Edgar Filing: VIRGINIA ELECTRIC & POWER CO

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended March 31, 2010

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

For the transition period from to


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

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

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

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

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


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

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


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

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

Dominion Resources, Inc.


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

Virginia Electric and Power Company


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

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


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

At March 31, 2010, the latest practicable date for determination, Dominion had 596,053,590 shares of common stock outstanding and Virginia Power had 256,310 shares of common stock outstanding. Dominion 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 Power makes no representations as to the information relating to Dominion’s other operations.

COMBINED INDEX


		Page Number

	Glossary of Terms	3

	PART I. Financial Information

Item 1.	Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	43

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	56

Item 4.	Controls and Procedures	57

	PART II. Other Information

Item 1.	Legal Proceedings	58

Item 1A.	Risk Factors	58

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	59

Item 6.	Exhibits	60

PAGE 2

GLOSSARY OF TERMS

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


Abbreviation or Acronym		Definition
AOCI		Accumulated other comprehensive income (loss)
bcf		Billion cubic feet
bcfe		Billion cubic feet equivalent
Bear Garden		A 580 MW combined cycle, natural gas-fired power station under construction in Buckingham County, Virginia
BP		BP Alternative Energy, Inc.
CEO		Chief Executive Officer
CFO		Chief Financial Officer
COL		Combined Construction Permit and Operating License
DD&A		Depreciation, depletion and amortization expense
DEI		Dominion Energy, Inc.
Dominion		The legal entity, Dominion Resources, Inc., one or more of Dominion Resources, Inc.’s consolidated subsidiaries (other than Virginia Power) or operating segments or the entirety of Dominion Resources, Inc. and its consolidated subsidiaries
Dominion Direct^®		A dividend reinvestment and open enrollment direct stock purchase plan
Dominion East Ohio		The East Ohio Gas Company
DRS		Dominion Resources Services, Inc.
DSM		Demand-side management
DTI		Dominion Transmission, Inc.
DVP		Dominion Virginia Power operating segment
E&P		Exploration & production
EPA		Environmental Protection Agency
EPS		Earnings per share
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
GHG		Greenhouse gas
Hope		Hope Gas, Inc.
LNG		Liquefied natural gas
Local 69		Utility Workers’ Union of America, AFL-CIO, Local 69
mcf		Thousand cubic feet
mcfe		Thousand cubic feet equivalent
MD&A		Management’s Discussion and Analysis of Financial Condition and Results of Operations
MISO		The Midwest Independent System Operator, Inc.
Moody’s		Moody’s Investors Service
MW		Megawatt
MWh		Megawatt hour
NGLs		Natural gas liquids
NCEMC		North Carolina Electric Membership Cooperative
NedPower		A wind-turbine facility joint venture between Dominion and Shell WindEnergy Inc. in Grant County, West Virginia
NRC		Nuclear Regulatory Commission
ODEC		Old Dominion Electric Cooperative
Peoples		The Peoples Natural Gas Company
PIPP		Percentage of income payment plan
PJM		PJM Interconnection, LLC
PNG Companies LLC		An indirect subsidiary of SteelRiver Infrastructure Fund North America
Regulation Act		The Virginia Electric Utility Regulation Act
Riders C1 and C2		Rate adjustment clauses associated with the recovery of costs related to certain DSM programs proposed by Virginia Power
Rider R		A rate adjustment clause associated with recovery of construction-related financing costs for Bear Garden

PAGE 3


Abbreviation or Acronym		Definition
Rider S		A rate adjustment clause associated with the recovery of construction-related financing costs for the Virginia City Hybrid Energy Center
Rider T		A rate adjustment clause associated with the recovery of certain Virginia jurisdictional transmission-related expenditures
ROE		Return on equity
RTO		Regional transmission organization
SEC		Securities and Exchange Commission
Standard & Poor’s		Standard & Poor’s Ratings Services, a division of the McGraw-Hill Companies, Inc.
the Companies		Dominion and Virginia Power, collectively
U.S.		United States of America
VIE		Variable interest entity
Virginia Commission		Virginia State Corporation Commission
Virginia City Hybrid Energy Center		A 585 MW (nominal) carbon-capture compatible, clean coal powered electric generation facility under construction in Wise County, Virginia
Virginia Power		The legal entity, Virginia Electric and Power Company, one or more of its consolidated subsidiaries or operating segments or the entirety of Virginia Power and its consolidated subsidiaries
VPP		Volumetric production payment

PAGE 4

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DOMINION RESOURCES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended March 31,
(millions, except per share amounts)	2010			2009
Operating Revenue	$	4,168		$	4,586

Operating Expenses
Electric fuel and other energy-related purchases		1,028			1,141
Purchased electric capacity		108			108
Purchased gas		792			1,007
Other operations and maintenance		1,068			1,234
Depreciation, depletion and amortization		269			279
Other taxes		169			153

Total operating expenses		3,434			3,922

Income from operations		734			664

Other income (loss)		71			(61	)
Interest and related charges		183			219

Income from continuing operations including noncontrolling interests before income tax expense		622			384
Income tax expense		295			141

Income from continuing operations including noncontrolling interests		327			243
Income (loss) from discontinued operations⁽¹⁾		(149	)		9

Net Income Including Noncontrolling Interests		178			252
Noncontrolling Interests		4			4

Net Income Attributable to Dominion	$	174		$	248

Amounts Attributable to Dominion:
Income from continuing operations, net of tax	$	323		$	239
Income (loss) from discontinued operations, net of tax		(149	)		9

Net income attributable to Dominion	$	174		$	248

Earnings Per Common Share – Basic and Diluted
Income from continuing operations	$	0.54		$	0.41
Income (loss) from discontinued operations		(0.25	)		0.01

Net income attributable to Dominion	$	0.29		$	0.42

Dividends paid per common share	$	0.4575		$	0.4375

(1)	Includes income tax expense of $12 million and $26 million for the three months ended March 31, 2010 and 2009, respectively.

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

PAGE 5

DOMINION RESOURCES, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(millions)	March 31, 2010			December 31, 2009⁽¹⁾
ASSETS
Current Assets
Cash and cash equivalents	$	85		$	48
Customer receivables (less allowance for doubtful accounts of $31 at both dates)		1,955			2,050
Other receivables (less allowance for doubtful accounts of $14 at both dates)		105			130
Inventories		984			1,185
Derivative assets		1,638			1,128
Assets held for sale		—			1,018
Prepayments		147			405
Other		1,119			853

Total current assets		6,033			6,817

Investments
Nuclear decommissioning trust funds		2,735			2,625
Investment in equity method affiliates		601			595
Other		276			272

Total investments		3,612			3,492

Property, Plant and Equipment
Property, plant and equipment		39,729			39,036
Accumulated depreciation, depletion and amortization		(13,691	)		(13,444	)

Total property, plant and equipment, net		26,038			25,592

Deferred Charges and Other Assets
Goodwill		3,275			3,354
Regulatory assets		1,240			1,390
Other		1,965			1,909

Total deferred charges and other assets		6,480			6,653

Total assets	$	42,163		$	42,554

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

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

PAGE 6

DOMINION RESOURCES, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(millions)	March 31, 2010			December 31, 2009⁽¹⁾
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Securities due within one year	$	1,254		$	1,137
Short-term debt		295			1,295
Accounts payable		1,324			1,401
Accrued interest, payroll and taxes		772			676
Derivative liabilities		1,126			679
Liabilities held for sale		—			428
Regulatory liabilities		598			536
Other		1,123			681

Total current liabilities		6,492			6,833

Long-Term Debt
Long-term debt		13,613			13,730
Junior subordinated notes payable to affiliates		268			268
Enhanced junior subordinated notes		1,483			1,483

Total long-term debt		15,364			15,481

Deferred Credits and Other Liabilities
Deferred income taxes and investment tax credits		4,251			4,244
Asset retirement obligations		1,625			1,605
Pension and other postretirement benefit liabilities		1,385			1,260
Regulatory liabilities		1,244			1,215
Other		494			474

Total deferred credits and other liabilities		8,999			8,798

Total liabilities		30,855			31,112

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

Common Shareholders’ Equity
Common stock – no par⁽²⁾		6,369			6,525
Other paid-in capital		138			185
Retained earnings		4,585			4,686
Accumulated other comprehensive loss		(41	)		(211	)

Total common shareholders’ equity		11,051			11,185

Total liabilities and shareholders’ equity	$	42,163		$	42,554

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

(2)	1 billion shares authorized; 596 million and 599 million shares outstanding at March 31, 2010 and December 31, 2009, respectively.

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

PAGE 7

DOMINION RESOURCES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


Three Months Ended March 31, (millions)	2010			2009
Operating Activities
Net income including noncontrolling interests	$	178		$	252
Adjustments to reconcile net income including noncontrolling interests to net cash from operating activities:
Charges related to workforce reduction program		338			—
Loss from sale of Peoples		117			—
Impairment of gas and oil properties		21			455
Net change in realized and unrealized derivative (gains) losses		87			(45	)
Depreciation, depletion and amortization		320			325
Deferred income taxes and investment tax credits		(173	)		(365	)
Other adjustments		(10	)		93
Changes in:
Accounts receivable		126			95
Inventories		213			271
Deferred fuel and purchased gas costs		(7	)		226
Accounts payable		(90	)		(264	)
Accrued interest, payroll and taxes		89			223
Margin deposit assets and liabilities		114			(21	)
Prepayments		260			35
Other operating assets and liabilities		67			201

Net cash provided by operating activities		1,650			1,481

Investing Activities
Plant construction and other property additions		(877	)		(796	)
Additions to gas and oil properties		(27	)		(41	)
Proceeds from the sale of Peoples		737			—
Proceeds from sale of securities		513			289
Purchases of securities		(539	)		(289	)
Other		22			(37	)

Net cash used in investing activities		(171	)		(874	)

Financing Activities
Repayment of short-term debt, net		(1,000	)		(411	)
Repayment of long-term debt		(4	)		(4	)
Issuance of common stock		27			147
Repurchase of common stock		(191	)		—
Common dividend payments		(275	)		(257	)
Subsidiary preferred dividend payments		(4	)		(4	)
Other		3			(2	)

Net cash used in financing activities		(1,444	)		(531	)

Increase in cash and cash equivalents		35			76
Cash and cash equivalents at beginning of period⁽¹⁾		50			71

Cash and cash equivalents at end of period⁽²⁾	$	85		$	147

Supplemental Cash Flow Information
Significant Noncash Investing and Financing Activities
Accrued capital expenditures	$	166		$	186
Debt for equity exchange		—			56

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

(2)	2009 amount includes $6 million of cash classified as held for sale in Dominion’s Consolidated Balance Sheet.

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

PAGE 8

VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended March 31,
(millions)	2010		2009
Operating Revenue	$	1,739	$	1,859

Operating Expenses
Electric fuel and other energy-related purchases		632		794
Purchased electric capacity		107		108
Other operations and maintenance:
Affiliated suppliers		120		101
Other		399		246
Depreciation and amortization		163		157
Other taxes		64		51

Total operating expenses		1,485		1,457

Income from operations		254		402

Other income		14		9
Interest and related charges		88		87

Income before income tax expense		180		324
Income tax expense		85		120

Net Income		95		204
Preferred dividends		4		4

Balance available for common stock	$	91	$	200

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

PAGE 9

VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(millions)	March 31, 2010			December 31, 2009⁽¹⁾
ASSETS
Current Assets
Cash and cash equivalents	$	53		$	19
Customer accounts receivable (less allowance for doubtful accounts of $10 and $12)		827			880
Other receivables (less allowance for doubtful accounts of $6 at both dates)		59			72
Inventories (average cost method)		571			614
Other		540			511

Total current assets		2,050			2,096

Investments
Nuclear decommissioning trust funds		1,251			1,204
Other		3			4

Total investments		1,254			1,208

Property, Plant and Equipment
Property, plant and equipment		26,203			25,643
Accumulated depreciation and amortization		(9,448	)		(9,314	)

Total property, plant and equipment, net		16,755			16,329

Deferred Charges and Other Assets
Intangible assets		216			217
Regulatory assets		200			200
Other		66			68

Total deferred charges and other assets		482			485

Total assets	$	20,541		$	20,118

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

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

PAGE 10

VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED BALANCE SHEETS—(Continued)

(Unaudited)


(millions)	March 31, 2010		December 31, 2009⁽¹⁾
LIABILITIES AND SHAREHOLDER’S EQUITY
Current Liabilities
Securities due within one year	$	363	$	245
Short-term debt		—		442
Accounts payable		390		390
Payables to affiliates		85		67
Accrued interest, payroll and taxes		357		213
Regulatory liabilities		557		491
Other		456		360

Total current liabilities		2,208		2,208

Long-Term Debt		6,093		6,213

Deferred Credits and Other Liabilities
Deferred income taxes and investment tax credits		2,348		2,359
Asset retirement obligations		642		636
Regulatory liabilities		1,023		995
Other		384		277

Total deferred credits and other liabilities		4,397		4,267

Total liabilities		12,698		12,688

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

Common Shareholder’s Equity
Common stock—no par⁽ ²⁾		5,171		4,738
Other paid-in capital		1,110		1,110
Retained earnings		1,282		1,299
Accumulated other comprehensive income		23		26

Total common shareholder’s equity		7,586		7,173

Total liabilities and shareholder’s equity	$	20,541	$	20,118

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

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

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

PAGE 11

VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


Three Months Ended March 31, (millions)	2010			2009
Operating Activities
Net income	$	95		$	204
Adjustments to reconcile net income to net cash provided by operating activities:
Charges related to workforce reduction program		202			—
Depreciation and amortization		192			184
Deferred income taxes and investment tax credits		(59	)		(5	)
Other adjustments		(18	)		1
Changes in:
Accounts receivable		65			75
Affiliated accounts receivable and payable		(20	)		(17	)
Inventories		43			31
Deferred fuel expenses		5			104
Accounts payable		22			9
Accrued interest, payroll and taxes		143			65
Other operating assets and liabilities		99			33

Net cash provided by operating activities		769			684

Investing Activities
Plant construction and other property additions		(567	)		(515	)
Purchases of nuclear fuel		(40	)		(40	)
Purchases of securities		(317	)		(140	)
Proceeds from sales of securities		304			137
Other		9			(50	)

Net cash used in investing activities		(611	)		(608	)

Financing Activities
Issuance (repayment) of short-term debt, net		(442	)		240
Issuance (repayment) of affiliated current borrowings, net		431			(208	)
Repayment of long-term debt		(2	)		(2	)
Common dividend payments		(108	)		(101	)
Preferred dividend payments		(4	)		(4	)
Other		1			(1	)

Net cash used in financing activities		(124	)		(76	)

Increase in cash and cash equivalents		34			—
Cash and cash equivalents at beginning of period		19			27

Cash and cash equivalents at end of period	$	53		$	27

Supplemental Cash Flow Information
Significant noncash investing and financing activities:
Accrued capital expenditures	$	112		$	128
Conversion of short-term borrowings payable to Dominion to equity	$	433		$	—

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

PAGE 12

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Nature of Operations

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

As discussed in Note 3, Dominion completed the sale of its Pennsylvania gas distribution operations in February 2010 and in March 2010 entered into an agreement to sell substantially all of its Appalachian E&P operations.

Note 2. Significant Accounting Policies

As permitted by the rules and regulations of the SEC, Dominion’s and Virginia Power’s accompanying unaudited Consolidated Financial Statements contain certain condensed financial information and exclude certain footnote disclosures normally included in annual audited consolidated financial statements prepared in accordance with GAAP. These unaudited Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes in Dominion’s and Virginia Power’s Annual Report on Form 10-K for the year ended December 31, 2009.

In Dominion’s and Virginia Power’s opinion, the accompanying unaudited Consolidated Financial Statements contain all adjustments necessary to present fairly their financial position as of March 31, 2010 and their results of operations and cash flows for the three months ended March 31, 2010 and 2009. Such adjustments are normal and recurring in nature unless otherwise noted.

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

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

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

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

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

Note 3. Dispositions

Sale of Appalachian E&P Operations

In March 2010, Dominion entered into an agreement to sell substantially all of its Appalachian E&P operations to a newly-formed subsidiary of CONSOL Energy for approximately $3.5 billion, subject to adjustments pursuant to terms of the agreement. Also in March 2010, the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice granted early termination of the mandatory waiting period for the transaction under the Hart-Scott-Rodino Antitrust Improvements Act. The transaction is expected to close by April 30, 2010, subject to customary closing conditions.

The transaction includes the rights to approximately 491,000 acres in the Marcellus Shale formation. Dominion is retaining certain oil and natural gas wells located on or near its natural gas storage fields. Dominion expects the transaction to generate after-tax proceeds of approximately $2.3 billion and result in an after-tax gain of approximately $1.4 billion. Proceeds from the sale will be used to offset Dominion’s equity needs for 2010 and 2011, repurchase common stock, fund a contribution to Dominion’s employee benefit plans and offset the impact of Virginia Power’s rate case settlement.

PAGE 13

The results of operations for Dominion’s Appalachian E&P business are not reported as discontinued operations in the Consolidated Statements of Income since Dominion did not sell its entire U.S. cost pool, which includes the retained Appalachian assets located on or near its natural gas storage fields.

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

Sale of Peoples

In February 2010, Dominion completed the sale of Peoples to PNG Companies LLC and netted after-tax proceeds of approximately $542 million. The sale resulted in an after-tax loss of approximately $134 million, which included a $79 million write-off of goodwill. The sale also resulted in after-tax expenses of approximately $27 million, including transaction and benefit-related costs. In addition, Peoples had income from operations of $12 million after-tax for the three months ended March 31, 2010.

Dominion did not previously report Peoples as discontinued operations since it expected to have significant continuing cash flows related primarily to the sale to Peoples of natural gas production from its Appalachian E&P business. Due to the pending sale of its Appalachian E&P business, Dominion no longer expects to have significant continuing cash flows with Peoples; therefore, the results of Peoples were reclassified to discontinued operations in the Consolidated Statements of Income for all periods presented.

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


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

Total current assets		143

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

Total property, plant and equipment, net		701

Deferred Charges and Other Assets
Regulatory assets		125
Other		49

Total deferred charges and other assets		174

Assets held for sale	$	1,018

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

Total deferred credits and other liabilities		295

Liabilities held for sale	$	428

PAGE 14

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


	Three Months Ended March 31,
	2010			2009
(millions)
Operating revenue	$	67		$	227
Income (loss) before income taxes		(137	)⁽¹⁾		35

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

Note 4. Ceiling Test

Dominion follows the full cost method of accounting for its gas and oil E&P activities, which subjects capitalized costs to a quarterly ceiling test using hedge-adjusted prices. At March 31, 2010, Dominion recorded a ceiling test impairment charge of $21 million ($13 million after-tax) in other operations and maintenance expense in its Consolidated Statement of Income primarily due to a decline in hedge-adjusted prices reflecting the discontinuance of hedge accounting for certain cash flow hedges, as discussed in Note 3.

In March 2009, Dominion recorded a ceiling test impairment charge of $455 million ($272 million after-tax) in other operations and maintenance expense in its Consolidated Statement of Income. Excluding the effects of hedge-adjusted prices in calculating the ceiling limitation, the impairment would have been $631 million ($378 million after-tax).

Note 5. Operating Revenue

The Companies’ operating revenue consists of the following:


	Three Months Ended March 31,
	2010		2009
(millions)
Dominion
Electric sales:
Regulated	$	1,717	$	1,825
Nonregulated		945		994
Gas sales:
Regulated		145		330
Nonregulated		782		931
Gas transportation and storage		465		393
Other		114		113

Total operating revenue	$	4,168	$	4,586

Virginia Power
Regulated electric sales	$	1,717	$	1,825
Other		22		34

Total operating revenue	$	1,739	$	1,859

PAGE 15

Note 6. Income Taxes

Continuing Operations

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


	Dominion				Virginia Power
Three Months Ended March 31,	2010		2009		2010		2009
U.S. statutory rate	35.0	%	35.0	%	35.0	%	35.0	%
Increases (reductions) resulting from:
Legislative changes	8.8		0.3		8.7		—
State taxes, net of federal benefit	3.8		3.3		4.1		3.8
Domestic production activities deduction	(0.5	)	(0.5	)	(1.0	)	(0.5	)
Investment and production tax credits	(0.3	)	(1.0	)	—		0.1
Amortization of investment tax credits	—		(0.1	)	(0.2	)	(0.1	)
Other, net	0.6		(0.3	)	0.7		(1.2	)

Effective tax rate	47.4	%	36.7	%	47.3	%	37.1	%

Dominion’s and Virginia Power’s effective tax rates in 2010 reflect a reduction of deferred tax assets resulting from the enactment of the Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act of 2010 which eliminated the employer’s deduction, beginning in 2013, for that portion of its retiree prescription drug coverage cost that is being reimbursed by the Medicare Part D subsidy.

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

Discontinued Operations

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

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

Note 7. Earnings Per Share

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


	Three Months Ended March 31,
	2010		2009
(millions, except EPS)
Net income attributable to Dominion	$	174	$	248

Average shares of common stock outstanding – Basic		599.9		585.3
Net effect of potentially dilutive securities⁽¹⁾		1.0		0.4

Average shares of common stock outstanding – Diluted		600.9		585.7

Earnings Per Common Share – Basic and Diluted	$	0.29	$	0.42

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

Potentially dilutive securities with the right to acquire approximately 1.6 million common shares for the three months ended March 31, 2009, were not included in the period’s calculation of diluted EPS because the exercise or purchase prices of those instruments were greater than the average market price of Dominion’s common shares. There were no potentially dilutive securities excluded from the calculation of diluted EPS for the three months ended March 31, 2010.

PAGE 16

Note 8. Comprehensive Income

The following table presents Dominion’s total comprehensive income:


	Three Months Ended March 31,
	2010		2009
(millions)
Net income including noncontrolling interests	$	178	$	252
Other comprehensive income:
Net other comprehensive income associated with effective portion of changes in fair value of derivatives designated as cash flow hedges, net of taxes and amounts reclassified to earnings		106		151
Other, net of tax		64		24

Other comprehensive income		170		175

Comprehensive income including noncontrolling interests		348		427
Noncontrolling interests		4		4

Total comprehensive income attributable to Dominion	$	344	$	423

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


	Three Months Ended March 31,
	2010			2009
(millions)
Net income	$	95		$	204
Other comprehensive income (loss):
Net other comprehensive income (loss) associated with effective portion of changes in fair value of derivatives designated as cash flow hedges, net of taxes and amounts reclassified to earnings		(5	)		—
Other, net of tax		2			3

Other comprehensive income (loss)		(3	)		3

Total comprehensive income	$	92		$	207

Note 9. Fair Value Measurements

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

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

For commodity and foreign currency derivative contracts:

•

Forward commodity prices

•

Forward foreign currency prices

•

Price volatility

•

Volumes

•

Commodity location

•

Interest rates

•

Credit quality of counterparties and Dominion and Virginia Power

•

Credit enhancements

•

Time value

PAGE 17

For interest rate derivative contracts:

•

Interest rate curves

•

Credit quality of counterparties and Dominion and Virginia Power

•

Credit enhancements

•

Time value

For investments:

•

Quoted securities prices

•

Securities trades information including volume and restrictions

•

Maturity

•

Interest rates

•

Credit quality

•

Net asset value (only for investments in partnerships)

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

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

At March 31, 2010, Dominion’s and Virginia Power’s net balance of commodity derivatives categorized as Level 3 fair value measurements was a net liability of $60 million and $15 million, respectively. A hypothetical 10% increase in commodity prices would increase Dominion’s and Virginia Power’s net liability by $29 million and $1 million, respectively. A hypothetical 10% decrease in commodity prices would decrease Dominion’s and Virginia Power’s net liability by $28 million and $1 million, respectively.

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

PAGE 18

Dominion

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


	Level 1		Level 2		Level 3		Total
(millions)
As of March 31, 2010
Assets
Derivatives:
Commodity	$	200	$	1,576	$	38	$	1,814
Interest rate		—		107		—		107
Investments:
Marketable equity securities		1,663		—		—		1,663
Marketable debt securities:
Corporate bonds		—		354		—		354
U.S. Treasury securities and agency debentures		287		151		—		438
State and municipal		—		211		—		211
Other		1		13		—		14
Cash equivalents and other		—		109		—		109

Total assets	$	2,151	$	2,521	$	38	$	4,710

Liabilities
Derivatives:
Commodity	$	42	$	1,192	$	98	$	1,332

Total liabilities	$	42	$	1,192	$	98	$	1,332

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

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

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

Total liabilities	$	17	$	737	$	107	$	861

PAGE 19

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


	Three Months Ended March 31,
	2010			2009
(millions)
Beginning balance	$	(66	)	$	99
Total realized and unrealized gains (losses):
Included in earnings		1			(62	)
Included in other comprehensive income (loss)		24			20
Included in regulatory assets/liabilities		(5	)		23
Purchases, issuances and settlements		(15	)		34
Transfers out of Level 3		1			(16	)

Ending balance	$	(60	)	$	98

The amount of gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets still held at the reporting date	$	(17	)	$	(12	)

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


	Operating revenue			Electric fuel and other energy-related purchases			Purchased gas			Total
(millions)
Three Months Ended March 31, 2010
Total gains (losses) included in earnings	$	(16	)	$	21		$	(4	)	$	1
The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets/liabilities still held at the reporting date		(14	)		—			(3	)		(17	)

Three Months Ended March 31, 2009
Total gains (losses) included in earnings	$	(4	)	$	(51	)	$	(7	)	$	(62	)
The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets/liabilities still held at the reporting date		(9	)		3			(6	)		(12	)

PAGE 20

Virginia Power

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


	Level 1		Level 2		Level 3		Total
(millions)
As of March 31, 2010
Assets
Derivatives
Commodity	$	—	$	25	$	1	$	26
Interest rate		—		69		—		69
Investments:
Marketable equity securities		669		—		—		669
Marketable debt securities:
Corporate bonds		—		239		—		239
U.S. Treasury securities and agency debentures		133		52		—		185
State and municipal		—		33		—		33
Other		—		7		—		7
Cash equivalents and other		—		78		—		78

Total assets	$	802	$	503	$	1	$	1,306

Liabilities
Derivatives
Commodity	$	—	$	14	$	16	$	30

Total liabilities	$	—	$	14	$	16	$	30


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

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


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

Total liabilities	$	—	$	3	$	12	$	15

PAGE 21

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


	Three Months Ended March 31,
	2010			2009
(millions)
Beginning balance	$	(10	)	$	(69	)
Total realized and unrealized gains (losses):
Included in earnings		21			(51	)
Included in regulatory assets/liabilities		(5	)		23
Purchases, issuances and settlements		(21	)		54
Transfers out of Level 3		—			2

Ending balance	$	(15	)	$	(41	)

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

The gains and losses included in earnings in the Level 3 fair value category, including those attributable to the change in unrealized gains and losses relating to assets still held at the reporting date, were classified in electric fuel and other energy-related purchases expense in Virginia Power’s Consolidated Statements of Income for the three months ended March 31, 2010 and 2009.

Fair Value of Financial Instruments

Substantially all of Dominion’s and Virginia Power’s financial instruments are recorded at fair value, with the exception of the instruments described below that are reported at historical cost. Estimated fair values have been determined using available market information and valuation methodologies considered appropriate by management. The carrying amount of cash and cash equivalents, customer and other receivables, short-term debt and accounts payable are representative of fair value because of the short-term nature of these instruments. Dominion’s and Virginia Power’s financial instruments’ carrying amounts and fair values are as follows:


	March 31, 2010				December 31, 2009
	Carrying Amount		Estimated Fair Value⁽¹⁾		Carrying Amount		Estimated Fair Value⁽¹⁾
(millions)
Dominion
Long-term debt, including securities due within one year⁽²⁾	$	14,867	$	16,119	$	14,867	$	15,970
Junior subordinated notes payable to affiliates		268		255		268		255
Enhanced junior subordinated notes		1,483		1,549		1,483		1,487
Subsidiary preferred stock⁽³ ⁾		257		245		257		251


Virginia Power
Long-term debt, including securities due within one year⁽²⁾	$	6,456	$	7,062	$	6,458	$	6,977
Preferred stock⁽³ ⁾		257		245		257		251

(1)

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

(2)

Includes amounts which represent the unamortized discount and premium. At March 31, 2010 and December 31, 2009, includes the valuation of certain fair value hedges associated with Dominion’s fixed rate debt of approximately $24 million and $23 million, respectively. At March 31, 2010, includes the valuation of certain fair value hedges associated with Virginia Power’s fixed rate debt of approximately $1 million.

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

PAGE 22

Note 10. Derivatives and Hedge Accounting Activities

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

Dominion

The following table presents the volume of Dominion’s derivative activity as of March 31, 2010. These volumes are based on open derivative positions and represent the combined absolute value of their long and short positions, except in the case of offsetting deals, for which they represent the absolute value of the net volume of their long and short positions.


	Current		Noncurrent
Natural Gas (bcf):
Fixed price⁽¹⁾		637.6		150.9
Basis		1,259.8		494.7
Electricity (MWh):
Fixed price⁽ ¹⁾		20,459,482		9,515,954
FTRs		20,005,587		3,056,425
Capacity (MW)		1,394,432		4,821,200
Liquids (gallons)⁽ ²⁾		152,964,000		103,152,000
Interest rate	$	1,100,000,000	$	825,000,000
Foreign currency (euros)		4,000,000		—

(1)	Includes options.

(2)	Includes NGL and oil derivatives.

For the three months ended March 31, 2010 and 2009, gains or losses on hedging instruments determined to be ineffective were not material. Amounts excluded from the assessment of effectiveness include gains or losses attributable to changes in the time value of options and changes in the differences between spot prices and forward prices and were not material for the three months ended March 31, 2010 and 2009.

The following table presents selected information related to gains (losses) on cash flow hedges included in AOCI in Dominion’s Consolidated Balance Sheet at March 31, 2010:


	AOCI After-Tax			Amounts Expected to be Reclassified to Earnings during the next 12 Months After-Tax			Maximum Term
(millions)
Commodities:
Gas	$	(19	)	$	(11	)	39 months
Electricity		326			266		38 months
Other		4			—		62 months
Interest rate		76			(3	)	369 months

Total	$	387		$	252

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

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

In addition, changes to Dominion’s financing needs resulted in the discontinuance of hedge accounting for certain cash flow hedges since it became probable that forecasted interest payments would not occur. In connection with the discontinuance of hedge accounting for these contracts, Dominion recognized a benefit recorded to interest and related charges reflecting the reclassification of gains from AOCI to earnings of $40 million ($23 million after-tax) in the three months ended March 31, 2010.

PAGE 23

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)
March 31, 2010
ASSETS
Current Assets
Commodity	$	655	$	879	$	1,534
Interest rate		23		81		104

Total current derivative assets		678		960		1,638

Noncurrent Assets
Commodity		155		125		280
Interest rate		3		—		3

Total noncurrent derivative assets⁽¹⁾		158		125		283

Total derivative assets	$	836	$	1,085	$	1,921

LIABILITIES
Current Liabilities
Commodity	$	238	$	888	$	1,126

Total current derivative liabilities		238		888		1,126

Noncurrent Liabilities
Commodity		65		141		206

Total noncurrent derivative liabilities⁽²⁾		65		141		206

Total derivative liabilities	$	303	$	1,029	$	1,332


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

Total current derivative assets		621		507		1,128

Noncurrent Assets
Commodity		132		100		232
Interest rate		2		—		2

Total noncurrent derivative assets⁽¹⁾		134		100		234

Total derivative assets	$	755	$	607	$	1,362

LIABILITIES
Current Liabilities
Commodity	$	147	$	532	$	679

Total current derivative liabilities		147		532		679

Noncurrent Liabilities
Commodity		61		120		181
Interest rate		1		—		1

Total noncurrent derivative liabilities⁽²⁾		62		120		182

Total derivative liabilities	$	209	$	652	$	861

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

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

PAGE 24

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


Derivatives in cash flow hedging relationships	Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion)⁽¹⁾			Amount of Gain (Loss) Reclassified from AOCI to Income			Increase (Decrease) in Derivatives Subject to Regulatory Treatment⁽²⁾
(millions)
Three Months Ended March 31, 2010
Derivative Type and Location of Gains (Losses)
Commodity:
Operating revenue				$	181
Purchased gas					(97	)
Electric fuel and other energy-related purchases					(3	)
Purchased electric capacity					1

Total commodity	$	299			82		$	(13	)

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

Total	$	296		$	123		$	(15	)


Three Months Ended March 31, 2009
Derivative Type and Location of Gains (Losses)
Commodity:
Operating revenue				$	238
Purchased gas					(48	)
Electric fuel and other energy-related purchases					(5	)
Purchased electric capacity					2

Total commodity	$	431			187		$	11

Interest rate⁽³⁾		(14	)		(1	)		11
Foreign currency⁽⁴⁾		—			1			(2	)

Total	$	417		$	187		$	20

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

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

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

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

PAGE 25


Derivatives not designated as hedging instruments	Amount of Gain (Loss) Recognized in Income on Derivatives⁽¹⁾
Derivatives not designated as hedging instruments	Three Months Ended March 31, 2010			Three Months Ended March 31, 2009
(millions)
Derivative Type and Location of Gains (Losses)
Commodity:
Operating revenue	$	40		$	33
Purchased gas		(31	)		(32	)
Electric fuel and other energy-related purchases		21			(51	)

Total	$	30		$	(50	)

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

Virginia Power

The following table presents the volume of Virginia Power’s derivative activity as of March 31, 2010. These volumes are based on open derivative positions and represent the combined absolute value of their long and short positions, except in the case of offsetting deals, for which they represent the absolute value of the net volume of their long and short positions.


	Current		Noncurrent
Natural Gas (bcf):
Fixed price		8.9		—
Basis		4.4		—
Electricity (MWh):
Fixed price		497,600		—
FTRs		19,320,930		3,056,425
Capacity (MW)		447,882		256,200
Interest rate	$	550,000,000	$	75,000,000
Foreign currency (euros)		4,000,000		—

The following table presents selected information related to gains on cash flow hedges included in AOCI in Virginia Power’s Consolidated Balance Sheet at March 31, 2010:


	AOCI After-Tax		Amounts Expected to be Reclassified to Earnings during the next 12 Months After-Tax		Maximum Term
(millions)
Interest rate	$	7	$	—	365 months
Other		1		1	44 months

Total	$	8	$	1

PAGE 26

Fair Value and Gains and Losses on Derivative Instruments

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


	Fair Value – Derivatives under Hedge Accounting		Fair Value – Derivatives not under Hedge Accounting		Total Fair Value
(millions)
March 31, 2010
ASSETS
Current Assets
Commodity	$	21	$	1	$	22
Interest rate		4		64		68

Total current derivative assets⁽¹⁾		25		65		90

Noncurrent Assets
Commodity		4		—		4
Interest rate		1		—		1

Total noncurrent derivative assets⁽² ⁾		5		—		5

Total derivative assets	$	30	$	65	$	95

LIABILITIES
Current Liabilities
Commodity	$	12	$	16	$	28

Total current derivative liabilities⁽³ ⁾		12		16		28

Noncurrent Liabilities
Commodity		2		—		2

Total noncurrent derivative liabilities⁽ ⁴⁾		2		—		2

Total derivative liabilities	$	14	$	16	$	30


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

Total current derivative assets⁽¹⁾		108		2		110

Noncurrent Assets
Commodity		10		—		10

Total noncurrent derivative assets⁽ ²⁾		10		—		10

Total derivative assets	$	118	$	2	$	120

LIABILITIES
Current Liabilities
Commodity	$	1	$	12	$	13

Total current derivative liabilities⁽ ³⁾		1		12		13

Noncurrent Liabilities
Commodity		2		—		2

Total noncurrent derivative liabilities⁽ ⁴⁾		2		—		2

Total derivative liabilities	$	3	$	12	$	15

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

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

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

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

PAGE 27

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


Derivatives in cash flow hedging relationships	Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion)⁽¹⁾			Amount of Gain (Loss) Reclassified from AOCI to Income			Increase (Decrease) in Derivatives Subject to Regulatory Treatment⁽²⁾
(millions)
Three Months Ended March 31, 2010
Derivative Type and Location of Gains (Losses)
Commodity:
Electric fuel and other energy-related purchases				$	(1	)
Purchased electric capacity					1

Total commodity	$	(3	)		—		$	(13	)

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

Total	$	(4	)	$	3		$	(15	)

Three Months Ended March 31, 2009
Derivative Type and Location of Gains (Losses)
Commodity:
Electric fuel and other energy-related purchases				$	(5	)
Purchased electric capacity					2

Total commodity	$	(1	)		(3	)	$	11

Interest rate⁽³⁾		(2	)		—			11
Foreign currency⁽⁴⁾		—			—			(2	)

Total	$	(3	)	$	(3	)	$	20

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

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

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

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


Derivatives not designated as hedging instruments	Amount of Gain (Loss) Recognized in Income on Derivatives⁽¹⁾
Derivatives not designated as hedging instruments	Three Months Ended March 31, 2010		Three Months Ended March 31, 2009
(millions)
Derivative Type and Location of Gains (Losses)⁽² ⁾
Commodity	$	21	$	(51	)

Total	$	21	$	(51	)

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

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

PAGE 28

Note 11. Investments

Dominion

Rabbi Trust Securities

Marketable equity and debt securities and cash equivalents held in Dominion’s rabbi trusts and classified as trading totaled $95 million and $96 million at March 31, 2010 and December 31, 2009, respectively. Cost method investments held in Dominion’s rabbi trusts totaled $18 million and $17 million at March 31, 2010 and December 31, 2009, respectively.

Decommissioning Trust Securities

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


	Amortized Cost		Total Unrealized Gains⁽¹⁾		Total Unrealized Losses⁽¹⁾			Fair Value
(millions)
March 31, 2010
Marketable equity securities	$	1,224	$	390	$	—		$	1,614
Marketable debt securities:
Corporate bonds		335		20		(1	)		354
U.S. Treasury securities and agency debentures		426		13		(1	)		438
State and municipal		158		9		(2	)		165
Other		14		—		—			14
Cost method investments		100		—		—			100
Cash equivalents and other⁽²⁾		50		—		—			50

Total	$	2,307	$	432	$	(4	)⁽³⁾	$	2,735

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

Total	$	2,245	$	385	$	(5	)⁽³⁾	$	2,625

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

(2)	At March 31, 2010 and December 31, 2009, reflects ($59) million and $11 million, respectively, related to net pending sales and purchases of securities.

(3)	The fair value of securities in an unrealized loss position was $275 million and $169 million at March 31, 2010 and December 31, 2009, respectively.

The fair value of Dominion’s marketable debt securities (classified as available for sale) at March 31, 2010 by contractual maturity is as follows:


	Amount
(millions)
Due in one year or less	$	86
Due after one year through five years		340
Due after five years through ten years		244
Due after ten years		301

Total	$	971

PAGE 29

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


	Three Months Ended March 31,
	2010		2009
(millions)
Trading securities:
Net unrealized gain (loss)	$	2	$	(4	)
Available-for-sale securities:
Proceeds from sales⁽¹⁾		513		289
Realized gains⁽²⁾		55		17
Realized losses⁽²⁾		11		143

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

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

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


	Three Months Ended March 31,
	2010			2009
(millions)
Total other-than-temporary impairment losses⁽¹⁾	$	7		$	141
Losses recorded to decommissioning trust regulatory liability		(3	)		(63	)
Losses recognized in other comprehensive income (before taxes)		(1	)		—

Net impairment losses recognized in earnings	$	3		$	78

(1)	Amount includes other-than-temporary impairment losses for debt securities of $2 million and $6 million for the three months ended March 31, 2010 and 2009, respectively.

PAGE 30

Virginia Power

Decommissioning Trust Securities

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


	Amortized Cost		Total Unrealized Gains⁽¹⁾		Total Unrealized Losses⁽¹⁾			Fair Value
(millions)
March 31, 2010
Marketable equity securities	$	512	$	157	$	—		$	669
Marketable debt securities:
Corporate bonds		231		8		—			239
U.S. Treasury securities and agency debentures		183		3		(1	)		185
State and municipal		31		2		—			33
Other		7		—		—			7
Cost method investments		100		—		—			100
Cash equivalents and other⁽²⁾		18		—		—			18

Total	$	1,082	$	170	$	(1	)⁽³⁾	$	1,251

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

Total	$	1,050	$	156	$	(2	)⁽³⁾	$	1,204

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

(2)	At March 31, 2010 and December 31, 2009, reflects ($60) million and $6 million, respectively, related to net pending sales and purchases of securities.

(3)	The fair value of securities in an unrealized loss position was $144 million and $88 million at March 31, 2010, and December 31, 2009, respectively.

The fair value of Virginia Power’s marketable debt securities at March 31, 2010, by contractual maturity is as follows:


	Amount
(millions)
Due in one year or less	$	12
Due after one year through five years		190
Due after five years through ten years		134
Due after ten years		128

Total	$	464

PAGE 31

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


	Three Months Ended March 31,
	2010		2009
(millions)
Proceeds from sales⁽¹⁾	$	304	$	137
Realized gains⁽ ²⁾		28		8
Realized losses⁽ ²⁾		4		64

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

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

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


	Three Months Ended March 31,
	2010			2009
(millions)
Total other-than-temporary impairment losses⁽¹⁾	$	3		$	87
Losses recorded to decommissioning trust regulatory liability		(3	)		(63	)
Losses recognized in other comprehensive income (before taxes)		—			—

Net impairment losses recognized in earnings	$	—		$	24

(1)	Amount includes other-than-temporary impairment losses for debt securities of $1 million and $4 million for the three months ended March 31, 2010 and 2009, respectively.

Note 12. Regulatory Matters

Other than the following matters, there have been no significant developments regarding the pending regulatory matters disclosed in Note 14 to the Consolidated Financial Statements in Dominion’s and Virginia Power’s Annual Report on Form 10-K for the year ended December 31, 2009.

Approval of Virginia Power Rate Settlement

In February 2010, Virginia Power filed a revised Stipulation and Recommendation with the Virginia Commission, which had the support of all of the interested parties, including the Staff of the Virginia Commission. The Companies’ fourth quarter 2009 results included a charge reflecting their best estimate of the probable outcome of this matter. In March 2010, the Virginia Commission approved the revised Stipulation and Addendum (Settlement Approval Order) that concluded Virginia Power’s base rate review and resolved open issues relating to Virginia Power’s fuel factor and Rider T. An ROE issue relating to Riders R, S, C1 and C2 was also resolved.

The Settlement Approval Order includes the following provisions:

Credits from 2008 Revenues

•

Credits to customers of $400 million from Virginia Power’s 2008 revenues to be applied against base rates and rider charges.

Base Rates

•

No change in Virginia Power’s base rates in existence prior to September 1, 2009 until December 1, 2013 (unless emergency rate relief is warranted by statute);

•

Refund increased revenues collected under the interim base rates since September 1, 2009; and

•

An ROE of 11.9% (inclusive of a performance incentive of 60 basis points) for use in the Virginia Commission’s assessment in the 2011 biennial rate review of Virginia Power’s earnings in 2009 and 2010.

PAGE 32

FTR Credits

•

Credits to customers of $129 million, inclusive of any carrying charge, relating to revenues from FTRs for the period July 1, 2007 through June 30, 2009.

Generation Riders R and S

•

An ROE of 12.3% (inclusive of a 100 basis point statutory enhancement) for the 2010 rate year.

Transmission Rider T

•

Waiver of recovery, effective January 1, 2011, of deferred RTO start-up and administrative costs in the amount of $197 million (including carrying charges) that were previously approved for recovery through Rider T.

DSM Riders C1 and C2

•

An ROE of 11.3% for the 2010 rate year pending approval of the riders.

Approval of DSM Programs – Riders C1 and C2

Virginia Power previously filed with the Virginia Commission an application for approval and cost recovery of eleven DSM programs, including one peak-shaving program and ten energy efficiency programs. In March 2010, the Virginia Commission approved the recovery of approximately $28 million for five of the DSM programs through initiation of Riders C1 and C2, effective May 1, 2010. The riders will increase the typical 1,000 kWh Virginia jurisdictional residential customer’s bill by approximately $0.53 per month. With respect to the other six DSM programs for which approval was sought, the Virginia Commission made a finding that they were not in the public interest at this time, but allowed Virginia Power the opportunity for further evaluation of similar programs.

Ohio PIPP Rider

Under the Ohio PIPP, eligible customers can receive energy assistance based on their ability to pay their bill. The difference between the customer’s total bill and the PIPP plan amount is deferred and collected under the PIPP rider according to Dominion East Ohio tariff provisions. Although the current rider rate was designed to recover deferred costs over a three year period, unrecovered costs have increased. Accordingly, in December 2009, Dominion East Ohio filed for approval of an increase in the recovery rate. In March 2010, the Ohio Commission approved a 12-month recovery rider rate of $1.7078/mcf, which went into effect in April 2010. The Ohio Commission directed Dominion East Ohio to file an application, with arrearages calculated on a calendar year basis, to update its PIPP rider within one year of implementation of the new PIPP rider rate and annually thereafter. As a result of the Ohio Commission’s ruling, Dominion reclassified $143 million of previously deferred costs to be recovered through the PIPP rider from noncurrent regulatory assets to current regulatory assets.

Federal Energy Regulatory Commission

In March 2010, ODEC and NCEMC filed a complaint against Virginia Power at FERC claiming that approximately $223 million in transmission costs related to specific projects were unjust, unreasonable and unduly discriminatory or preferential and should be excluded from Virginia Power’s transmission formula. ODEC and NCEMC requested that FERC establish procedures to determine the amount of costs for each applicable project that should be excluded from Virginia Power’s rates. Virginia Power cannot predict the outcome of this proceeding.

North Anna Power Station

Virginia Power is considering the construction of a third nuclear unit at a site located at North Anna, which Virginia Power owns along with ODEC. Virginia Power and ODEC have obtained an Early Site Permit for the North Anna site from the NRC. In November 2007, Virginia Power, along with ODEC, filed an application with the NRC for a COL that references a specific reactor design and which would allow Virginia Power to build and operate a new nuclear unit at North Anna. In January 2008, the NRC accepted Virginia Power’s application for the COL and deemed it complete. In December 2008, Virginia Power terminated a long-lead agreement with its vendor with respect to the reactor design identified in its COL application and certain related equipment. A competitive process was initiated in 2009 to determine if vendors can provide an advanced technology reactor that could be licensed and built under terms acceptable to Virginia Power. Virginia Power has a cooperative agreement, scheduled to terminate September 30, 2010, with the Department of Energy to share equally the cost of developing a COL that references a specific reactor technology; however, this agreement may not remain in effect going forward if there is a change to the reactor technology to be used. Any change in reactor design will also require Virginia Power to amend its COL application, as necessary. Virginia Power has not yet committed to building a new nuclear unit.

PAGE 33

The NRC is required to conduct a hearing in all COL proceedings. In August 2008, the Atomic Safety and Licensing Board of the NRC granted a request for a hearing on one of eight contentions filed by the Blue Ridge Environmental Defense League. In August 2009, the Atomic Safety and Licensing Board dismissed this contention as moot, but in November 2009 admitted a new contention filed by Blue Ridge Environmental Defense League. Virginia Power’s motion for reconsideration of this ruling was denied by the Atomic Safety and Licensing Board in March 2010. Absent additional contentions, the mandatory NRC hearing will be uncontested with respect to other issues. In March 2010, the NRC completed its final supplemental environmental impact statement, finding that there are no environmental impacts that would preclude issuing a combined license for construction and operation for the new nuclear unit. The final safety evaluation report, including recommendations by the NRC Advisory Committee on Reactor Safeguards, is currently scheduled for early 2011. However, if Virginia Power amends its COL application to change its reactor design, further safety and environmental review is expected.

Note 13. Variable Interest Entities

As discussed in Note 16 to the Consolidated Financial Statements in Dominion’s and Virginia Power’s Annual Report on Form 10-K for the year ended December 31, 2009, certain variable pricing terms in some of the Companies’ long-term power and capacity contracts cause them to be considered variable interests in the counterparties.

Virginia Power has long-term power and capacity contracts with four non-utility generators with an aggregate generation capacity of approximately 940 MW. These contracts contain certain variable pricing mechanisms in the form of partial fuel reimbursement that Virginia Power considers to be variable interests. After an evaluation of the information provided by these entities, Virginia Power was unable to determine whether they were VIEs. However, the information they provided, as well as Virginia Power’s knowledge of generation facilities in Virginia, enabled Virginia Power to conclude that, if they were VIEs, it would not be the primary beneficiary. This conclusion reflects Virginia Power’s determination that its variable interests do not convey the power to direct the most significant activities that impact the economic performance of the entity during the remaining terms of Virginia Power’s contracts and for the years the entities are expected to operate after its contractual relationships expire. The contracts expire at various dates ranging from 2015 to 2021. Virginia Power is not subject to any risk of loss from these potential VIEs other than its remaining purchase commitments which totaled $1.7 billion as of March 31, 2010. Virginia Power paid $54 million and $53 million for electric capacity to these entities for the three months ended March 31, 2010 and 2009, respectively. Virginia Power paid $41 million for electric energy to these entities in both the three months ended March 31, 2010 and 2009.

Virginia Power purchased shared services from DRS, an affiliated VIE, of approximately $141 million and $100 million for the three months ended March 31, 2010 and 2009, respectively. Virginia Power determined that it is not the most closely associated entity with DRS and therefore not the primary beneficiary. DRS provides accounting, legal, finance and certain administrative and technical services to all Dominion subsidiaries, including Virginia Power. Virginia Power has no obligation to absorb more than its allocated share of DRS costs.

Note 14. Significant Financing Transactions

Credit Facilities and Short-Term Debt

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

PAGE 34

At March 31, 2010, commercial paper, bank loans, and letters of credit outstanding, as well as capacity available under credit facilities were as follows:


	Facility Limit		Outstanding Commercial Paper		Outstanding Bank Borrowings		Outstanding Letters of Credit		Facility Capacity Available
(millions)
Five-year joint revolving credit facility⁽¹⁾	$	2,872	$	—	$	—	$	163	$	2,709
Five-year Dominion credit facility⁽²⁾		1,700		295		—		8		1,397
Five-year Dominion bilateral facility⁽³⁾		200		—		—		35		165

Totals	$	4,772	$	295	$	—	$	206	$	4,271

(1)	This credit facility was entered into in February 2006 and terminates in February 2011. This credit facility can be used to support bank borrowings and the issuance of commercial paper, as well as to support up to $1.5 billion of letters of credit.

(2)	This credit facility was entered into in August 2005 and terminates in August 2010. This credit facility can be used to support bank borrowings, commercial paper and letter of credit issuances.

(3)	This facility was entered into in December 2005 and terminates in December 2010. This facility can be used to support bank borrowings, commercial paper and letter of credit issuances.

In addition to the credit facility commitments disclosed above, Virginia Power also has a five-year $120 million credit facility that terminates in February 2011, which supports certain of its tax-exempt financings.

Dominion and Virginia Power plan to replace their existing credit facilities during the third quarter of 2010. They expect to operate with credit facilities ranging from $3.0 to $3.5 billion. The Companies do not expect the reduction in the size of their credit facilities to negatively impact their ability to fund their operations.

Convertible Securities

At March 31, 2010, Dominion had $202 million of outstanding contingent convertible senior notes that are convertible by holders into a combination of cash and shares of Dominion’s common stock under certain circumstances. The conversion feature requires that the principal amount of each note be repaid in cash, while amounts payable in excess of the principal amount will be paid in common stock. The conversion rate is subject to adjustment upon certain events such as subdivisions, splits, combinations of common stock or the issuance to all common stock holders of certain common stock rights, warrants or options and certain dividend increases. As of March 31, 2010, the conversion rate has been adjusted, primarily due to individual dividend payments above the level paid at issuance, to 28.2239 shares of common stock per $1,000 principal amount of senior notes, which represents a conversion price of $35.43.

As of December 31, 2009, the closing price of Dominion’s common stock was not equal to $42.67 per share or higher for at least 20 out of the last 30 consecutive trading days. Therefore, the senior notes were not eligible for conversion during the first quarter of 2010. As of March 31, 2010, the closing price of Dominion’s common stock was not equal to $42.52 per share or higher for at least 20 out of the last 30 consecutive trading days; therefore, the senior notes are not eligible for conversion during the second quarter of 2010.

Issuance of Common Stock

During the three months ended March 31, 2010, Dominion issued 0.8 million shares of common stock and received cash proceeds of $27 million. The shares issued and cash proceeds received during the three months ended March 31, 2010 were through Dominion Direct^®, employee savings plans and the exercise of employee stock options. In February 2010, Dominion began purchasing its common stock on the open market with proceeds received through Dominion Direct^® and employee savings plans, rather than issuing additional new common shares.

In March 2010, Virginia Power issued 14,600 shares of its common stock to Dominion reflecting the conversion of approximately $433 million of short-term demand note borrowings from Dominion to equity.

Repurchase of Common Stock

In March 2010, Dominion began repurchasing shares on the open market in anticipation of proceeds from the pending sale of its Appalachian E&P operations. During the three months ended March 31, 2010, Dominion repurchased 4.7 million shares of its common stock for approximately $191 million. As of April 29, 2010, Dominion had repurchased an additional 6.1 million shares of its common stock for approximately $254 million.

PAGE 35

Note 15. Commitments and Contingencies

Other than the following matters, there have been no significant developments regarding the commitments and contingencies disclosed in Note 23 to the Consolidated Financial Statements in Dominion’s and Virginia Power’s Annual Report on Form 10-K for the year ended December 31, 2009.

Workforce Reduction Program

In the first quarter of 2010, Dominion and Virginia Power announced a workforce reduction program that is expected to reduce their total workforces by approximately 9% and 11%, respectively, during 2010. The goal of the workforce reduction program is to reduce operations and maintenance expense growth and further improve the efficiency of the Companies. Dominion and Virginia Power did not eliminate positions that would compromise safety, reliability or their ability to comply with applicable laws and regulations. In the first quarter of 2010, Dominion recorded a $338 million ($206 million after-tax) charge, including $202 million ($123 million after-tax) at Virginia Power, primarily reflected in other operations and maintenance expense in their Consolidated Statements of Income due to severance pay and other benefits related to the workforce reduction program.

Guarantees

Dominion

At March 31, 2010, Dominion had issued $127 million of guarantees to support third parties and equity method investees (issued guarantees). No significant amounts related to these guarantees have been recorded. During the first quarter of 2010, Dominion’s $165 million limited-scope guarantee and indemnification for one-half of NedPower’s project-level financing relating to litigation seeking to halt the NedPower wind farm was formally terminated with the consent of NedPower’s lenders as a result of the dismissal by the applicable court of such litigation pursuant to an agreed dismissal order. Issued guarantees include $57 million of guarantees to support Dominion’s investment in a joint venture with BP to develop Fowler Ridge. As of March 31, 2010, Dominion’s exposure under these guarantees was $22 million, primarily related to certain reserve requirements associated with Fowler Ridge’s non-recourse financing. BP has provided identical guarantees for the other one-half of these joint venture commitments.

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

PAGE 36

At March 31, 2010, Dominion had issued the following subsidiary guarantees:


	Stated Limit		Value⁽¹⁾
(millions)
Subsidiary debt⁽²⁾	$	126	$	126
Commodity transactions⁽³⁾		2,915		229
Lease obligation for power generation facility⁽⁴⁾		811		811
Nuclear obligations⁽⁵⁾		231		60
Other⁽ ⁶ ⁾		494		140

Total	$	4,577	$	1,366

(1)

Represents the estimated portion of the guarantee’s stated limit that is utilized as of March 31, 2010 based upon prevailing economic conditions and fact patterns specific to each guarantee arrangement. For those guarantees related to obligations that are recorded as liabilities by Dominion’s subsidiaries, the value includes the recorded amount.

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

(3)

Guarantees related to energy trading and marketing activities and other commodity commitments of certain subsidiaries, including subsidiaries of Virginia Power and DEI. These guarantees were provided to counterparties in order to facilitate physical and financial transactions in gas, oil, electricity, pipeline capacity, transportation and related commodities and services. If any of these subsidiaries fail to perform or pay under the contracts and the counterparties seek performance or payment, Dominion would be required to satisfy such obligation. Dominion and its subsidiaries receive similar guarantees as collateral for credit extended to others.

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

(5)

Guarantees related to certain DEI subsidiaries’ potential retrospective premiums that could be assessed if there is a nuclear incident under Dominion’s nuclear insurance programs and guarantees for a DEI subsidiary’s and Virginia Power’s commitment to buy nuclear fuel. Excludes Dominion’s agreement to provide up to $150 million and $60 million to two DEI subsidiaries to pay the operating expenses of Millstone and Kewaunee nuclear power stations, respectively, in the event of a prolonged outage, as part of satisfying certain NRC requirements concerned with ensuring adequate funding for the operations of nuclear power stations.

(6)

Guarantees related to other miscellaneous contractual obligations such as leases, environmental obligations and construction projects. Also includes guarantees related to certain DEI subsidiaries’ obligations for equity capital contributions and energy generation associated with the wind farm projects.

Virginia Power

As of March 31, 2010, Virginia Power had issued $16 million of guarantees primarily to support tax-exempt debt issued through conduits.

Surety Bonds and Letters of Credit

As of March 31, 2010, Dominion had purchased $94 million of surety bonds, including $39 million at Virginia Power, and authorized the issuance of standby letters of credit by financial institutions of $206 million, including $103 million at Virginia Power, to facilitate commercial transactions by its subsidiaries with third parties. Under the terms of the surety bonds, the Companies are obligated to indemnify the respective surety bond company for any amounts paid.

Environmental Matters

In December 2009, the EPA issued, Final Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act, finding that GHGs “endanger both the public health and the public welfare of current and future generations.” In April 2010, the EPA and the U.S. Department of Transportation issued final rules that will reduce GHG emissions and improve fuel economy for new cars and trucks sold in the U.S. These rules, when effective, will establish GHG emissions as regulated pollutants under the Clean Air Act. Dominion and Virginia Power expect that beginning in 2011, they will be required to obtain permits for GHG emissions from new and modified facilities. Until these actions occur, and the EPA establishes guidance for GHG permitting, including best available control technology, it is not possible to determine the impact on Dominion’s or Virginia Power’s facilities that emit GHGs.

PAGE 37

Note 16. Credit Risk

Credit risk is the risk of financial loss if counterparties fail to perform their contractual obligations. In order to minimize overall credit risk, credit policies are maintained, including the evaluation of counterparty financial condition, collateral requirements and the use of standardized agreements that facilitate the netting of cash flows associated with a single counterparty. In addition, counterparties may make available collateral, including letters of credit or cash held as margin deposits, as a result of exceeding agreed-upon credit limits, or may be required to prepay the transaction. Dominion and Virginia Power maintain a provision for credit losses based on factors surrounding the credit risk of their customers, historical trends and other information. Management believes, based on credit policies and the provision for credit losses, that it is unlikely that a material adverse effect on financial position, results of operations or cash flows would occur as a result of counterparty nonperformance.

Dominion

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

Dominion’s exposure to credit risk is concentrated primarily within its energy marketing and price risk management activities, as Dominion transacts with a smaller, less diverse group of counterparties and transactions may involve large notional volumes and potentially volatile commodity prices. Energy marketing and price risk management activities include trading of energy-related commodities, marketing of merchant generation output, structured transactions and the use of financial contracts for enterprise-wide hedging purposes. Gross credit exposure for each counterparty is calculated as outstanding receivables plus any unrealized on- or off-balance sheet exposure, taking into account contractual netting rights. Gross credit exposure is calculated prior to the application of collateral. At March 31, 2010, Dominion’s gross credit exposure totaled $1 billion. After the application of collateral, credit exposure is reduced to $851 million. Of this amount, investment grade counterparties, including those internally rated, represented 92%. Two counterparty exposures are greater than 10% of Dominion’s total exposure, one representing 13% and the other 12%, both of which are large financial institutions rated investment grade.

The majority of Dominion’s derivative instruments contain credit-related contingent provisions. These provisions require Dominion to provide collateral upon the occurrence of specific events, primarily a credit downgrade. If the credit-related contingent features underlying these instruments that are in a liability position and not fully collateralized with cash were fully triggered as of March 31, 2010 and December 31, 2009, Dominion would have been required to post an additional $70 million and $36 million, respectively, of collateral to its counterparties. The collateral that would be required to be posted includes the impacts of any offsetting asset positions and any amounts already posted for derivatives, non-derivative contracts and derivatives elected under the normal purchases and normal sales exception, per contractual terms. Dominion had posted $77 million in collateral, including $40 million of letters of credit at March 31, 2010 and $62 million in collateral, including $48 million of letters of credit at December 31, 2009, related to derivatives with credit-related contingent provisions that are in a liability position and not fully collateralized with cash. The collateral posted includes any amounts paid related to non-derivative contracts and derivatives elected under the normal purchases and normal sales exception, per contractual terms. The aggregate fair value of all derivative instruments with credit-related contingent provisions that are in a liability position and not fully collateralized with cash as of March 31, 2010 and December 31, 2009 is $242 million and $181 million, respectively, and does not include the impact of any offsetting asset positions. See Note 10 for further information about derivative instruments.

Virginia Power

Virginia Power sells electricity and provides distribution and transmission services to customers in Virginia and northeastern North Carolina. Management believes that this geographic concentration risk is mitigated by the diversity of Virginia Power’s customer base, which includes residential, commercial and industrial customers, as well as rural electric cooperatives and municipalities. Credit risk associated with trade accounts receivable from energy consumers is limited due to the large number of customers. Virginia Power’s exposure to potential concentrations of credit risk results primarily from sales to wholesale customers. Virginia Power’s gross credit exposure for each counterparty is calculated as outstanding receivables plus any unrealized on- or off-balance sheet exposure, taking into account contractual netting rights. Gross credit exposure is calculated prior to the application of collateral. At March 31, 2010, Virginia Power’s gross credit exposure totaled $27 million. After the application of collateral, credit exposure is reduced to $15 million. Of this amount, investment grade counterparties, including those internally rated, represented $5 million, and no single counterparty, whether investment grade or non-investment grade, exceeded $7 million of exposure.

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Certain of Virginia Power’s derivative instruments contain credit-related contingent provisions. These provisions require Virginia Power to provide collateral upon the occurrence of specific events, primarily a credit downgrade. If the credit-related contingent features underlying these instruments that are in a liability position and not fully collateralized with cash were fully triggered as of March 31, 2010 and December 31, 2009, Virginia Power would have been required to post an additional $2 million of collateral to its counterparties. The collateral that would be required to be posted includes the impacts of any offsetting asset positions and any amounts already posted for derivatives, non-derivative contracts and derivatives elected under the normal purchases and normal sales exception, per contractual terms. As of March 31, 2010 and December 31, 2009, Virginia Power had not posted any collateral related to derivatives with credit-related contingent provisions that are in a liability position and not fully collateralized with cash. The aggregate fair value of all derivative instruments with credit-related contingent provisions that are in a liability position and not fully collateralized with cash as of March 31, 2010 and December 31, 2009 is $2 million and does not include the impact of any offsetting asset positions. See Note 10 for further information about derivative instruments.

Note 17. Related Party Transactions

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

Transactions with Affiliates

Virginia Power transacts with affiliates for certain quantities of natural gas and other commodities in the ordinary course of business. Virginia Power also enters into certain commodity derivative contracts with affiliates. Virginia Power uses these contracts, which are principally comprised of commodity derivatives, to manage commodity price risks associated with purchases of natural gas. Virginia Power designates the majority of these contracts as cash flow hedges for accounting purposes.

DRS provides accounting, legal, finance and certain administrative and technical services to Virginia Power. In addition, Virginia Power provides certain services to affiliates, including facilities and equipment usage.

Presented below are significant Virginia Power transactions with DRS and other affiliates:


	Three Months Ended March 31,
	2010		2009
(millions)
Commodity purchases from affiliates	$	67	$	99
Services provided by affiliates		141		101

In March 2010, Virginia Power issued 14,600 shares of its common stock to Dominion reflecting the conversion of approximately $433 million of short-term borrowings from Dominion to equity.

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Note 18. Employee Benefit Plans

The components of the provision for net periodic benefit cost (credit) were as follows:


	Pension Benefits						Other Postretirement Benefits
Three Months Ended March 31,	2010			2009			2010			2009
(millions)
Service cost	$	27		$	26		$	14		$	15
Interest cost		66			63			25			25
Expected return on plan assets		(99	)		(101	)		(17	)		(14	)
Amortization of prior service cost (credit)		1			1			(2	)		(2	)
Amortization of net loss		15			9			3			7
Settlements and curtailments⁽¹⁾		84			—			38			—
Special termination benefits⁽²⁾		9			—			1			—

Net periodic benefit cost (credit)	$	103		$	(2	)	$	62		$	31

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

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

Employer Contributions

Dominion made no contributions to its defined benefit pension plans or other postretirement benefit plans during the three months ended March 31, 2010. Dominion expects to contribute approximately $250 million to its pension plans during the second quarter of 2010 and $56 million to its other postretirement benefit plans through Voluntary Employees’ Beneficiary Associations during the remainder of 2010.

Note 19. Operating Segments

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


Primary Operating Segment	Description of Operations	Dominion	Virginia Power
DVP	Regulated electric distribution	X	X
	Regulated electric transmission	X	X
	Nonregulated retail energy marketing (electric and gas)	X
Dominion Generation	Regulated electric fleet	X	X
	Merchant electric fleet	X
Dominion Energy	Gas transmission and storage	X
	Gas distribution	X
	LNG import and storage	X
	Appalachian gas exploration and production	X
	Producer services	X

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

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

In the three months ended March 31, 2010, Dominion reported after-tax net expenses of $402 million for specific items in the Corporate and Other segment, with $215 million of these net expenses attributable to its operating segments. In the three months ended March 31, 2009, Dominion reported after-tax net expenses of $326 million for specific items in the Corporate and Other segment, with $335 million of these net expenses attributable to its operating segments.

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

•

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

•

DVP ($67 million after-tax);

•

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

•

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

•

A $137 million ($149 million after-tax) loss from the discontinued operations of Peoples primarily reflecting a net loss on the sale.

The net expenses for specific items in 2009 primarily related to the impact of the following items:

•

A $455 million ($272 million after-tax) ceiling test impairment charge related to the carrying value of Dominion’s E&P properties, attributable to Dominion Energy; and

•

An $83 million ($50 million after-tax) net loss on investments held in nuclear decommissioning trust funds, attributable to Dominion Generation.

The Corporate and Other Segment of Virginia Power primarily includes certain specific items that are not included in profit measures evaluated by executive management in assessing segments performance or allocating resources among the segments. In the three months ended March 31, 2010 and 2009, Virginia Power reported after-tax net expenses of $140 million and $7 million, respectively, for specific items attributable to its operating segments in the Corporate and Other segment.

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

•

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

•

DVP ($63 million after-tax); and

•

Dominion Generation ($60 million after-tax).

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


	DVP		Dominion Generation		Dominion Energy		Corporate and Other			Adjustments/ Eliminations			Consolidated Total
(millions)
Three Months Ended March 31, 2010
Total revenue from external customers	$	1,003	$	1,978	$	850	$	40		$	297		$	4,168
Intersegment revenue		88		102		273		232			(695	)		—

Total operating revenue		1,091		2,080		1,123		272			(398	)		4,168
Loss from discontinued operations, net of tax		—		—		—		(149	)		—			(149	)

Net income (loss) attributable to Dominion		114		325		175		(440	)		—			174

2009
Total revenue from external customers	$	989	$	2,262	$	1,036	$	(21	)	$	320		$	4,586
Intersegment revenue		63		66		313		188			(630	)		—

Total operating revenue		1,052		2,328		1,349		167			(310	)		4,586
Income from discontinued operations, net of tax		—		—		—		9			—			9

Net income (loss) attributable to Dominion		115		369		177		(413	)		—			248

Intersegment sales and transfers for Dominion are based on contractual arrangements and may result in intersegment profit or loss that is eliminated in consolidation.

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


	DVP		Dominion Generation		Corporate and Other			Consolidated Total
(millions)
Three Months Ended March 31,
2010
Operating revenue	$	402	$	1,337	$	—		$	1,739
Net income (loss)		93		143		(141	)		95

2009
Operating revenue	$	380	$	1,479	$	—		$	1,859
Net income (loss)		90		121		(7	)		204

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ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MD&A discusses Dominion’s and Virginia Power’s results of operations and general financial condition. MD&A should be read in conjunction with the Companies’ Consolidated Financial Statements.

Contents of MD&A

MD&A consists of the following information:

•

Forward-Looking Statements

•

Accounting Matters

•

Dominion

•

Results of Operations

•

Segment Results of Operations

•

Virginia Power

•

Results of Operations

•

Segment Results of Operations

•

Liquidity and Capital Resources

•

Future Issues and Other Matters

Forward-Looking Statements

This report contains statements concerning Dominion’s and Virginia Power’s expectations, plans, objectives, future financial performance and other statements that are not historical facts. These statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. In most cases, the reader can identify these forward-looking statements by such words as “anticipate,” “estimate,” “forecast,” “expect,” “believe,” “should,” “could,” “plan,” “may,” “target” or other similar words.

Dominion and Virginia Power make forward-looking statements with full knowledge that risks and uncertainties exist that may cause actual results to differ materially from predicted results. Factors that may cause actual results to differ are often presented with the forward-looking statements themselves. Additionally, other factors may cause actual results to differ materially from those indicated in any forward-looking statement. These factors include but are not limited to:

•

Unusual weather conditions and their effect on energy sales to customers and energy commodity prices;

•

Extreme weather events, including hurricanes, high winds and severe storms, that can cause outages and property damage to facilities;

•

Federal, state and local legislative and regulatory developments;

•

Changes to federal, state and local environmental laws and regulations, including those related to climate change, the tightening of emission or discharge limits for GHGs and other emissions, more extensive permitting requirements and the regulation of additional substances;

•

Cost of environmental compliance, including those costs related to climate change;

•

Risks associated with the operation of nuclear facilities;

•

Unplanned outages of the Companies’ generation facilities;

•

Fluctuations in energy-related commodity prices and the effect these could have on Dominion’s earnings and Dominion’s and Virginia Power’s liquidity position and the underlying value of their assets;

•

Counterparty credit risk;

•

Capital market conditions, including the availability of credit and the ability to obtain financing on reasonable terms;

•

Risks associated with Virginia Power’s membership and participation in PJM related to obligations created by the default of other participants;

•

Price risk due to investments held in nuclear decommissioning trusts by Dominion and Virginia Power and in benefit plan trusts by Dominion;

•

Fluctuations in interest rates;

•

Changes in federal and state tax laws and regulations;

•

Changes in rating agency requirements or credit ratings and their effect on availability and cost of capital;

•

Changes in financial or regulatory accounting principles or policies imposed by governing bodies;

•

Employee workforce factors including collective bargaining agreements and labor negotiations with union employees;

•

The risks of operating businesses in regulated industries that are subject to changing regulatory structures;

•

Receipt of approvals for, and timing of, closing dates for acquisitions and divestitures;

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•

Changes in rules for RTOs in which Dominion and Virginia Power participate, including changes in rate designs and new and evolving capacity models;

•

Political and economic conditions, including the threat of domestic terrorism, inflation and deflation;

•

Changes to regulated electric rates collected by Virginia Power;

•

Timing and receipt of regulatory approvals necessary for planned construction or expansion projects;

•

The inability to complete planned construction projects within the terms and time frames initially anticipated; and

•

Adverse outcomes in litigation matters.

Additionally, other risks that could cause actual results to differ from predicted results are set forth in Item 1A. Risk Factors in Dominion’s and Virginia Power’s Annual Report on Form 10-K for the year ended December 31, 2009.

Dominion’s and Virginia Power’s forward-looking statements are based on beliefs and assumptions using information available at the time the statements are made. The Companies caution the reader not to place undue reliance on their forward-looking statements because the assumptions, beliefs, expectations and projections about future events may, and often do, differ materially from actual results. Dominion and Virginia Power undertake no obligation to update any forward-looking statement to reflect developments occurring after the statement is made.

Accounting Matters

Critical Accounting Policies and Estimates

As of March 31, 2010, there have been no significant changes with regard to the critical accounting policies and estimates disclosed in MD&A in Dominion’s and Virginia Power’s Annual Report on Form 10-K for the year ended December 31, 2009. The policies disclosed included the accounting for regulated operations, asset retirement obligations, income taxes, derivative contracts and other instruments at fair value, goodwill and long-lived asset impairment testing, employee benefit plans, gas and oil operations, and unbilled revenue.

Other

See Note 9 to Dominion’s and Virginia Power’s Consolidated Financial Statements for information on fair value measurements.

Dominion

Results of Operations

Presented below is a summary of Dominion’s consolidated results:


	2010		2009		$ Change
(millions, except EPS)
First Quarter
Net income attributable to Dominion	$	174	$	248	$	(74	)
Diluted EPS		0.29		0.42		(0.13	)

Overview

First Quarter 2010 vs. 2009

Net income attributable to Dominion decreased by 30%. Unfavorable drivers include charges related to a workforce reduction program, a loss on the sale of Peoples and lower margins from merchant generation operations. Favorable drivers include lower ceiling test impairment charges related to the carrying value of Dominion’s E&P properties and the impact of net realized gains for its merchant nuclear decommissioning trust funds in 2010 as compared to net realized losses in 2009.

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Analysis of Consolidated Operations

Presented below are selected amounts related to Dominion’s results of operations.


	First Quarter
	2010			2009		$ Change
(millions)
Operating revenue	$	4,168		$	4,586	$	(418	)
Electric fuel and other energy-related purchases		1,028			1,141		(113	)
Purchased electric capacity		108			108		—
Purchased gas		792			1,007		(215	)

Net revenue		2,240			2,330		(90	)
			&nb