$	2		$	(28	)
Total realized and unrealized gains (losses):
Included in earnings		(7	)		(19	)		(4	)		(46	)
Included in regulatory assets/liabilities		(22	)		18			(27	)		29
Settlements		7			19			4			46

Ending balance	$	(25	)	$	1		$	(25	)	$	1

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 six months ended June 30, 2013 and 2012. There were no unrealized gains or losses included in earnings in the Level 3 fair value category relating to assets/liabilities still held at the reporting date for the three and six months ended June 30, 2013 and 2012.

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


	June 30, 2013				December 31, 2012
	Carrying Amount		Estimated Fair Value⁽¹⁾		Carrying Amount		Estimated Fair Value⁽¹⁾
(millions)
Dominion
Long-term debt, including securities due within one year⁽²⁾	$	16,682	$	18,569	$	16,841	$	19,898
Securities due within one year, VIE⁽³⁾		844		855		860		864
Junior subordinated notes⁽³⁾		1,373		1,418		1,373		1,430
Remarketable subordinated notes⁽³⁾		1,078		1,103		—		—
Subsidiary preferred stock⁽⁴⁾		257		256		257		255

Virginia Power
Long-term debt, including securities due within one year⁽²⁾	$	7,456	$	8,494	$	6,669	$	8,270
Preferred stock⁽⁴⁾		257		256		257		255

(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. All fair value measurements are classified as Level 2. The carrying amount of debt issues with short-term maturities and variable rates refinanced at current market rates is a reasonable estimate of their fair value.

(2)	Includes amounts which represent the unamortized discount and premium. At June 30, 2013 and December 31, 2012, includes the valuation of certain fair value hedges associated with Dominion’s fixed rate debt of approximately $69 million and $93 million, respectively.

(3)	Includes amounts which represent the unamortized discount or premium.

(4)	Includes deferred issuance expenses of $2 million at June 30, 2013 and December 31, 2012.

Note 9. 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, 2012. See Note 8 in this report for further information about fair value measurements and associated valuation methods for derivatives.

PAGE27

Derivative assets and liabilities are presented gross on Dominion’s and Virginia Power’s Consolidated Balance Sheets. Dominion’s and Virginia Power’s derivative contracts include both over-the-counter transactions and those that are executed on an exchange or other trading platform (exchange contracts) and centrally cleared. Over-the-counter contracts are bilateral contracts that are transacted directly with a third party. Exchange contracts utilize a financial intermediary, exchange, or clearinghouse to enter, execute, or clear the transactions. Certain over-the-counter and exchange contracts contain contractual rights of setoff through master netting arrangements, derivative clearing agreements, and contract default provisions. In addition, the contracts are subject to conditional rights of setoff through counterparty nonperformance, insolvency, or other conditions.

In general, most over-the-counter transactions and all exchange contracts are subject to collateral requirements. Types of collateral for over-the-counter and exchange contracts include cash, letters of credit, and in some cases other forms of security, none of which are subject to restrictions. Cash collateral is used in the table below to offset derivative assets and liabilities. Certain accounts receivable and accounts payable recognized on Dominion’s and Virginia Power’s Consolidated Balance Sheets, as well as letters of credit and other forms of security, all of which are not included in the tables below, are subject to offset under master netting or similar arrangements and would reduce the net exposure.

Dominion

The tables below present Dominion’s derivative asset and liability balances by type of financial instrument, before and after the effects of offsetting:


	June 30, 2013						December 31, 2012
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheet		Net Amounts of Assets Presented in the Consolidated Balance Sheet		Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheet		Net Amounts of Assets Presented in the Consolidated Balance Sheet
(millions)
Interest rate contracts:
Over-the-counter	$	136	$	—	$	136	$	93	$	—	$	93
Commodity contracts:
Over-the-counter		286		—		286		290		—		290
Exchange		898		—		898		416		—		416

Total derivatives, subject to a master netting or similar arrangement		1,320		—		1,320		799		—		799
Total derivatives, not subject to a master netting or similar arrangement		11		—		11		29		—		29

Total⁽¹⁾	$	1,331	$	—	$	1,331	$	828	$	—	$	828

(1)

At June 30, 2013, the total derivative asset balance contains $1,046 million of current assets, $1,040 million and $6 million of which is presented in current derivative assets and assets held for sale, respectively, in Dominion’s Consolidated Balance Sheet, and $285 million of noncurrent assets, which is presented in other deferred charges and other assets in Dominion’s Consolidated Balance Sheet. At December 31, 2012, the total derivative asset balance contains $518 million of current assets, which is presented in current derivative assets in Dominion’s Consolidated Balance Sheet and $310 million of noncurrent assets, which is presented in other deferred charges and other assets in Dominion’s Consolidated Balance Sheet.

PAGE28


			June 30, 2013								December 31, 2012
			Gross Amounts Not Offset in the Consolidated Balance Sheet								Gross Amounts Not Offset in the Consolidated Balance Sheet
	Net Amounts of Assets Presented in the Consolidated Balance Sheet		Financial Instruments		Cash Collateral Received		Net Amounts		Net Amounts of Assets Presented in the Consolidated Balance Sheet		Financial Instruments		Cash Collateral Received		Net Amounts
(millions)
Interest rate contracts:
Over-the-counter	$	136	$	1	$	—	$	135	$	93	$	19	$	—	$	74
Commodity contracts:
Over-the-counter		286		97		—		189		290		97		—		193
Exchange		898		855		2		41		416		350		4		62

Total	$	1,320	$	953	$	2	$	365	$	799	$	466	$	4	$	329


	June 30, 2013						December 31, 2012
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheet		Net Amounts of Liabilities Presented in the Consolidated Balance Sheet		Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheet		Net Amounts of Liabilities Presented in the Consolidated Balance Sheet
(millions)
Interest rate contracts:
Over-the-counter	$	1	$	—	$	1	$	66	$	—	$	66
Commodity contracts:
Over-the-counter		179		—		179		191		—		191
Exchange		912		—		912		393		—		393

Total derivatives, subject to a master netting or similar arrangement		1,092		—		1,092		650		—		650
Total derivatives, not subject to a master netting or similar arrangement		8		—		8		11		—		11

Total⁽¹⁾	$	1,100	$	—	$	1,100	$	661	$	—	$	661

(1)

At June 30, 2013, the total derivative liability balance contains $950 million of current liabilities, which is presented in current derivative liabilities in Dominion’s Consolidated Balance Sheet, and $150 million of noncurrent liabilities, which is presented in the other deferred credits and other liabilities in Dominion’s Consolidated Balance Sheet. At December 31, 2012, the total derivative liability balance contains $510 million of current liabilities, which is presented in current derivative liabilities in Dominion’s Consolidated Balance Sheet and $151 million of noncurrent derivative liabilities, which is presented in other deferred credits and other liabilities in Dominion’s Consolidated Balance Sheet.

PAGE29


			June 30, 2013								December 31, 2012
			Gross Amounts Not Offset in the Consolidated Balance Sheet								Gross Amounts Not Offset in the Consolidated Balance Sheet
	Net Amounts of Liabilities Presented in the Consolidated Balance Sheet		Financial Instruments		Cash Collateral Paid		Net Amounts		Net Amounts of Liabilities Presented in the Consolidated Balance Sheet		Financial Instruments		Cash Collateral Paid		Net Amounts
(millions)
Interest rate contracts:
Over-the-counter	$	1	$	1	$	—	$	—	$	66	$	19	$	—	$	47
Commodity contracts:
Over-the-counter		179		97		23		59		191		97		20		74
Exchange		912		855		57		—		393		350		43		—

Total	$	1,092	$	953	$	80	$	59	$	650	$	466	$	63	$	121

The following table presents the volume of Dominion’s derivative activity as of June 30, 2013. 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 transactions, 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⁾		222		38
Basis		723		459
Electricity (MWh):
Fixed price⁽¹⁾		20,165,120		14,488,783
FTRs		91,445,833		459,947
Capacity (MW)		217,575		48,886
Liquids (Gal)⁽²⁾		158,508,000		72,912,000
Interest rate	$	1,750,000,000	$	1,350,000,000

(1)	Includes options.

(2)	Includes NGLs and oil.

For the three and six months ended June 30, 2013 and 2012, gains or losses on hedging instruments determined to be ineffective and amounts excluded from the assessment of effectiveness 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.

The following table presents selected information related to gains (losses) on cash flow hedges included in AOCI in Dominion’s Consolidated Balance Sheet at June 30, 2013:


	AOCI After-Tax			Amounts Expected to be Reclassified to Earnings during the next 12 Months After-Tax			Maximum Term
(millions)
Commodities:
Gas	$	(7	)	$	(5	)		31 months
Electricity		69			19			30 months
Other		20			13			35 months
Interest rate		(113	)		(22	)		355 months

Total	$	(31	)	$	5

PAGE30

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.

PAGE31

Fair Value and Gains and Losses on Derivative Instruments

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

Fair Value –
Derivatives under
Hedge
Accounting

Fair Value –
Derivatives not under
Hedge
Accounting

Total Fair Value

(millions)

June 30, 2013

ASSETS

Current Assets

Commodity

117

832

949

Interest rate

—

Total current derivative assets⁽¹⁾

214

832

1,046

Noncurrent Assets

Commodity

120

126

246

Interest rate

—

Total noncurrent derivative assets⁽²⁾

159

126

285

Total derivative assets

373

958

1,331

LIABILITIES

Current Liabilities

Commodity

873

949

Interest rate

—

Total current derivative liabilities

873

950

Noncurrent Liabilities

Commodity

114

150

Total noncurrent derivative liabilities⁽³⁾

114

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company