Edgar Filing: DOMINION RESOURCES INC /VA/

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

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, 2016

¨	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
000-55337	VIRGINIA ELECTRIC AND POWER COMPANY	54-0418825
001-37591	DOMINION GAS HOLDINGS, LLC	46-3639580

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 ¨

Dominion Gas Holdings, LLC 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 ¨

Dominion Gas Holdings, LLC 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

Dominion Gas Holdings, LLC

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

Dominion Gas Holdings, LLC Yes ¨ No x

At July 15, 2016, the latest practicable date for determination, Dominion Resources, Inc. had 625,763,030 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. Dominion Resources, Inc. holds all of the membership interests of Dominion Gas Holdings, LLC.

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

VIRGINIA ELECTRIC AND POWER COMPANY AND DOMINION GAS HOLDINGS, LLC MEET THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q AND ARE FILING THIS FORM 10-Q UNDER THE REDUCED DISCLOSURE FORMAT.

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		79
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		93
Item 4.	Controls and Procedures		95

	PART II. Other Information
Item 1.	Legal Proceedings		96
Item 1A.	Risk Factors		96
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		96
Item 6.	Exhibits		97

GLOSSARY OF TERMS

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


Abbreviation or Acronym		Definition

2013 Equity Units		Dominion’s 2013 Series A Equity Units and 2013 Series B Equity Units issued in June 2013

2014 Equity Units		Dominion’s 2014 Series A Equity Units issued in July 2014

AFUDC		Allowance for funds used during construction

AMR		Automated meter reading program deployed by East Ohio

AOCI		Accumulated other comprehensive income (loss)

APCo		Appalachian Power Company

AROs		Asset retirement obligations

ARP		Acid Rain Program, a market-based initiative for emissions allowance trading, established pursuant to Title IV of the CAA

Atlantic Coast Pipeline		Atlantic Coast Pipeline, LLC, a limited liability company owned by Dominion, Duke Energy Corporation, Piedmont Natural Gas Company, Inc. and AGL Resources Inc.

BACT		Best available control technology

bcf		Billion cubic feet

Bear Garden		A 590 MW combined cycle, natural gas-fired power station in Buckingham County, Virginia

Blue Racer		Blue Racer Midstream, LLC, a joint venture between Dominion and Caiman Energy II, LLC

BREDL		Blue Ridge Environmental Defense League

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

CAA		Clean Air Act

CAIR		Clean Air Interstate Rule

CAISO		California Independent System Operator

CCR		Coal combustion residual

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

Columbia to Eastover Project		Project to provide 15,800 Dths/day of firm transportation service from an existing interconnect with Southern Natural Gas Company, LLC in Aiken County, South Carolina and provide for a receipt point change of 2,200 Dths/day under an existing contract from an existing interconnect with Transco in Cherokee County, South Carolina for a total 18,000 Dths/day, to a new delivery point for the International Paper Company at its pulp and paper mill known as the Eastover Plant in Richland County, South Carolina

Companies		Dominion, Virginia Power and Dominion Gas, 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

CPCN		Certificate of Public Convenience and Necessity

CSAPR		Cross State Air Pollution Rule

CWA		Clean Water Act

DCG		Dominion Carolina Gas Transmission, LLC (successor by statutory conversion to and formerly known as Carolina Gas Transmission Corporation)

DEI		Dominion Energy, Inc.

Dominion		The legal entity, Dominion Resources, Inc., one or more of its consolidated subsidiaries (other than Virginia Power and Dominion Gas) or operating segments or the entirety of Dominion Resources, Inc. and its consolidated subsidiaries

Dominion Gas		The legal entity, Dominion Gas Holdings, LLC, one or more of its consolidated subsidiaries or operating segment, or the entirety of Dominion Gas Holdings, LLC and its consolidated subsidiaries

Dominion Iroquois		Dominion Iroquois, Inc., which, as of May 2016, holds a 24.07% noncontrolling partnership interest in Iroquois

Dominion Midstream		The legal entity, Dominion Midstream Partners, LP, one or more of its consolidated subsidiaries, Cove Point Holdings, Iroquois GP Holding Company, LLC and DCG (beginning April 1, 2015), or the entirety of Dominion Midstream Partners, LP, and its consolidated subsidiaries

DRS		Dominion Resources Services, Inc.


Abbreviation or Acronym		Definition

Dth		Dekatherm

DTI		Dominion Transmission, Inc.

DVP		Dominion Virginia Power operating segment

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

EPA		Environmental Protection Agency

EPS		Earnings per share

FERC		Federal Energy Regulatory Commission

Four Brothers		Four Brothers Solar, LLC, a limited liability company owned by Dominion and Four Brothers Holdings, LLC, a wholly-owned subsidiary of SunEdison

Fowler Ridge		A wind-turbine facility joint venture between Dominion and BP Wind Energy North America Inc. in Benton County, Indiana

FTRs		Financial transmission rights

GAAP		United States generally accepted accounting principles

Gal		Gallon

GHG		Greenhouse gas

Granite Mountain		Granite Mountain Holdings, LLC, a limited liability company owned by Dominion and Granite Mountain Renewables, LLC, a wholly-owned subsidiary of SunEdison

Greensville County		An approximately 1,588 MW proposed natural gas-fired combined-cycle power station under construction in Greensville County, Virginia

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

Hope		Hope Gas, Inc., doing business as Dominion Hope

Iron Springs		Iron Springs Holdings, LLC, a limited liability company owned by Dominion and Iron Springs Renewables, LLC, a wholly-owned subsidiary of SunEdison

Iroquois		Iroquois Gas Transmission System, L.P.

ISO-NE		Independent System Operator New England

July 2016 hybrids		2016 Series A Enhanced Junior Subordinated Notes due 2076

June 2006 hybrids		2006 Series A Enhanced Junior Subordinated Notes due 2066

kV		Kilovolt

Liquefaction Project		A natural gas export/liquefaction facility currently under construction by Cove Point

LNG		Liquefied natural gas

MATS		Utility Mercury and Air Toxics Standard Rule

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

MGD		Million gallons a day

MISO		Midcontinent Independent Transmission System Operator, Inc.

MW		Megawatt

MWh		Megawatt hour

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

NGLs		Natural gas liquids

NO_x		Nitrogen oxide

NRC		Nuclear Regulatory Commission

NSPS		New Source Performance Standards

Ohio Commission		Public Utilities Commission of Ohio

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

PIPP		Percentage of Income Payment Plan deployed by East Ohio

PIR		Pipeline Infrastructure Replacement program deployed by East Ohio

PJM		PJM Interconnection, L.L.C.

ppb		Parts-per-billion

PREP		Pipeline Replacement and Expansion Program, a program of replacing, upgrading and expanding natural gas utility infrastructure to be deployed by Hope

PSD		Prevention of Significant Deterioration


Abbreviation or Acronym		Definition

Questar		The legal entity, Questar Corporation, one or more of its consolidated subsidiaries, or operating segments, or the entirety of Questar Corporation and its consolidated subsidiaries

Questar Combination		Agreement and plan of merger entered on January 31, 2016 between Dominion and Questar in which Questar will become a wholly-owned subsidiary of Dominion upon closing

REIT		Real estate investment trust

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 GV		A rate adjustment clause associated with the recovery of costs related to Greensville County

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 T1		A rate adjustment clause to recover the difference between revenues produced from transmission rates included in base rates, and the new total revenue requirement developed annually for the rate years effective September 1

Rider US-2		A rate adjustment clause associated with the recovery of costs related to Woodland, Scott Solar and Whitehouse

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

ROE		Return on equity

RSN		Remarketable subordinated note

Scott Solar		An approximately 17 MW proposed utility-scale solar power station in Powhatan County, Virginia

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 McGraw Hill Financial, Inc.

SunEdison		The legal entity, SunEdison, Inc., one or more of its consolidated subsidiaries (including Four Brothers Holdings, LLC, Granite Mountain Renewables, LLC and Iron Springs Renewables, LLC) or operating segments, or the entirety of SunEdison, Inc. and its consolidated subsidiaries

Terra Nova Renewable Partners		A partnership between SunEdison and institutional investors advised by J.P. Morgan Asset Management-Global Real Assets

Three Cedars		Granite Mountain and Iron Springs, collectively

TransCanada		The legal entity, TransCanada Corporation, one or more of its consolidated subsidiaries, or operating segments, or the entirety of TransCanada Corporation and its consolidated subsidiaries

UAO		Unilateral Administrative Order

UEX Rider		Uncollectible Expense Rider deployed by East Ohio

VDEQ		Virginia Department of Environmental Quality

VEBA		Voluntary Employees’ Beneficiary Association

VIE		Variable interest entity

Virginia City Hybrid Energy Center		A 610 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

VOC		Volatile organic compounds

Warren County		A 1,342 MW combined-cycle, natural gas-fired power station in Warren County, Virginia

Whitehouse		An approximately 20 MW proposed utility-scale solar power station in Louisa County, Virginia

Woodland		An approximately 19 MW proposed utility-scale solar power station in Isle of Wight County, Virginia

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,
	2016		2015		2016		2015
(millions, except per share amounts)
Operating Revenue	$	2,598	$	2,747	$	5,519	$	6,156

Operating Expenses
Electric fuel and other energy-related purchases		551		591		1,185		1,544
Purchased electric capacity		45		90		113		184
Purchased gas		56		111		175		361
Other operations and maintenance		665		709		1,368		1,311
Depreciation, depletion and amortization		361		339		712		682
Other taxes		139		134		303		299

Total operating expenses		1,817		1,974		3,856		4,381

Income from operations		781		773		1,663		1,775

Other income		72		56		126		116
Interest and related charges		239		221		465		444

Income from operations including noncontrolling interests before income tax expense		614		608		1,324		1,447
Income tax expense		152		190		331		489

Net Income Including Noncontrolling Interests		462		418		993		958
Noncontrolling Interests		10		5		17		9

Net Income Attributable to Dominion	$	452	$	413	$	976	$	949

Earnings Per Common Share
Net income attributable to Dominion - Basic	$	0.73	$	0.70	$	1.61	$	1.61
Net income attributable to Dominion - Diluted		0.73		0.70		1.61		1.60

Dividends Declared Per Common Share	$	0.7000	$	0.6475	$	1.4000	$	1.2950

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

DOMINION RESOURCES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
(millions)
Net income including noncontrolling interests	$	462		$	418		$	993		$	958
Other comprehensive income (loss), net of taxes:
Net deferred gains (losses) on derivatives-hedging activities⁽¹⁾		(11	)		92			42			34
Changes in unrealized net gains (losses) on investment securities⁽²⁾		26			(11	)		41			4
Changes in unrecognized pension and other postretirement benefit costs⁽³⁾		—			3			—			3
Amounts reclassified to net income:
Net derivative gains-hedging activities⁽⁴⁾		(44	)		(61	)		(107	)		(2	)
Net realized gains on investment securities⁽⁵⁾		(8	)		(12	)		(10	)		(33	)
Net pension and other postretirement benefit costs⁽⁶⁾		8			12			16			25
Changes in other comprehensive loss from equity method investees⁽⁷⁾		(1	)		—			(1	)		(1	)

Total other comprehensive income (loss)		(30	)		23			(19	)		30

Comprehensive income including noncontrolling interests		432			441			974			988
Comprehensive income attributable to noncontrolling interests		10			5			17			9

Comprehensive income attributable to Dominion	$	422		$	436		$	957		$	979

(1)	Net of $7 million and $(59) million tax for the three months ended June 30, 2016 and 2015, respectively, and net of $(26) million and $(19) million tax for the six months ended June 30, 2016 and 2015, respectively.

(2)	Net of $(15) million and $6 million tax for the three months ended June 30, 2016 and 2015, respectively, and net of $(25) million and $(5) million tax for the six months ended June 30, 2016 and 2015, respectively.

(3)	Net of $— million and $3 million tax for the three months ended June 30, 2016 and 2015, respectively, and net of $—- million and $3 million tax for the six months ended June 30, 2016 and 2015, respectively.

(4)	Net of $28 million and $41 million tax for the three months ended June 30, 2016 and 2015, respectively, and net of $67 million and $2 million tax for the six months ended June 30, 2016 and 2015, respectively.

(5)	Net of $5 million and $8 million tax for the three months ended June 30, 2016 and 2015, respectively, and net of $6 million and $20 million tax for the six months ended June 30, 2016 and 2015, respectively.

(6)	Net of $(6) million and $(9) million tax for the three months ended June 30, 2016 and 2015, respectively, and net of $(12) million and $(18) million tax for the six months ended June 30, 2016 and 2015, respectively.

(7)	Net of $— million and $1 million tax for the three months ended June 30, 2016 and 2015, respectively, and net of $— million and $1 million tax for the six months ended June 30, 2016 and 2015, respectively.

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

DOMINION RESOURCES, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	June 30, 2016			December 31, 2015⁽¹⁾
(millions)
ASSETS
Current Assets
Cash and cash equivalents	$	377		$	607
Restricted cash and cash equivalents		516			17
Customer receivables (less allowance for doubtful accounts of $19 and $32)		1,140			1,200
Other receivables (less allowance for doubtful accounts of $3 and $2)		139			169
Inventories		1,351			1,348
Prepayments		143			198
Other		477			650

Total current assets		4,143			4,189

Investments
Nuclear decommissioning trust funds		4,331			4,183
Investment in equity method affiliates		1,372			1,320
Other		277			271

Total investments		5,980			5,774

Property, Plant and Equipment
Property, plant and equipment		60,490			57,776
Accumulated depreciation, depletion and amortization		(16,808	)		(16,222	)

Total property, plant and equipment, net		43,682			41,554

Deferred Charges and Other Assets
Goodwill		3,294			3,294
Pension and other postretirement benefit assets		1,017			943
Regulatory assets		2,150			1,865
Other		1,103			1,029

Total deferred charges and other assets		7,564			7,131

Total assets	$	61,369		$	58,648

(1)	Dominion’s Consolidated Balance Sheet at December 31, 2015 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.

DOMINION RESOURCES, INC.

CONSOLIDATED BALANCE SHEETS—(Continued)

(Unaudited)


	June 30, 2016			December 31, 2015⁽¹⁾
(millions)
LIABILITIES AND EQUITY
Current Liabilities
Securities due within one year	$	1,348		$	1,825
Short-term debt		3,437			3,509
Accounts payable		589			726
Accrued interest, payroll and taxes		561			515
Other⁽²⁾		1,331			1,544

Total current liabilities		7,266			8,119

Long-Term Debt
Long-term debt		21,406			20,048
Junior subordinated notes		2,399			1,340
Remarketable subordinated notes		982			2,080

Total long-term debt		24,787			23,468

Deferred Credits and Other Liabilities
Deferred income taxes and investment tax credits		7,666			7,414
Asset retirement obligations		1,941			1,887
Regulatory liabilities		2,318			2,285
Other		1,939			1,873

Total deferred credits and other liabilities		13,864			13,459

Total liabilities		45,917			45,046

Commitments and Contingencies (see Note 15)
Equity
Common stock – no par⁽³⁾		8,160			6,680
Retained earnings		6,585			6,458
Accumulated other comprehensive loss		(493	)		(474	)

Total common shareholders’ equity		14,252			12,664

Noncontrolling interests		1,200			938

Total equity		15,452			13,602

Total liabilities and equity	$	61,369		$	58,648

(1)	Dominion’s Consolidated Balance Sheet at December 31, 2015 has been derived from the audited Consolidated Financial Statements at that date.

(2)	See Note 3 for amounts attributable to related parties.

(3)	1 billion shares authorized; 617 million shares and 596 million shares outstanding at June 30, 2016 and December 31, 2015, respectively.

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

DOMINION RESOURCES, INC.

CONSOLIDATED STATEMENT OF EQUITY

(Unaudited)


	Common Stock					Dominion Shareholders
	Shares		Amount			Retained Earnings			Accumulated Other Comprehensive Loss			Total Common Shareholders’ Equity			Noncontrolling Interests			Total Equity
(millions)
December 31, 2015		596	$	6,680		$	6,458		$	(474	)	$	12,664		$	938		$	13,602

Net income including noncontrolling interests							976						976			17			993
Contributions from SunEdison to Four Brothers and Three Cedars													—			162			162
Sale of interest in merchant solar projects				22									22			117			139
Purchase of Dominion Midstream common units				(2	)								(2	)		(11	)		(13	)
Issuance of common stock		21		1,458									1,458						1,458
Stock awards (net of change in unearned compensation)				6									6						6
Dividends and distributions							(849	)					(849	)		(23	)		(872	)
Other comprehensive loss, net of tax										(19	)		(19	)					(19	)
Other				(4	)								(4	)					(4	)

June 30, 2016		617	$	8,160		$	6,585		$	(493	)	$	14,252		$	1,200		$	15,452

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

DOMINION RESOURCES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


Six Months Ended June 30,	2016			2015
(millions)
Operating Activities
Net income including noncontrolling interests	$	993		$	958
Adjustments to reconcile net income including noncontrolling interests to net cash provided by operating activities:
Depreciation, depletion and amortization (including nuclear fuel)		853			822
Deferred income taxes and investment tax credits		275			399
Gains on the sales of assets and equity method investment in Iroquois		(45	)		(71	)
Other adjustments		(27	)		(18	)
Changes in:
Accounts receivable		82			214
Inventories		(3	)		47
Deferred fuel and purchased gas costs, net		114			28
Prepayments		55			47
Accounts payable		(92	)		(173	)
Accrued interest, payroll and taxes		46			(41	)
Margin deposit assets and liabilities		(13	)		186
Other operating assets and liabilities		(220	)		(238	)

Net cash provided by operating activities		2,018			2,160

Investing Activities
Plant construction and other property additions (including nuclear fuel)		(3,160	)		(2,370	)
Acquisition of solar development projects		—			(230	)
Acquisition of DCG		—			(497	)
Proceeds from sales of securities		709			580
Purchases of securities		(752	)		(553	)
Restricted cash and cash equivalents		(500	)		—
Proceeds from assignments of shale development rights		5			28
Other		(27	)		(42	)

Net cash used in investing activities		(3,725	)		(3,084	)

Financing Activities
Repayment of short-term debt, net		(72	)		(153	)
Repayment and repurchase of short-term notes		(600	)		—
Issuance of long-term debt		1,930			1,200
Repayment and repurchase of long-term debt		(500	)		(8	)
Proceeds from sale of interest in merchant solar projects		117			—
Contributions from SunEdison to Four Brothers and Three Cedars		162			—
Issuance of common stock		1,458			647
Common dividend payments		(849	)		(765	)
Other		(169	)		(44	)

Net cash provided by financing activities		1,477			877

Decrease in cash and cash equivalents		(230	)		(47	)
Cash and cash equivalents at beginning of period		607			318

Cash and cash equivalents at end of period	$	377		$	271

Supplemental Cash Flow Information
Significant noncash investing and financing activities⁽¹⁾:
Accrued capital expenditures	$	257		$	319

(1)	See Note 14 for noncash financing activities related to the remarketing of RSNs.

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

VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
(millions)
Operating Revenue⁽¹⁾	$	1,776	$	1,813	$	3,666	$	3,950

Operating Expenses
Electric fuel and other energy-related purchases⁽¹⁾		475		497		1,011		1,307
Purchased electric capacity		45		90		113		184
Other operations and maintenance:
Affiliated suppliers		64		69		165		144
Other		322		376		671		697
Depreciation and amortization		247		231		495		469
Other taxes		70		69		144		143

Total operating expenses		1,223		1,332		2,599		2,944

Income from operations		553		481		1,067		1,006

Other income		18		21		34		36
Interest and related charges		113		108		227		216

Income before income tax expense		458		394		874		826
Income tax expense		178		148		331		311

Net Income	$	280	$	246	$	543	$	515

(1)	See Note 17 for amounts attributable to affiliates.

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

VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
(millions)
Net income	$	280		$	246		$	543		$	515
Other comprehensive income (loss), net of taxes:
Net deferred gains (losses) on derivatives-hedging activities⁽¹⁾		(6	)		7			(15	)		3
Changes in unrealized net gains on nuclear decommissioning trust funds⁽²⁾		3			—			6			1
Amounts reclassified to net income:
Net derivative losses-hedging activities⁽³⁾		—			—			—			1
Net realized gains on nuclear decommissioning trust funds⁽⁴⁾		(1	)		(2	)		(1	)		(3	)

Total other comprehensive income (loss)		(4	)		5			(10	)		2

Comprehensive income	$	276		$	251		$	533		$	517

(1)	Net of $4 million and $(4) million tax for the three months ended June 30, 2016 and 2015, respectively, and net of $9 million and $(2) million tax for the six months ended June 30, 2016 and 2015, respectively.

(2)	Net of $(3) million and $1 million tax for the three months ended June 30, 2016 and 2015, respectively, and net of $(4) million and $— million tax for the six months ended June 30, 2016 and 2015, respectively.

(3)	Net of $— million tax for both the three months ended June 30, 2016 and 2015, and net of $(1) million and $— million tax for the six months ended June 30, 2016 and 2015, respectively.

(4)	Net of $1 million tax for both the three months ended June 30, 2016 and 2015, and net of $1 million tax for both the six months ended June 30, 2016 and 2015.

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

VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	June 30, 2016			December 31, 2015⁽¹⁾
(millions)
ASSETS
Current Assets
Cash and cash equivalents	$	61		$	18
Customer receivables (less allowance for doubtful accounts of $13 and $27)		837			822
Other receivables (less allowance for doubtful accounts of $1 at both dates)		79			109
Affiliated receivables		2			296
Inventories (average cost method)		860			873
Prepayments		73			38
Regulatory assets		193			326
Other⁽²⁾		39			22

Total current assets		2,144			2,504

Investments
Nuclear decommissioning trust funds		2,030			1,945
Other		4			3

Total investments		2,034			1,948

Property, Plant and Equipment
Property, plant and equipment		38,734			37,639
Accumulated depreciation and amortization		(12,076	)		(11,708	)

Total property, plant and equipment, net		26,658			25,931

Deferred Charges and Other Assets
Regulatory assets		966			667
Other⁽²⁾		591			515

Total deferred charges and other assets		1,557			1,182

Total assets	$	32,393		$	31,565

(1)	Virginia Power’s Consolidated Balance Sheet at December 31, 2015 has been derived from the audited Consolidated Financial Statements at that date.

(2)	See Note 17 for amounts attributable to affiliates.

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

VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED BALANCE SHEETS—(Continued)

(Unaudited)


	June 30, 2016		December 31, 2015⁽¹⁾
(millions)
LIABILITIES AND SHAREHOLDER’S EQUITY
Current Liabilities
Securities due within one year	$	99	$	476
Short-term debt		1,423		1,656
Accounts payable		311		366
Payables to affiliates		74		73
Affiliated current borrowings		—		376
Accrued interest, payroll and taxes		229		190
Regulatory liabilities		112		35
Other⁽²⁾		585		558

Total current liabilities		2,833		3,730

Long-Term Debt		9,562		8,892

Deferred Credits and Other Liabilities
Deferred income taxes and investment tax credits		4,885		4,654
Asset retirement obligations		1,154		1,104
Regulatory liabilities		1,956		1,929
Other⁽²⁾		829		615

Total deferred credits and other liabilities		8,824		8,302

Total liabilities		21,219		20,924

Commitments and Contingencies (see Note 15)
Common Shareholder’s Equity
Common stock – no par⁽³⁾		5,738		5,738
Other paid-in capital		1,113		1,113
Retained earnings		4,293		3,750
Accumulated other comprehensive income		30		40

Total common shareholder’s equity		11,174		10,641

Total liabilities and shareholder’s equity	$	32,393	$	31,565

(1)	Virginia Power’s Consolidated Balance Sheet at December 31, 2015 has been derived from the audited Consolidated Financial Statements at that date.

(2)	See Note 17 for amounts attributable to affiliates.

(3)	500,000 shares authorized; 274,723 shares outstanding at June 30, 2016 and December 31, 2015.

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

VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


Six Months Ended June 30,	2016			2015
(millions)
Operating Activities
Net income	$	543		$	515
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization (including nuclear fuel)		589			555
Deferred income taxes and investment tax credits		228			13
Other adjustments		(11	)		(6	)
Changes in:
Accounts receivable		7			40
Affiliated receivables and payables		295			1
Inventories		13			25
Prepayments		(35	)		229
Deferred fuel expenses, net		105			(9	)
Accounts payable		(10	)		(9	)
Accrued interest, payroll and taxes		39			38
Other operating assets and liabilities		(61	)		2

Net cash provided by operating activities		1,702			1,394

Investing Activities
Plant construction and other property additions		(1,226	)		(1,292	)
Purchases of nuclear fuel		(78	)		(67	)
Proceeds from sales of securities		347			209
Purchases of securities		(373	)		(222	)
Other		(6	)		(27	)

Net cash used in investing activities		(1,336	)		(1,399	)

Financing Activities
Issuance (repayment) of short-term debt, net		(233	)		80
Repayment of affiliated current borrowings, net		(376	)		(427	)
Issuance of long-term debt		750			700
Repayment of long-term debt		(457	)		(6	)
Common dividend payments to parent		—			(270	)
Other		(7	)		(5	)

Net cash provided by (used in) financing activities		(323	)		72

Increase in cash and cash equivalents		43			67
Cash and cash equivalents at beginning of period		18			15

Cash and cash equivalents at end of period	$	61		$	82

Supplemental Cash Flow Information
Significant noncash investing activities:
Accrued capital expenditures	$	142		$	117

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

DOMINION GAS HOLDINGS, LLC

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
(millions)
Operating Revenue⁽¹⁾	$	368	$	395	$	799	$	926

Operating Expenses
Purchased gas⁽¹⁾		16		21		50		95
Other energy-related purchases		1		7		4		13
Other operations and maintenance:
Affiliated suppliers		16		17		43		38
Other		58		107		155		160
Depreciation and amortization		52		53		95		104
Other taxes		39		37		91		92

Total operating expenses		182		242		438		502

Income from operations		186		153		361		424

Other income		9		4		15		13
Interest and related charges		23		18		45		35

Income from operations before income taxes		172		139		331		402
Income tax expense		67		54		128		156

Net Income	$	105	$	85	$	203	$	246

(1)	See Note 17 for amounts attributable to related parties.

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

DOMINION GAS HOLDINGS, LLC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
(millions)
Net income	$	105		$	85		$	203		$	246
Other comprehensive income (loss), net of taxes:
Net deferred gains (losses) on derivatives-hedging activities⁽¹⁾		(9	)		3			(15	)		(1	)
Amounts reclassified to net income:
Net derivative gains-hedging activities⁽²⁾		—			(1	)		(2	)		(1	)
Net pension and other postretirement benefit costs⁽³⁾		1			1			1			2

Total other comprehensive income (loss)		(8	)		3			(16	)		—

Comprehensive income	$	97		$	88		$	187		$	246

(1)	Net of $4 million and $(1) million tax for the three months ended June 30, 2016 and 2015, respectively, and net of $8 million and $1 million tax for the six months ended June 30, 2016 and 2015, respectively.

(2)	Net of $(2) million and $— million tax for the three months ended June 30, 2016 and 2015, respectively, and net of $— million tax for both the six months ended June 30, 2016 and 2015.

(3)	Net of $— million and $(1) million tax for the three months ended June 30, 2016 and 2015, respectively, and net of $(1) million and $(2) million tax for the six months ended June 30, 2016 and 2015, respectively.

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

DOMINION GAS HOLDINGS, LLC

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	June 30, 2016			December 31, 2015⁽¹⁾
(millions)
ASSETS
Current Assets
Cash and cash equivalents	$	226		$	13
Customer receivables (less allowance for doubtful accounts of $1 at both dates)⁽²⁾		176			219
Other receivables (less allowance for doubtful accounts of $2 at both dates)⁽²⁾		11			7
Affiliated receivables		6			98
Inventories		90			78
Prepayments		59			88
Other⁽²⁾		56			63

Total current assets		624			566

Investments		99			104

Property, Plant and Equipment
Property, plant and equipment		10,053			9,693
Accumulated depreciation and amortization		(2,766	)		(2,690	)

Total property, plant and equipment, net		7,287			7,003

Deferred Charges and Other Assets
Goodwill		542			542
Pension and other postretirement benefit assets⁽²⁾		1,579			1,510
Other⁽²⁾		604			583

Total deferred charges and other assets		2,725			2,635

Total assets	$	10,735		$	10,308

(1)	Dominion Gas’ Consolidated Balance Sheet at December 31, 2015 has been derived from the audited Consolidated Financial Statements at that date.

(2)	See Note 17 for amounts attributable to related parties.

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

DOMINION GAS HOLDINGS, LLC

CONSOLIDATED BALANCE SHEETS—(Continued)

(Unaudited)


	June 30, 2016			December 31, 2015⁽¹⁾
(millions)
LIABILITIES AND EQUITY
Current Liabilities
Securities due within one year	$	400		$	400
Short-term debt		238			391
Accounts payable		124			201
Payables to affiliates		17			22
Affiliated current borrowings		—			95
Accrued interest, payroll and taxes		155			183
Other⁽²⁾		161			183

Total current liabilities		1,095			1,475

Long-Term Debt		3,541			2,869

Deferred Credits and Other Liabilities
Deferred income taxes and investment tax credits		2,331			2,214
Other⁽²⁾		412			432

Total deferred credits and other liabilities		2,743			2,646

Total liabilities		7,379			6,990

Commitments and Contingencies (see Note 15)
Equity
Membership interests		3,471			3,417
Accumulated other comprehensive loss⁽²⁾		(115	)		(99	)

Total equity		3,356			3,318

Total liabilities and equity	$	10,735		$	10,308

(1)	Dominion Gas’ Consolidated Balance Sheet at December 31, 2015 has been derived from the audited Consolidated Financial Statements at that date.

(2)	See Note 17 for amounts attributable to related parties.

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

DOMINION GAS HOLDINGS, LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


Six Months Ended June 30,	2016			2015
(millions)
Operating Activities
Net income	$	203		$	246
Adjustments to reconcile net income to net cash provided by operating activities:
Gains on the sales of assets and equity method investment in Iroquois		(45	)		(71	)
Depreciation and amortization		95			104
Deferred income taxes and investment tax credits		125			55
Other adjustments		4			—
Changes in:
Accounts receivable		39			106
Affiliated receivables and payables		87			(15	)
Deferred purchased gas costs, net		11			28
Prepayments		29			111
Accounts payable		(75	)		(132	)
Accrued interest, payroll and taxes		(28	)		(54	)
Other operating assets and liabilities		(120	)		(85	)

Net cash provided by operating activities		325			293

Investing Activities
Plant construction and other property additions		(393	)		(292	)
Proceeds from sale of equity method investment in Iroquois		7			—
Proceeds from assignments of shale development rights		5			28
Other		(5	)		(6	)

Net cash used in investing activities		(386	)		(270	)

Financing Activities
Issuance (repayment) of short-term debt, net		(153	)		360
Issuance of long-term debt		680			—
Repayment of affiliated current borrowings, net		(95	)		(216	)
Distribution payments to parent		(150	)		(164	)
Other		(8	)		(1	)

Net cash provided by (used in) financing activities		274			(21	)

Increase in cash and cash equivalents		213			2
Cash and cash equivalents at beginning of period		13			9

Cash and cash equivalents at end of period	$	226		$	11

Supplemental Cash Flow Information
Significant noncash investing activities:
Accrued capital expenditures	$	42		$	37

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

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 and Dominion Gas. Virginia Power is a regulated public utility that generates, transmits and distributes electricity for sale in Virginia and northeastern North Carolina. Dominion Gas is a holding company that conducts business activities through a regulated interstate natural gas transmission pipeline and underground storage system in the Northeast, mid-Atlantic and Midwest states, regulated gas transportation and distribution operations in Ohio, and gas gathering and processing activities primarily in West Virginia, Ohio and Pennsylvania. Dominion Gas’ principal wholly-owned subsidiaries are DTI, East Ohio and Dominion Iroquois. In August 2016, DTI transferred its gathering and processing facilities to Dominion Gathering and Processing, Inc., a newly-formed wholly-owned subsidiary of Dominion Gas.

Note 2. Significant Accounting Policies

As permitted by the rules and regulations of the SEC, the Companies’ 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 the Companies’ Annual Report on Form 10-K for the year ended December 31, 2015.

In the Companies’ opinion, the accompanying unaudited Consolidated Financial Statements contain all adjustments necessary to present fairly their financial position as of June 30, 2016, their results of operations for the three and six months ended June 30, 2016 and 2015, their cash flows for the six months ended June 30, 2016 and 2015 and Dominion’s statement of equity for the six months ended June 30, 2016. 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.

The Companies’ accompanying unaudited Consolidated Financial Statements include, after eliminating intercompany transactions and balances, their accounts, those of their respective majority-owned subsidiaries and non-wholly-owned entities in which they have a controlling financial interest. For certain partnership structures, income is allocated based on the liquidation value of the underlying contractual arrangements. As of June 30, 2016, Dominion owns the general partner and 64.8% of the limited partner interests in Dominion Midstream. The public’s ownership interest in Dominion Midstream is reflected as noncontrolling interest in Dominion’s Consolidated Financial Statements. Also, as of June 30, 2016, Dominion owns 50% of the units in and consolidates Four Brothers and Three Cedars. SunEdison’s ownership interest in Four Brothers and Three Cedars, as well as Terra Nova Renewable Partners’ 33% interest in certain Dominion merchant solar projects, is reflected as noncontrolling interest in Dominion’s Consolidated Financial Statements. See Note 3 for further information on transactions with SunEdison.

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 the Companies’ 2015 Consolidated Financial Statements and Notes have been reclassified to conform to the 2016 presentation for comparative purposes. The reclassifications did not affect the Companies’ net income, total assets, liabilities, equity or cash flows, except for the reclassification of debt issuance costs as discussed in Note 2 to the Companies’ Annual Report on Form 10-K for the year ended December 31, 2015.

Amounts disclosed for Dominion are inclusive of Virginia Power and/or Dominion Gas, where applicable.

Note 3. Acquisitions and Dispositions

Dominion

Proposed Acquisition of Questar

Pursuant to the terms of the Questar Combination announced in February 2016, upon closing, each share of Questar common stock issued and outstanding immediately prior to the closing will be converted automatically into the right to receive $25 in cash per share, or approximately $4.4 billion in total. In addition, Questar’s debt, which currently totals approximately $1.5 billion is expected to remain outstanding. Dominion entered into agreements with several of its lending banks pursuant to

which they have unfunded financing commitments to provide a $3.9 billion acquisition facility. In connection with receipt of proceeds from Dominion’s issuance of common stock, the acquisition facility was reduced from $3.9 billion to $3.14 billion in April 2016. See Note 14 for more information. At June 30, 2016, $500 million of such proceeds are included in restricted cash and cash equivalents in Dominion’s Consolidated Balance Sheets. Dominion intends to permanently finance the transaction in a manner that supports its existing credit ratings targets by issuing a combination of common stock, mandatory convertibles and debt at Dominion, and indirectly through the issuance of securities at Dominion Midstream, the proceeds of which will be applied to pay Dominion for certain assets of Questar, which are, subject to relevant approvals, expected to be contributed to Dominion Midstream.

The transaction requires approval of Questar’s shareholders and clearance from the Federal Trade Commission under the Hart-Scott-Rodino Act. In February 2016, the Federal Trade Commission granted antitrust approval of the Questar Combination under the Hart-Scott-Rodino Act. In March 2016, Questar and Dominion filed for review and approval, as required, from the Utah Public Service Commission and the Wyoming Public Service Commission, and provided information regarding the transaction to the Idaho Public Utilities Commission. In May 2016, Questar’s shareholders voted to approve the Questar Combination. The Questar Combination contains certain termination rights for both Dominion and Questar, and provides that, upon termination of the Questar Combination under specified circumstances, Dominion would be required to pay a termination fee of $154 million to Questar and Questar would be required to pay Dominion a termination fee of $99 million. Subject to any remaining required regulatory approvals and meeting closing conditions, Dominion targets closing by the end of 2016.

Non-Wholly-Owned Merchant Solar Projects

Acquisitions of Four Brothers and Three Cedars

In June 2015, Dominion acquired 50% of the units in Four Brothers from SunEdison for $64 million of consideration, consisting of $2 million in cash and a $62 million payable. As of June 30, 2016, an $11 million payable is included in other current liabilities in Dominion’s Consolidated Balance Sheets. Four Brothers’ purpose is to develop and operate four solar projects located in Utah, which will produce and sell electricity and renewable energy credits. The projects are expected to cost approximately $730 million to construct, including the initial acquisition cost. Dominion is obligated to contribute $445 million of capital to fund the construction of the projects and has contributed $370 million through June 30, 2016. The facilities are expected to begin commercial operations by the end of the third quarter of 2016, with generating capacity of approximately 320 MW.

In September 2015, Dominion acquired 50% of the units in Three Cedars from SunEdison for $43 million of consideration, consisting of $6 million in cash and a $37 million payable. As of June 30, 2016, a $7 million payable is included in other current liabilities in Dominion’s Consolidated Balance Sheets. Three Cedars’ purpose is to develop and operate three solar projects located in Utah, which will produce and sell electricity and renewable energy credits. The projects are expected to cost approximately $425 million to construct. Dominion is obligated to contribute $276 million of capital to fund the construction of the projects and has contributed $223 million through June 30, 2016. The facilities are expected to begin commercial operations by the end of the third quarter of 2016, with generating capacity of approximately 210 MW.

Long-term power purchase, interconnection and operation and maintenance agreements have been executed for both Four Brothers and Three Cedars. Dominion expects to claim 99% of the federal investment tax credits on the projects.

Dominion owns 50% of the voting interests in Four Brothers and Three Cedars and has a controlling financial interest over the entities through its rights to control operations. The allocation of the $64 million purchase price for Four Brothers resulted in $89 million of property, plant and equipment and $25 million of noncontrolling interest. The allocation of the $43 million purchase price for Three Cedars resulted in $65 million of property, plant and equipment and $22 million of noncontrolling interest. The noncontrolling interest for each entity was measured at fair value using the discounted cash flow method, with the primary components of the valuation being future cash flows (both incoming and outgoing) and the discount rate. Dominion determined its discount rate based on the cost of capital a utility-scale investor would expect, as well as the cost of capital an individual project developer could achieve via a combination of non-recourse project financing and outside equity partners. The acquired assets of Four Brothers and Three Cedars are included in the Dominion Generation operating segment.

Dominion has assumed the majority of the agreements to provide administrative and support services in connection with construction of the projects, operations and maintenance of the facilities and technical management services of the solar facilities. Costs related to services to be provided under these agreements were immaterial for the six months ended June 30, 2016. Subsequent to Dominion’s acquisition of Four Brothers and Three Cedars through June 30, 2016, SunEdison made contributions to Four Brothers and Three Cedars of $265 million in aggregate, which are reflected as noncontrolling interests in Dominion’s Consolidated Balance Sheets.

In April 2016, SunEdison filed for Chapter 11 bankruptcy; however, this is not expected to have a material adverse effect on Dominion, Four Brothers or Three Cedars.

Wholly-Owned Merchant Solar Projects

The following table presents significant completed acquisitions of wholly-owned merchant solar projects by Dominion in the second quarter of 2015. Long-term power purchase, interconnection and operation and maintenance agreements have been executed for all of the projects. Dominion has claimed federal investment tax credits on the projects. These projects are included in the Dominion Generation operating segment.

Completed Acquisition Date

Seller

Number
of
Projects

Project
Location

Project Name(s)

Initial
Acquisition
Cost
(millions)⁽¹⁾

Project
Cost
(millions)⁽²⁾

Date of
Commercial
Operations

MW
Capacity

April 2015

EC&R NA Solar PV, LLC

California

Alamo

May 2015

April 2015

EDF Renewable Development, Inc.

California

Cottonwood⁽³⁾

106

May 2015

June 2015

EDF Renewable Development, Inc.

California

Catalina 2

July 2015

(1)	The purchase price was primarily allocated to Property, Plant and Equipment.

(2)	Includes acquisition cost.

(3)	One of the projects, Marin Carport, began commercial operations in 2016.

Sale of Interest in Merchant Solar Projects

In September 2015, Dominion signed an agreement to sell a noncontrolling interest (consisting of 33% of the equity interests) in all of its then currently wholly-owned merchant solar projects, 24 solar projects totaling approximately 425 MW, to SunEdison, including projects discussed in the table above. In December 2015, the sale of interest in 15 of the solar projects closed for $184 million with the sale of interest in the remaining projects completed in January 2016 for $117 million. Upon closing, SunEdison sold its interest in these projects to Terra Nova Renewable Partners. Terra Nova Renewable Partners has a future option to buy all or a portion of Dominion’s remaining 67% ownership in the projects upon the occurrence of certain events, none of which had occurred as of June 30, 2016 nor are expected to occur in the remainder of 2016.

Acquisition of DCG

In January 2015, Dominion completed the acquisition of 100% of the equity interests of DCG from SCANA Corporation for $497 million in cash, as adjusted for working capital. DCG owns and operates nearly 1,500 miles of FERC-regulated interstate natural gas pipeline in South Carolina and southeastern Georgia. This acquisition supports Dominion’s natural gas expansion into the Southeast. The allocation of the purchase price resulted in $277 million of net property, plant and equipment, $250 million of goodwill, of which approximately $225 million is expected to be deductible for income tax purposes, and $38 million of regulatory liabilities. The goodwill reflects the value associated with enhancing Dominion’s regulated gas position, economic value attributable to future expansion projects as well as increased opportunities for synergies. The acquired assets of DCG are included in the Dominion Energy operating segment.

On March 24, 2015, DCG converted to a limited liability company under the laws of South Carolina and changed its name from Carolina Gas Transmission Corporation to DCG. On April 1, 2015, Dominion contributed 100% of the issued and outstanding membership interests of DCG to Dominion Midstream in exchange for total consideration of $501 million, as adjusted for working capital. Total consideration to Dominion consisted of the issuance of a two-year, $301 million senior unsecured promissory note payable by Dominion Midstream at an annual interest rate of 0.6%, and 5,112,139 common units, valued at $200 million, representing limited partner interests in Dominion Midstream. The number of units was based on the volume weighted average trading price of Dominion Midstream’s common units for the ten trading days prior to April 1, 2015, or $39.12 per unit. Since Dominion consolidates Dominion Midstream for financial reporting purposes, this transaction was eliminated upon consolidation and did not impact Dominion’s financial position or cash flows.

Dominion Gas

Assignments of Shale Development Rights

In December 2013, Dominion Gas closed an agreement with a natural gas producer to convey over time approximately 79,000 acres of Marcellus Shale development rights underneath one of its natural gas storage fields. The agreement provided for payments to Dominion Gas, subject to customary adjustments, of up to approximately $200 million over a period of nine years, and an overriding royalty interest in gas produced from the acreage. In March 2015, Dominion Gas and the natural gas

producer closed on an amendment to the agreement, which included the immediate conveyance of approximately 9,000 acres of Marcellus Shale development rights and a two year extension of the term of the original agreement. The conveyance of development rights resulted in the recognition of $43 million ($27 million after-tax) of previously deferred revenue to operations and maintenance expense in Dominion Gas’ Consolidated Statements of Income. In April 2016, Dominion Gas and the natural gas producer closed on an amendment to the agreement, which included the immediate conveyance of a 32% partial interest in the remaining approximately 70,000 acres. This conveyance resulted in the recognition of the remaining $35 million ($21 million after-tax) of previously deferred revenue to operations and maintenance expense in Dominion Gas’ Consolidated Statements of Income.

In March 2015, Dominion Gas conveyed to a natural gas producer approximately 11,000 acres of Marcellus Shale development rights underneath one of its natural gas storage fields and received proceeds of $27 million and an overriding royalty interest in gas produced from the acreage. This transaction resulted in a $27 million ($16 million after-tax) gain, included in other operations and maintenance expense in Dominion Gas’ Consolidated Statements of Income.

In November 2014, Dominion Gas closed on an agreement with a natural gas producer to convey over time approximately 24,000 acres of Marcellus Shale development rights underneath one of its natural gas storage fields. In connection with that agreement, in January 2016, Dominion Gas conveyed approximately 2,000 acres of Marcellus Shale development rights and received proceeds of $5 million and an overriding royalty interest in gas produced from the acreage. This transaction resulted in a $5 million ($3 million after-tax) gain, included in other operations and maintenance expense in Dominion Gas’ Consolidated Statements of Income. Also in connection with that agreement, in July 2016, Dominion Gas conveyed to a natural gas producer approximately 2,000 acres of Marcellus Shale development rights underneath one of its natural gas storage fields and received proceeds of $5 million and an overriding royalty interest in gas produced from the acreage. This transaction resulted in a $5 million ($3 million after-tax) gain.

Note 4. Operating Revenue

The Companies’ operating revenue consists of the following:


	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
(millions)
Dominion
Electric sales:
Regulated	$	1,718	$	1,779	$	3,560	$	3,891
Nonregulated		335		351		724		757
Gas sales:
Regulated		26		31		91		147
Nonregulated		54		87		172		295
Gas transportation and storage		369		385		784		856
Other		96		114		188		210

Total operating revenue	$	2,598	$	2,747	$	5,519	$	6,156

Virginia Power
Regulated electric sales	$	1,718	$	1,779	$	3,560	$	3,891
Other		58		34		106		59

Total operating revenue	$	1,776	$	1,813	$	3,666	$	3,950

Dominion Gas
Gas sales:
Regulated	$	12	$	21	$	41	$	78
Nonregulated		6		1		7		4
Gas transportation and storage		301		321		652		733
NGL revenue		9		22		26		51
Other		40		30		73		60

Total operating revenue	$	368	$	395	$	799	$	926

Note 5. Income Taxes

For continuing operations, including noncontrolling interests, the statutory United States federal income tax rate reconciles to the Companies’ effective income tax rate as follows:


	Dominion						Virginia Power						Dominion Gas
Six Months Ended June 30,	2016			2015			2016			2015			2016			2015
United States statutory rate		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%
Increases (reductions) resulting from:
State taxes, net of federal benefit		4.3			3.3			4.0			3.8			3.8			3.9
Investment tax credits		(9.9	)		(2.7	)		—			—			—			—
Production tax credits		(0.8	)		(0.8	)		(0.6	)		(0.5	)		—			—
State legislative change		(1.3	)		—			—			—			—			—
Other, net		(2.3	)		(1.0	)		(0.5	)		(0.7	)		(0.1	)		—

Effective tax rate		25.0	%		33.8	%		37.9	%		37.6	%		38.7	%		38.9	%

As of June 30, 2016, there have been no material changes in the Companies’ unrecognized tax benefits or possible changes that could reasonably be expected to occur during the next twelve months. See Note 5 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2015 for a discussion of these unrecognized tax benefits.

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,
	2016		2015		2016		2015
(millions, except EPS)
Net income attributable to Dominion	$	452	$	413	$	976	$	949

Average shares of common stock outstanding – Basic		615.6		591.5		606.1		589.7
Net effect of dilutive securities⁽¹⁾		1.4		1.0		1.5		1.5

Average shares of common stock outstanding – Diluted		617.0		592.5		607.6		591.2

Earnings Per Common Share – Basic	$	0.73	$	0.70	$	1.61	$	1.61
Earnings Per Common Share – Diluted	$	0.73	$	0.70	$	1.61	$	1.60

(1)	Dilutive securities consist primarily of the 2013 Equity Units. See Note 14 in this report and Note 17 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2015 for more information.

The 2014 Equity Units are potentially dilutive securities but were excluded from the calculation of diluted EPS for the three and six months ended June 30, 2016 and 2015, as the dilutive stock price threshold was not met.

Note 7. Accumulated Other Comprehensive Income

Dominion

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			Other Comprehensive Income (Loss) From Equity Method Investee			Total
(millions)
Three Months Ended June 30, 2016
Beginning balance	$	(186	)	$	517		$	(789	)	$	(5	)	$	(463	)
Other comprehensive income before reclassifications: gains (losses)		(11	)		26			—			(1	)		14
Amounts reclassified from AOCI⁽¹⁾: (gains) losses		(44	)		(8	)		8			—			(44	)

Net current-period other comprehensive income (loss)		(55	)		18			8			(1	)		(30	)

Ending balance	$	(241	)	$	535		$	(781	)	$	(6	)	$	(493	)

Three Months Ended June 30, 2015
Beginning balance	$	(177	)	$	542		$	(769	)	$	(5	)	$	(409	)
Other comprehensive income before reclassifications: gains (losses)		92			(11	)		3			—			84
Amounts reclassified from AOCI⁽¹⁾: (gains) losses		(61	)		(12	)		12			—			(61	)

Net current-period other comprehensive income (loss)		31			(23	)		15			—			23

Ending balance	$	(146	)	$	519		$	(754	)	$	(5	)	$	(386	)

Six Months Ended June 30, 2016
Beginning balance	$	(176	)	$	504		$	(797	)	$	(5	)	$	(474	)
Other comprehensive income before reclassifications: gains (losses)		42			41			—			(1	)		82
Amounts reclassified from AOCI⁽¹⁾: (gains) losses		(107	)		(10	)		16			—			(101	)

Net current-period other comprehensive income (loss)		(65	)		31			16			(1	)		(19	)

Ending balance	$	(241	)	$	535		$	(781	)	$	(6	)	$	(493	)

Six Months Ended June 30, 2015
Beginning balance	$	(178	)	$	548		$	(782	)	$	(4	)	$	(416	)
Other comprehensive income before reclassifications: gains (losses)		34			4			3			(1	)		40
Amounts reclassified from AOCI⁽¹⁾: (gains) losses		(2	)		(33	)		25			—			(10	)

Net current-period other comprehensive income (loss)		32			(29	)		28			(1	)		30

Ending balance	$	(146	)	$	519		$	(754	)	$	(5	)	$	(386	)

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

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, 2016
Deferred (gains) and losses on derivatives-hedging activities:
Commodity contracts	$	(87	)	Operating revenue
		2		Purchased gas
		3		Electric fuel and other energy-related purchases
Interest rate contracts		8		Interest and related charges
Foreign currency contracts		2		Other income
		(72	)
Tax		28		Income tax expense

	$	(44	)


Details About AOCI Components	Amounts Reclassified From AOCI			Affected Line Item in the Consolidated Statements of Income
(millions)
Unrealized (gains) and losses on investment securities:
Realized (gain) loss on sale of securities	$	(20	)	Other income
Impairment		7		Other income

		(13	)
Tax		5		Income tax expense

	$	(8	)

Unrecognized pension and other postretirement benefit costs:
Prior service (credit) costs	$	(3	)	Other operations and maintenance
Actuarial (gains) losses		17		Other operations and maintenance

		14
Tax		(6	)	Income tax expense

	$	8

Three Months Ended June 30, 2015
Deferred (gains) and losses on derivatives-hedging activities:
Commodity contracts	$	(107	)	Operating revenue
		2		Purchased gas
Interest rate contracts		3		Interest and related charges

		(102	)
Tax		41		Income tax expense

	$	(61	)

Unrealized (gains) and losses on investment securities:
Realized (gain) loss on sale of securities	$	(25	)	Other income
Impairment		5		Other income

		(20	)
Tax		8		Income tax expense

	$	(12	)

Unrecognized pension and other postretirement benefit costs:
Prior service (credit) costs	$	(3	)	Other operations and maintenance
Actuarial (gains) losses		24		Other operations and maintenance

		21
Tax		(9	)	Income tax expense

	$	12

Six Months Ended June 30, 2016
Deferred (gains) and losses on derivatives-hedging activities:
Commodity contracts	$	(201	)	Operating revenue
		8		Purchased gas
		6		Electric fuel and other energy-related purchases
Interest rate contracts		11		Interest and related charges
Foreign currency contracts		2		Other income

		(174	)
Tax		67		Income tax expense

	$	(107	)


Details About AOCI Components	Amounts Reclassified From AOCI			Affected Line Item in the Consolidated Statements of Income
(millions)
Unrealized (gains) and losses on investment securities:
Realized (gain) loss on sale of securities	$	(30	)	Other income
Impairment		14		Other income

		(16	)
Tax		6		Income tax expense

	$	(10	)

Unrecognized pension and other postretirement benefit costs:
Prior service (credit) costs	$	(7	)	Other operations and maintenance
Actuarial (gains) losses		35		Other operations and maintenance

		28
Tax		(12	)	Income tax expense

	$	16

Six Months Ended June 30, 2015
Deferred (gains) and losses on derivatives-hedging activities:
Commodity contracts	$	(15	)	Operating revenue
		7		Purchased gas
		(1	)	Electric fuel and other energy-related purchases
Interest rate contracts		5		Interest and related charges

		(4	)
Tax		2		Income tax expense

	$	(2	)

Unrealized (gains) and losses on investment securities:
Realized (gain) loss on sale of securities	$	(64	)	Other income
Impairment		11		Other income

		(53	)
Tax		20		Income tax expense

	$	(33	)

Unrecognized pension and other postretirement benefit costs:
Prior service (credit) costs	$	(6	)	Other operations and maintenance
Actuarial (gains) losses		49		Other operations and maintenance

		43
Tax		(18	)	Income tax expense

	$	25

Dominion Gas

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


	Deferred Gains and Losses on Derivatives- Hedging Activities			Unrecognized Pension and Other Postretirement Benefit Costs			Total
(millions)
Three Months Ended June 30, 2016
Beginning balance	$	(25	)	$	(82	)	$	(107	)
Other comprehensive income before reclassifications: losses		(9	)		—			(9	)
Amounts reclassified from AOCI⁽¹⁾: losses		—			1			1

Net current-period other comprehensive income (loss)		(9	)		1			(8	)

Ending balance	$	(34	)	$	(81	)	$	(115	)

Three Months Ended June 30, 2015
Beginning balance	$	(24	)	$	(65	)	$	(89	)
Other comprehensive income before reclassifications: gains		3			—			3
Amounts reclassified from AOCI⁽¹⁾: (gains) losses		(1	)		1			—

Net current-period other comprehensive income		2			1			3

Ending balance	$	(22	)	$	(64	)	$	(86	)

Six Months Ended June 30, 2016
Beginning balance	$	(17	)	$	(82	)	$	(99	)
Other comprehensive income before reclassifications: losses		(15	)		—			(15	)
Amounts reclassified from AOCI⁽¹⁾: (gains) losses		(2	)		1			(1	)

Net current-period other comprehensive income (loss)		(17	)		1			(16	)

Ending balance	$	(34	)	$	(81	)	$	(115	)

Six Months Ended June 30, 2015
Beginning balance	$	(20	)	$	(66	)	$	(86	)
Other comprehensive income before reclassifications: losses		(1	)		—			(1	)
Amounts reclassified from AOCI⁽¹⁾: (gains) losses		(1	)		2			1

Net current-period other comprehensive income (loss)		(2	)		2			—

Ending balance	$	(22	)	$	(64	)	$	(86	)

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

The following table presents Dominion Gas’ 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, 2016
Deferred (gains) and losses on derivatives-hedging activities:
Foreign currency contracts	$	2		Other income

		2
Tax		(2	)	Income tax expense

	$	—

Unrecognized pension and other postretirement benefit costs:
Actuarial (gains) losses	$	1		Other operations and maintenance

		1
Tax		—		Income tax expense

	$	1

Three Months Ended June 30, 2015
Deferred (gains) and losses on derivatives-hedging activities:
Commodity contracts	$	(1	)	Operating revenue

		(1	)
Tax		—		Income tax expense

	$	(1	)

Unrecognized pension and other postretirement benefit costs:
Actuarial (gains) losses	$	2		Other operations and maintenance

		2
Tax		(1	)	Income tax expense

	$	1

Six Months Ended June 30, 2016
Deferred (gains) and losses on derivatives-hedging activities:
Commodity contracts	$	(4	)	Operating revenue
Foreign currency contracts		2		Other income

		(2	)
Tax		—		Income tax expense

	$	(2	)

Unrecognized pension and other postretirement benefit costs:
Actuarial (gains) losses	$	2		Other operations and maintenance

		2
Tax		(1	)	Income tax expense

	$	1

Six Months Ended June 30, 2015
Deferred (gains) and losses on derivatives-hedging activities:
Commodity contracts	$	(1	)	Operating revenue

		(1	)
Tax		—		Income tax expense

	$	(1	)

Unrecognized pension and other postretirement benefit costs:
Actuarial (gains) losses	$	4		Other operations and maintenance

		4
Tax		(2	)	Income tax expense

	$	2

Note 8. Fair Value Measurements

The Companies’ fair value measurements are made in accordance with the policies discussed in Note 6 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2015. See Note 9 in this report for further information about the Companies’ derivatives and hedge accounting activities.

Dominion and Dominion Gas apply fair value measurements to foreign currency swaps used to manage the foreign currency exchange rate risk related to interest and principal payments denominated in foreign currencies. These swaps are designated as cash flow hedges for accounting purposes and are categorized as Level 2.

The inputs and assumptions used in measuring the fair value for foreign currency swaps include the following:

•

Foreign currency forward exchange rates

•

Credit quality of counterparties and the Companies

•

Notional value

•

Credit enhancements

•

Time value

The Companies enter into certain physical and financial forwards, futures, options and swaps, 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 and futures 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. 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, risk-free rate of return, the option expiration dates, the option strike prices, the original sales prices, and volumes. For Level 3 fair value measurements, forward market prices, credit spreads and implied price volatilities 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 quantitative information about Level 3 fair value measurements at June 30, 2016. The range and weighted average are presented in dollars for market price inputs and percentages for credit spreads and price volatility.


	Fair Value (millions)		Valuation Techniques	Unobservable Input	Range			Weighted Average⁽¹⁾
Assets
Physical and financial forwards and futures:
Natural gas⁽²⁾	$	123	Discounted cash flow	Market price (per Dth)⁽³⁾		(2) - 7			—
				Credit spread⁽⁴⁾		1% - 6	%		3	%
FTRs		6	Discounted cash flow	Market price (per MWh)⁽³⁾		(8) - 3			1
Physical and financial options:
Natural gas		8	Option model	Market price (per Dth)⁽³⁾		2 - 7			4
				Price volatility⁽⁵⁾		20% - 42	%		25	%

Total assets	$	137

Liabilities
Physical and financial forwards and futures:
Natural gas⁽²⁾	$	5	Discounted cash flow	Market price (per Dth)⁽³⁾		(1) - 4			3
FTRs		7	Discounted cash flow	Market price (per MWh)⁽³⁾		(2) - 5			1
Physical and financial options:
Natural gas		1	Option model	Market price (per Dth)⁽³⁾		2 - 4			3
				Price volatility⁽⁵⁾		29% - 42	%		36	%

Total liabilities	$	13

(1)	Averages weighted by volume.

(2)	Includes basis.

(3)	Represents market prices beyond defined terms for Levels 1 and 2.

(4)	Represents credit spreads unrepresented in published markets.

(5)	Represents volatilities unrepresented in published markets.

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)
Credit spread	Asset	Increase (decrease)	Loss (gain)

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, 2016
Assets
Derivatives:
Commodity	$	—	$	192	$	137	$	329
Interest rate		—		25		—		25
Investments⁽¹⁾:
Equity securities:
United States:
Large cap		2,617		—		—		2,617
Other		5		—		—		5
REIT		72		—		—		72
Non-United States:
Large cap		10		—		—		10
Fixed income:
Corporate debt instruments		—		498		—		498
United States Treasury securities and agency debentures		462		236		—		698
State and municipal		—		364		—		364
Other		—		112		—		112
Cash equivalents and other		5		—		—		5

Total assets	$	3,171	$	1,427	$	137	$	4,735

Liabilities
Derivatives:
Commodity	$	—	$	87	$	13	$	100
Interest rate		—		366		—		366
Foreign currency		—		7		—		7

Total liabilities	$	—	$	460	$	13	$	473


	Level 1		Level 2		Level 3		Total
(millions)
At December 31, 2015
Assets
Derivatives:
Commodity	$	1	$	249	$	114	$	364
Interest rate		—		24		—		24
Investments⁽¹⁾:
Equity securities:
United States:
Large cap		2,547		—		—		2,547
Other		5		—		—		5
REIT		63		—		—		63
Non-United States:
Large cap		10		—		—		10
Fixed income:
Corporate debt instruments		—		437		—		437
United States Treasury securities and agency debentures		458		201		—		659
State and municipal		—		376		—		376
Other		—		100		—		100
Cash equivalents and other		2		2		—		4

Total assets	$	3,086	$	1,389	$	114	$	4,589

Liabilities
Derivatives:
Commodity	$	—	$	141	$	19	$	160
Interest rate		—		183		—		183

Total liabilities	$	—	$	324	$	19	$	343

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

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,
	2016			2015			2016			2015
(millions)
Beginning balance	$	109		$	76		$	95		$	107
Total realized and unrealized gains (losses):
Included in earnings		(10	)		(5	)		(17	)		10
Included in other comprehensive income (loss)		—			(1	)		3			(12	)
Included in regulatory assets/liabilities		15			(5	)		32			(29	)
Settlements		10			6			18			(8	)
Transfers out of Level 3		—			—			(7	)		3

Ending balance	$	124		$	71		$	124		$	71

The following table presents Dominion’s classification of gains and losses included in earnings in the Level 3 fair value category. 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 months ended June 30, 2016 and 2015.


	Operating Revenue		Electric Fuel and Other Energy- Related Purchases			Total
(millions)
Three Months Ended June 30, 2016
Total gains (losses) included in earnings	$	—	$	(10	)	$	(10	)

Three Months Ended June 30, 2015
Total gains (losses) included in earnings	$	—	$	(5	)	$	(5	)

Six Months Ended June 30, 2016
Total gains (losses) included in earnings	$	—	$	(17	)	$	(17	)
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		—		—			—

Six Months Ended June 30, 2015
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		1		(1	)		—

Virginia Power

The following table presents Virginia Power’s quantitative information about Level 3 fair value measurements at June 30, 2016. The range and weighted average are presented in dollars for market price inputs and percentages for credit spreads and price volatility.


	Fair Value (millions)		Valuation Techniques	Unobservable Input	Range			Weighted Average⁽¹⁾
Assets
Physical and financial forwards and futures:
Natural gas⁽²⁾	$	121	Discounted cash flow	Market price (per Dth)⁽³⁾		(2) - 7			—
				Credit spread⁽⁴⁾		1% - 6	%		3	%
FTRs		6	Discounted cash flow	Market price (per MWh)⁽³⁾		(8) - 3			1
Physical and financial options:
Natural gas		5	Option model	Market price (per Dth)⁽³⁾		2 - 7			4
				Price volatility⁽⁵⁾		20% - 33	%		24	%

Total assets	$	132

Liabilities
Physical and financial forwards and futures:
FTRs	$	7	Discounted cash flow	Market price (per MWh)⁽³⁾		(2) - 5			1

Total liabilities	$	7

(1)	Averages weighted by volume.

(2)	Includes basis.

(3)	Represents market prices beyond defined terms for Levels 1 and 2.

(4)	Represents credit spreads unrepresented in published markets.

(5)	Represents volatilities unrepresented in published markets.

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)
Credit spread	Asset	Increase (decrease)	Loss (gain)
Price volatility	Buy	Increase (decrease)	Gain (loss)
Price volatility	Sell	Increase (decrease)	Loss (gain)

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, 2016
Assets
Derivatives:
Commodity	$	—	$	31	$	132	$	163
Investments⁽¹⁾:
Equity securities:
United States large cap		1,137		—		—		1,137
REIT		72		—		—		72
Fixed income:
Corporate debt instruments		—		283		—		283
United States Treasury securities and agency debentures		166		111		—		277
State and municipal		—		159		—		159
Other		—		48		—		48

Total assets	$	1,375	$	632	$	132	$	2,139

Liabilities
Derivatives:
Commodity	$	—	$	10	$	7	$	17
Interest rate		—		257		—		257

Total liabilities	$	—	$	267	$	7	$	274

At December 31, 2015
Assets
Derivatives:
Commodity	$	—	$	13	$	101	$	114
Interest rate		—		13		—		13
Investments⁽¹⁾:
Equity securities:
United States large cap		1,100		—		—		1,100
REIT		63		—		—		63
Fixed income:
Corporate debt instruments		—		238		—		238
United States Treasury securities and agency debentures		180		79		—		259
State and municipal		—		175		—		175
Other		—		34		—		34

Total assets	$	1,343	$	552	$	101	$	1,996

Liabilities
Derivatives:
Commodity	$	—	$	19	$	8	$	27
Interest rate		—		59		—		59

Total liabilities	$	—	$	78	$	8	$	86

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

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,
	2016			2015			2016			2015
(millions)
Beginning balance	$	110		$	78		$	93		$	102
Total realized and unrealized gains (losses):
Included in earnings		(9	)		(5	)		(17	)		8
Included in regulatory assets/liabilities		15			(5	)		32			(29	)
Settlements		9			5			17			(8	)

Ending balance	$	125		$	73		$	125		$	73

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, 2016 and 2015. 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, 2016 and 2015.

Dominion Gas

The following table presents Dominion Gas’ assets and liabilities for derivatives 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, 2016
Assets
Commodity	$	—	$	3	$	—	$	3

Total Assets	$	—	$	3	$	—	$	3
Liabilities
Commodity	$	—	$	5	$	—	$	5
Foreign currency		—		7		—		7

Total liabilities	$	—	$	12	$	—	$	12

At December 31, 2015
Assets
Commodity	$	—	$	5	$	6	$	11

Total Assets	$	—	$	5	$	6	$	11
Liabilities
Interest rate	$	—	$	14	$	—	$	14

Total liabilities	$	—	$	14	$	—	$	14

The following table presents the net change in Dominion Gas’ assets and liabilities for derivatives 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,
	2016		2015			2016			2015
(millions)
Beginning balance	$	—	$	—		$	6		$	2
Total realized and unrealized gains (losses):
Included in earnings		—		(1	)		—			1
Included in other comprehensive income (loss)		—		—			2			(12	)
Settlements		—		—			—			(1	)
Transfers out of Level 3		—		—			(8	)		9

Ending balance	$	—	$	(1	)	$	—		$	(1	)

The gains and losses included in earnings in the Level 3 fair value category were classified in operating revenue in Dominion Gas’ Consolidated Statements of Income for the three and six months ended June 30, 2015. 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, 2016 and 2015.

Fair Value of Financial Instruments

Substantially all of the Companies’ 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, restricted cash and cash equivalents, customer and other receivables, short-term debt, affiliated current borrowings, payables to affiliates and accounts payable are representative of fair value because of the short-term nature of these instruments. For the Companies’ financial instruments that are not recorded at fair value, the carrying amounts and estimated fair values are as follows:


	June 30, 2016				December 31, 2015
	Carrying Amount		Estimated Fair Value⁽¹⁾		Carrying Amount		Estimated Fair Value⁽¹⁾
(millions)
Dominion
Long-term debt, including securities due within one year⁽²⁾	$	22,754	$	25,400	$	21,873	$	23,210
Junior subordinated notes⁽³⁾		2,399		2,310		1,340		1,192
Remarketable subordinated notes⁽³⁾		982		1,037		2,080		2,129

Virginia Power
Long-term debt, including securities due within one year⁽³⁾	$	9,661	$	11,329	$	9,368	$	10,400

Dominion Gas
Long-term debt, including securities due within one year⁽⁴⁾	$	3,941	$	4,116	$	3,269	$	3,299

(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)

Carrying amount includes amounts which represent the unamortized debt issuance costs, discount and/or premium, and foreign currency remeasurement adjustments. At June 30, 2016 and December 31, 2015, includes the valuation of certain fair value hedges associated with fixed rate debt of $21 million and $7 million, respectively.

(3)	Carrying amount includes amounts which represent the unamortized debt issuance costs, discount and/or premium.

(4)	Carrying amount includes amounts which represent the unamortized debt issuance costs, discount and/or premium, and foreign currency remeasurement adjustments.

Note 9. Derivatives and Hedge Accounting Activities

The Companies’ accounting policies, objectives and strategies for using derivative instruments are discussed in Note 2 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2015. See Note 8 in this report for further information about fair value measurements and associated valuation methods for derivatives.

Derivative assets and liabilities are presented gross on the Companies’ Consolidated Balance Sheets. Dominion’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. Dominion Gas’ and Virginia Power’s derivative contracts consist of over-the-counter transactions. Over-the-counter contracts are bilateral contracts that are transacted directly with a counterparty. 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 the Companies’ 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

Balance Sheet Presentation

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, 2016						December 31, 2015
	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)
Commodity contracts:
Over-the-counter	$	231	$	—	$	231	$	217	$	—	$	217
Exchange		91		—		91		138		—		138
Interest rate contracts:
Over-the-counter		25		—		25		24		—		24

Total derivatives, subject to a master netting or similar arrangement		347		—		347		379		—		379
Total derivatives, not subject to a master netting or similar arrangement		7		—		7		9		—		9

Total	$	354	$	—	$	354	$	388	$	—	$	388


			June 30, 2016								December 31, 2015
			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)
Commodity contracts:
Over-the-counter	$	231	$	16	$	—	$	215	$	217	$	37	$	—	$	180
Exchange		91		63		—		28		138		82		—		56
Interest rate contracts:
Over-the-counter		25		15		—		10		24		22		—		2

Total	$	347	$	94	$	—	$	253	$	379	$	141	$	—	$	238


	June 30, 2016						December 31, 2015
	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)
Commodity contracts:
Over-the-counter	$	32	$	—	$	32	$	70	$	—	$	70
Exchange		63		—		63		82		—		82
Interest rate contracts:
Over-the-counter		366		—		366		183		—		183
Foreign currency contracts:
Over-the-counter		7		—		7		—		—		—

Total derivatives, subject to a master netting or similar arrangement		468		—		468		335		—		335
Total derivatives, not subject to a master netting or similar arrangement		5		—		5		8		—		8

Total	$	473	$	—	$	473	$	343	$	—	$	343


			June 30, 2016								December 31, 2015
			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)
Commodity contracts:
Over-the-counter	$	32	$	16	$	1	$	15	$	70	$	37	$	—	$	33
Exchange		63		63		—		—		82		82		—		—
Interest rate contracts:
Over-the-counter		366		15		—		351		183		22		—		161
Foreign currency contracts:
Over-the-counter		7		—		—		7		—		—		—		—

Total	$	468	$	94	$	1	$	373	$	335	$	141	$	—	$	194