Edgar Filing: VIRGINIA ELECTRIC & POWER CO

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Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended September 30, 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 registrants: Virginia

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

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

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

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

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

Dominion Resources, Inc.

Virginia Electric and Power Company

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

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

At September 30, 2010, the latest practicable date for determination, Dominion Resources, Inc. had 580,507,721 shares of common stock outstanding and Virginia Electric and Power Company had 263,010 shares of common stock outstanding. Dominion Resources, Inc. is the sole holder of Virginia Electric and Power Company’s common stock.

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

COMBINED INDEX


		Page Number

	Glossary of Terms		3

	PART I. Financial Information

Item 1.	Financial Statements		5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		48
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		64
Item 4.	Controls and Procedures		65

	PART II. Other Information

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

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)
AMR		Automated meter reading program deployed by East Ohio
ARO		Asset retirement obligation
ASLB		Atomic Safety and Licensing Board
bcf		Billion cubic feet
Bear Garden		A 580 MW combined cycle, natural gas-fired power station under construction in Buckingham County, Virginia
BREDL		Blue Ridge Environmental Defense League
CEO		Chief Executive Officer
CFO		Chief Financial Officer
CFTC		Commodity Futures Trading Commission
COL		Combined Construction Permit and Operating License
CONSOL		CONSOL Energy, Inc.
DEI		Dominion Energy, Inc.
Dodd-Frank Act		The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
DOE		Department of Energy
Dominion		The legal entity, Dominion Resources, Inc., one or more of Dominion Resources, Inc.’s consolidated subsidiaries (other than Virginia Power) or operating segments or the entirety of Dominion Resources, Inc. and its consolidated subsidiaries
Dominion Direct®		A dividend reinvestment and open enrollment direct stock purchase plan
DRS		Dominion Resources Services, Inc.
DTI		Dominion Transmission, Inc.
DVP		Dominion Virginia Power operating segment
East Ohio		The East Ohio Gas Company, doing business as Dominion East Ohio
E&P		Exploration & production
EPA		Environmental Protection Agency
EPS		Earnings per share
Fairless		Fairless power station
Fowler Ridge		A wind-turbine facility joint venture between Dominion and BP Alternative Energy, Inc. in Benton County, Indiana
FERC		Federal Energy Regulatory Commission
FTRs		Financial transmission rights
GAAP		U.S. generally accepted accounting principles
GHG		Greenhouse gas
Hope		Hope Gas, Inc., doing business as Dominion Hope
IRS		Internal Revenue Service
Kewaunee		Kewaunee power station
LNG		Liquefied natural gas
MD&A		Management’s Discussion and Analysis of Financial Condition and Results of Operations
Millstone		Millstone power station
Moody’s		Moody’s Investors Service
MW		Megawatt
MWh		Megawatt hour
NAAQS		National Ambient Air Quality Standard
NCEMC		North Carolina Electric Membership Corporation
NedPower		A wind-turbine facility joint venture between Dominion and Shell WindEnergy Inc. in Grant County, West Virginia
NERC		The North American Electric Reliability Corporation
NGLs		Natural gas liquids
North Anna		North Anna power station
North Carolina Commission		North Carolina Utilities Commission

PAGE 3


Abbreviation or Acronym		Definition
NO_X		Nitrogen oxide
NO₂		Nitrogen dioxide
NRC		Nuclear Regulatory Commission
ODEC		Old Dominion Electric Cooperative
Ohio Commission		Public Utilities Commission of Ohio
Peoples		The Peoples Natural Gas Company
PIR		Pipeline infrastructure replacement program deployed by East Ohio
PJM		PJM Interconnection, LLC
PNG Companies LLC		An indirect subsidiary of SteelRiver Infrastructure Fund North America
Riders C1 and C2		Rate adjustment clauses associated with the recovery of costs related to certain demand-side management programs
Rider R		A rate adjustment clause associated with the recovery of costs related to Bear Garden
Rider S		A rate adjustment clause associated with the recovery of costs related to the Virginia City Hybrid Energy Center
Rider T		A rate adjustment clause associated with the recovery of certain electric transmission-related expenditures
ROE		Return on equity
RTO		Regional transmission organization
SEC		Securities and Exchange Commission
SO₂		Sulfur dioxide
Standard & Poor’s		Standard & Poor’s Ratings Services, a division of the McGraw-Hill Companies, Inc.
State Line		State Line power station
Surry		Surry power station
TGP		Tennessee Gas Pipeline Company
the Companies		Dominion and Virginia Power, collectively
U.S.		United States of America
US-APWR		Mitsubishi Heavy Industry’s Advanced Pressurized Water Reactor
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
VPDES		Virginia Pollutant Discharge Elimination System
VPP		Volumetric production payment
VSWCB		Virginia State Water Control Board

PAGE 4

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DOMINION RESOURCES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended September 30,					Nine Months Ended September 30,
	2010		2009⁽¹⁾			2010			2009⁽¹⁾
(millions, except per share amounts)
Operating Revenue	$	3,950	$	3,630		$	11,451		$	11,622

Operating Expenses
Electric fuel and other energy-related purchases		1,180		1,072			3,164			3,211
Purchased electric capacity		116		96			333			309
Purchased gas		367		281			1,550			1,639
Other operations and maintenance		788		713			2,709			2,632
Depreciation, depletion and amortization		263		274			794			824
Other taxes		117		106			405			366

Total operating expenses		2,831		2,542			8,955			8,981

Gain on sale of Appalachian E&P operations		—		—			2,467			—

Income from operations		1,119		1,088			4,963			2,641

Other income		63		128			109			136
Interest and related charges		229		217			600			656

Income from continuing operations including noncontrolling interests before income tax expense		953		999			4,472			2,121
Income tax expense		374		360			1,803			766

Income from continuing operations including noncontrolling interests		579		639			2,669			1,355
Loss from discontinued operations⁽²⁾		—		(41	)		(147	)		(47	)

Net Income Including Noncontrolling Interests		579		598			2,522			1,308
Noncontrolling Interests		4		4			12			12

Net Income Attributable to Dominion	$	575	$	594		$	2,510		$	1,296

Amounts Attributable to Dominion:
Income from continuing operations, net of tax	$	575	$	635		$	2,657		$	1,343
Loss from discontinued operations, net of tax		—		(41	)		(147	)		(47	)

Net income attributable to Dominion	$	575	$	594		$	2,510		$	1,296

Earnings Per Common Share – Basic
Income from continuing operations	$	0.98	$	1.07		$	4.49		$	2.27
Loss from discontinued operations		—		(0.07	)		(0.25	)		(0.08	)

Net income attributable to Dominion	$	0.98	$	1.00		$	4.24		$	2.19

Earnings Per Common Share – Diluted
Income from continuing operations	$	0.98	$	1.07		$	4.48		$	2.27
Loss from discontinued operations		—		(0.07	)		(0.25	)		(0.08	)

Net income attributable to Dominion	$	0.98	$	1.00		$	4.23		$	2.19

Dividends paid per common share	$	0.4575	$	0.4375		$	1.3725		$	1.3125

(1)	Dominion’s Consolidated Statements of Income for the three and nine months ended September 30, 2009 have been recast to reflect Peoples as discontinued operations, as discussed in Note 3.

(2)	Includes income tax expense of $20 million for the three months ended September 30, 2009 and $13 million and $74 million for the nine months ended September 30, 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)


	September 30, 2010			December 31, 2009⁽¹⁾
(millions)
ASSETS
Current Assets
Cash and cash equivalents	$	446		$	48
Customer receivables (less allowance for doubtful accounts of $29 and $31)		1,728			2,050
Other receivables (less allowance for doubtful accounts of $9 and $14)		97			130
Inventories		1,222			1,185
Derivative assets		1,057			1,128
Assets held for sale		—			1,018
Regulatory assets		459			170
Prepayments		132			405
Other		854			683

Total current assets		5,995			6,817

Investments
Nuclear decommissioning trust funds		2,745			2,625
Investment in equity method affiliates		591			595
Other		275			272

Total investments		3,611			3,492

Property, Plant and Equipment
Property, plant and equipment		39,112			39,036
Accumulated depreciation, depletion and amortization		(13,056	)		(13,444	)

Total property, plant and equipment, net		26,056			25,592

Deferred Charges and Other Assets
Goodwill		3,141			3,354
Regulatory assets		1,321			1,390
Other		2,105			1,909

Total deferred charges and other assets		6,567			6,653

Total assets	$	42,229		$	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—(Continued)

(Unaudited)


	September 30, 2010			December 31, 2009⁽¹⁾
(millions)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Securities due within one year	$	776		$	1,137
Short-term debt		100			1,295
Accounts payable		1,342			1,401
Accrued interest, payroll and taxes		953			676
Derivative liabilities		754			679
Liabilities held for sale		—			428
Regulatory liabilities		180			536
Other		822			681

Total current liabilities		4,927			6,833

Long-Term Debt
Long-term debt		14,288			13,730
Junior subordinated notes payable to affiliates		268			268
Enhanced junior subordinated notes		1,467			1,483

Total long-term debt		16,023			15,481

Deferred Credits and Other Liabilities
Deferred income taxes and investment tax credits		4,366			4,244
Asset retirement obligations		1,559			1,605
Pension and other postretirement benefit liabilities		1,159			1,260
Regulatory liabilities		1,366			1,215
Other		477			474

Total deferred credits and other liabilities		8,927			8,798

Total liabilities		29,877			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⁾		5,702			6,525
Other paid-in capital		193			185
Retained earnings		6,386			4,686
Accumulated other comprehensive loss		(186	)		(211	)

Total common shareholders’ equity		12,095			11,185

Total liabilities and shareholders’ equity	$	42,229		$	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; 581 million and 599 million shares outstanding at September 30, 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)


Nine Months Ended September 30,	2010			2009
(millions)
Operating Activities
Net income including noncontrolling interests	$	2,522		$	1,308
Adjustments to reconcile net income including noncontrolling interests to net cash provided by operating activities:
Gain from sale of Appalachian E&P operations		(2,467	)		—
Loss from sale of Peoples		113			—
Accrued charges related to workforce reduction program		261			—
Impairment of merchant generation facility		163			—
Impairment of gas and oil properties		21			455
Depreciation, depletion and amortization (including nuclear fuel)		946			960
Deferred income taxes and investment tax credits		310			(342	)
Contribution to employee pension plans		(250	)		—
Rate settlement		(413	)		—
Other adjustments		7			(95	)
Changes in:
Accounts receivable		360			804
Inventories		(23	)		(41	)
Deferred fuel and purchased gas costs		(147	)		678
Prepayments		274			(67	)
Accounts payable		(51	)		(475	)
Accrued interest, payroll and taxes		270			(4	)
Margin deposit assets and liabilities		(23	)		(194	)
Other operating assets and liabilities		11			(5	)

Net cash provided by operating activities		1,884			2,982

Investing Activities
Plant construction and other property additions		(2,509	)		(2,884	)
Proceeds from the sale of Appalachian E&P operations		3,450			—
Proceeds from the sale of Peoples		741			—
Proceeds from sale of securities		1,938			1,258
Purchases of securities		(2,470	)		(1,294	)
Other		75			176

Net cash provided by (used in) investing activities		1,225			(2,744	)

Financing Activities
Repayment of short-term debt, net		(1,195	)		(1,381	)
Issuance of long-term debt		550			1,695
Repayment of long-term debt		(414	)		(134	)
Issuance of common stock		66			381
Repurchase of common stock		(900	)		—
Common dividend payments		(810	)		(777	)
Subsidiary preferred dividend payments		(12	)		(12	)
Other		2			(28	)

Net cash used in financing activities		(2,713	)		(256	)

Increase (decrease) in cash and cash equivalents		396			(18	)
Cash and cash equivalents at beginning of period⁽¹⁾		50			71

Cash and cash equivalents at end of period⁽²⁾	$	446		$	53

Supplemental Cash Flow Information:
Significant noncash investing and financing activities
Accrued capital expenditures	$	192		$	184
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 $3 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 September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
(millions)
Operating Revenue	$	2,111	$	1,938	$	5,561	$	5,472

Operating Expenses
Electric fuel and other energy-related purchases		694		740		1,915		2,219
Purchased electric capacity		116		95		331		307
Other operations and maintenance:
Affiliated suppliers		85		109		293		310
Other		319		230		947		757
Depreciation and amortization		171		162		499		479
Other taxes		53		48		170		145

Total operating expenses		1,438		1,384		4,155		4,217

Income from operations		673		554		1,406		1,255

Other income		25		33		67		65
Interest and related charges		88		89		259		263

Income before income tax expense		610		498		1,214		1,057
Income tax expense		230		183		472		389

Net Income		380		315		742		668
Preferred dividends		4		4		12		12

Balance available for common stock	$	376	$	311	$	730	$	656

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)


	September 30, 2010			December 31, 2009⁽¹⁾
(millions)
ASSETS
Current Assets
Cash and cash equivalents	$	22		$	19
Customer accounts receivable (less allowance for doubtful accounts of $10 and $12)		937			880
Other receivables (less allowance for doubtful accounts of $6 at both dates)		52			72
Inventories (average cost method)		603			614
Regulatory assets		278			116
Prepayments		114			52
Other		42			343

Total current assets		2,048			2,096

Investments
Nuclear decommissioning trust funds		1,257			1,204
Other		3			4

Total investments		1,260			1,208

Property, Plant and Equipment
Property, plant and equipment		27,163			25,643
Accumulated depreciation and amortization		(9,683	)		(9,314	)

Total property, plant and equipment, net		17,480			16,329

Deferred Charges and Other Assets
Intangible assets		209			217
Regulatory assets		292			200
Other		240			68

Total deferred charges and other assets		741			485

Total assets	$	21,529		$	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)


	September 30, 2010		December 31, 2009⁽¹⁾
(millions)
LIABILITIES AND SHAREHOLDER’S EQUITY
Current Liabilities
Securities due within one year	$	245	$	245
Short-term debt		100		442
Accounts payable		451		390
Payables to affiliates		66		67
Affiliated current borrowings		264		2
Accrued interest, payroll and taxes		279		213
Regulatory liabilities		152		491
Other		416		358

Total current liabilities		1,973		2,208

Long-Term Debt		6,502		6,213

Deferred Credits and Other Liabilities
Deferred income taxes and investment tax credits		2,514		2,359
Asset retirement obligations		660		636
Regulatory liabilities		1,144		995
Other		307		277

Total deferred credits and other liabilities		4,625		4,267

Total liabilities		13,100		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⁾		5,373		4,738
Other paid-in capital		1,111		1,110
Retained earnings		1,669		1,299
Accumulated other comprehensive income		19		26

Total common shareholder’s equity		8,172		7,173

Total liabilities and shareholder’s equity	$	21,529	$	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; 263,010 and 241,710 shares outstanding at September 30, 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)


Nine Months Ended September 30,	2010			2009
(millions)
Operating Activities
Net income	$	742		$	668
Adjustments to reconcile net income to net cash provided by operating activities:
Accrued charges related to workforce reduction program		98			—
Depreciation and amortization (including nuclear fuel)		584			556
Deferred income taxes and investment tax credits		399			(103	)
Rate settlement		(413	)		—
Contribution to employee pension plans		(119	)		—
Other adjustments		21			(44	)
Changes in:
Accounts receivable		(38	)		24
Affiliated accounts receivable and payable		1			(15	)
Inventories		10			(55	)
Deferred fuel expenses		(126	)		514
Accounts payable		80			(49	)
Accrued interest, payroll and taxes		66			47
Prepayments		(62	)		(40	)
Other operating assets and liabilities		(5	)		83

Net cash provided by operating activities		1,238			1,586

Investing Activities
Plant construction and other property additions		(1,579	)		(1,745	)
Purchases of nuclear fuel		(114	)		(90	)
Purchases of securities		(976	)		(624	)
Proceeds from sales of securities		959			607
Other		2			(53	)

Net cash used in investing activities		(1,708	)		(1,905	)

Financing Activities
Repayment of short-term debt, net		(342	)		(297	)
Issuance of affiliated current borrowings, net		897			646
Issuance of long-term debt		300			460
Repayment of long-term debt		(11	)		(120	)
Common dividend payments		(360	)		(366	)
Preferred dividend payments		(12	)		(12	)
Other		1			4

Net cash provided by financing activities		473			315

Increase (decrease) in cash and cash equivalents		3			(4	)
Cash and cash equivalents at beginning of period		19			27

Cash and cash equivalents at end of period	$	22		$	23

Supplemental Cash Flow Information
Significant noncash investing and financing activities:
Accrued capital expenditures	$	114		$	78
Conversion of short-term borrowings payable to Dominion to equity		636			—

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 sales of its Pennsylvania gas distribution operations and substantially all of its Appalachian E&P operations in February and April 2010, respectively.

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 and their Quarterly Reports on Form 10-Q for the quarters ended March 31, 2010 and June 30, 2010. Due to the sale of substantially all of Dominion’s Appalachian E&P operations during the second quarter of 2010, accounting for gas and oil operations is no longer considered a significant accounting policy. There have been no other material changes with regard to the significant accounting policies previously disclosed 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 September 30, 2010, their results of operations for the three and nine months ended September 30, 2010 and 2009 and their cash flows for the nine months ended September 30, 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 April 2010, Dominion completed the sale of substantially all of its Appalachian E&P operations to a newly-formed subsidiary of CONSOL for approximately $3.5 billion. The transaction includes the mineral rights to approximately 491,000 acres in the Marcellus Shale formation. Dominion retained certain oil and natural gas wells located on or near its natural gas storage fields. The transaction generated after-tax proceeds of approximately $2.2 billion and resulted in an after-tax gain of approximately $1.4 billion, which includes a $134 million write-off of goodwill. Proceeds from the sale have been or will be used to pay taxes on the gain, offset all of Dominion’s equity needs for 2010 and its market equity issuances for 2011, repurchase common stock, fund contributions to Dominion’s pension plans and the Dominion Foundation, reduce debt and offset the majority of 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.

Due to the 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 March 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 $132 million, which included a $79 million write-off of goodwill as well as post-closing adjustments. 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 during 2010.

Prior to March 31, 2010, Dominion did not report Peoples as discontinued operations since it expected to have significant continuing cash flows related primarily to the sale of natural gas production from its Appalachian E&P business to Peoples. Due to the sale of its Appalachian E&P business, Dominion will not 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 September 30,					Nine Months Ended September 30,
	2010		2009			2010			2009
(millions)
Operating revenue	$	—	$	38		$	67		$	328
Income (loss) before income taxes		—		(21	)		(134	)		27

Note 4. Ceiling Test

Dominion follows the full cost method of accounting for its gas and oil E&P activities, which subjects capitalized costs to a quarterly ceiling test using hedge-adjusted prices. Due to the April 2010 sale of substantially all of its Appalachian E&P operations, as of September 30, 2010 Dominion no longer has any significant gas and oil properties subject to the ceiling test calculation.

At March 31, 2010, Dominion recorded a ceiling test impairment charge of $21 million ($13 million after-tax) in other operations and maintenance expense in its Consolidated Statement of Income primarily due to a decline in hedge-adjusted prices reflecting the discontinuance of hedge accounting for certain cash flow hedges, as discussed in Note 3.

During the nine months ended September 30, 2009, Dominion recorded a ceiling test impairment charge of $455 million ($281 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 charge would have been $631 million ($378 million after-tax).

Note 5. Operating Revenue

The Companies’ operating revenue consists of the following:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
(millions)
Dominion
Electric sales:
Regulated	$	2,083	$	1,905	$	5,488	$	5,377
Nonregulated		1,072		999		2,857		2,917
Gas sales:
Regulated		25		26		209		403
Nonregulated		375		351		1,502		1,671
Gas transportation and storage		289		242		1,070		924
Other		106		107		325		330

Total operating revenue	$	3,950	$	3,630	$	11,451	$	11,622


Virginia Power
Regulated electric sales	$	2,083	$	1,905	$	5,488	$	5,377
Other		28		33		73		95

Total operating revenue	$	2,111	$	1,938	$	5,561	$	5,472

PAGE 15

Note 6. Income Taxes

Continuing Operations

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


	Dominion						Virginia Power
Nine Months Ended September 30,	2010			2009			2010			2009
U.S. statutory rate		35.0	%		35.0	%		35.0	%		35.0	%
Increases (reductions) resulting from:
Legislative changes		1.2			0.4			1.3			—
State taxes, net of federal benefit		4.5			3.5			3.9			3.7
Domestic production activities deduction		(0.4	)		(0.7	)		(0.9	)		(0.6	)
Non-deductible goodwill		0.9			—			—			—
Other, net		(0.9	)		(2.1	)		(0.4	)		(1.3	)

Effective tax rate		40.3	%		36.1	%		38.9	%		36.8	%

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. In addition, Dominion’s effective tax rate in 2010 includes the impact of goodwill written off with the sale of the Appalachian E&P operations that is not deductible for tax purposes.

During the nine months ended September 30, 2010, Dominion’s and Virginia Power’s unrecognized tax benefits changed as follows:


	Dominion			Virginia Power
(millions)
Beginning balance	$	291		$	121
Increases – prior period positions		15			4
Decreases – prior period positions		(60	)		(26	)
Current period positions		27			16
Other		(3	)		—

Ending balance	$	270		$	115

In 2010, the IRS began its examination of Dominion’s consolidated tax returns for tax years 2006 and 2007, and Dominion began settlement negotiations with the Appellate Division of the IRS regarding adjustments proposed in the examination of its consolidated tax returns for 2004 and 2005.

In September 2010, the Appellate Division of the IRS informed Dominion that the U.S. Congressional Joint Committee on Taxation had approved the settlement of tax years 2002 and 2003 for Dominion and its consolidated subsidiaries. The settlement excludes two issues, for which Dominion has reserved the right to litigate and pursue claims for refunds.

With Dominion’s appeals of assessments received from tax authorities, including settlement negotiations with the Appellate Division of the IRS regarding tax years 2004 and 2005 and the ongoing IRS examination of tax years 2006 and 2007, it is reasonably possible that certain unrecognized tax benefits could decrease during the next 12 months by up to $25 million for Dominion and up to $20 million for Virginia Power. Dominion’s unrecognized tax benefits could also be reduced over the next 12 months by $13 million, including $3 million for Virginia Power, to recognize prior period amounts becoming otherwise deductible in the current period. In addition, unrecognized tax benefits may increase for Dominion and Virginia Power by $20 million during the next 12 months for current period amounts related to certain tax positions initially taken in prior year returns for recurring business activities. Since the uncertainty for the majority of these unrecognized tax benefits involves only the timing of the deductions, no material impact on earnings is expected.

Discontinued Operations

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

PAGE 16

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

2010 Legislation

In September 2010, the President of the U.S. signed the Small Business Jobs Act of 2010 which provides a one-year extension for the fifty percent bonus depreciation allowance for qualifying expenditures. Dominion and Virginia Power expect to claim bonus depreciation, which will result in reduced income taxes payable and increased deferred tax liabilities.

Note 7. Earnings Per Share

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
(millions, except EPS)
Net income attributable to Dominion	$	575	$	594	$	2,510	$	1,296

Average shares of common stock outstanding – Basic		585.0		595.9		591.7		591.7
Net effect of potentially dilutive securities⁽¹⁾		1.4		0.4		1.1		0.3

Average shares of common stock outstanding – Diluted		586.4		596.3		592.8		592.0

Earnings Per Common Share – Basic	$	0.98	$	1.00	$	4.24	$	2.19
Earnings Per Common Share – Diluted	$	0.98	$	1.00	$	4.23	$	2.19

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

Potentially dilutive securities with the right to acquire approximately 0.5 million and 1.6 million common shares for the three and nine months ended September 30, 2009, respectively, 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 and nine months ended September 30, 2010.

Note 8. Comprehensive Income

The following table presents Dominion’s total comprehensive income:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
(millions)
Net income including noncontrolling interests	$	579		$	598		$	2,522		$	1,308
Other comprehensive income (loss):
Net other comprehensive loss associated with effective portion of changes in fair value of derivatives designated as cash flow hedges, net of taxes and amounts reclassified to earnings		(56	)		(156	)		(61	)		(117	)
Other, net of tax⁽¹⁾		70			67			86			144

Other comprehensive income (loss)		14			(89	)		25			27

Comprehensive income including noncontrolling interests		593			509			2,547			1,335
Noncontrolling interests		4			4			12			12

Total comprehensive income attributable to Dominion	$	589		$	505		$	2,535		$	1,323

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

PAGE 17

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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
(millions)
Net income	$	380		$	315		$	742		$	668
Other comprehensive income (loss):
Net other comprehensive income (loss) associated with effective portion of changes in fair value of derivatives designated as cash flow hedges, net of taxes and amounts reclassified to earnings		(1	)		(2	)		(9	)		6
Other, net of tax		6			5			2			12

Other comprehensive income (loss)		5			3			(7	)		18

Total comprehensive income	$	385		$	318		$	735		$	686

PAGE 18

Note 9. Fair Value Measurements

Dominion’s and Virginia Power’s fair value measurements are made in accordance with the policies discussed in Note 7 to the Consolidated Financial Statements in their Annual Report on Form 10-K for the year ended December 31, 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

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 trading 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 review and verification of models, as well as 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.

For derivative contracts, Dominion and Virginia Power recognize transfers among Level 1, Level 2 and Level 3 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.

PAGE 19

At September 30, 2010, Dominion’s and Virginia Power’s net balance of commodity derivatives categorized as Level 3 fair value measurements was a net liability of $17 million and $8 million, respectively. A hypothetical 10% increase in commodity prices would increase Dominion’s and Virginia Power’s Level 3 net liability by $64 million and $3 million, respectively, while a hypothetical 10% decrease in commodity prices would decrease Dominion’s and Virginia Power’s Level 3 net liability by $65 million and $3 million, respectively.

Non-recurring Fair Value Measurements

Dominion

In June 2010, Dominion evaluated State Line, a coal-fired merchant power station with minimal environmental controls, for impairment due to the station’s relatively low level of profitability combined with the EPA’s issuance in June 2010 of a new stringent 1-hour primary NAAQS for SO₂ that will likely require significant environmental capital expenditures in the future. As a result of this evaluation, Dominion recorded an impairment charge of $163 million ($95 million after-tax) in other operations and maintenance expense in its Consolidated Statement of Income, to write down State Line’s long-lived assets to their estimated fair value of $59 million. As management was not aware of any recent market transactions for comparable assets with sufficient transparency to develop a market approach to fair value, Dominion relied on the income approach (discounted cash flows) to estimate the fair value of State Line’s long-lived assets. This was considered a Level 3 fair value measurement due to the use of significant unobservable inputs including estimates of future power and other commodity prices.

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.

Virginia Power

In September 2010, Virginia Power evaluated its SO₂ emissions allowances not expected to be consumed by its generating units for potential impairment due to the significant decline in market prices since the July 2010 release of the EPA’s proposed Transport Rule, as discussed in Note 15. As a result of this evaluation, Virginia Power recorded an impairment charge of $13 million ($8 million after-tax) in other operations and maintenance expense in its Consolidated Statement of Income, to write down its SO₂ emission allowances not expected to be consumed to their estimated fair value of less than $1 million. Due to the absence of market activity for future SO₂ vintage year allowances, Virginia Power could not develop a market approach to fair value and therefore relied on the income approach to estimate the fair value of these SO₂ emission allowances, which was considered a Level 3 fair value measurement given the use of significant unobservable inputs including estimates of future SO₂ emissions allowance prices.

PAGE 20

Recurring Fair Value Measurements

Dominion

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


	Level 1		Level 2		Level 3		Total
(millions)
As of September 30, 2010
Assets
Derivatives:
Commodity	$	87	$	1,086	$	59	$	1,232
Interest rate		—		63		—		63
Investments⁽¹⁾:
Equity securities:
U.S.:
Large cap		1,547		—		—		1,547
Other		49		—		—		49
Non-U.S.:
Large cap		11		—		—		11
Fixed Income:
Corporate debt instruments		—		346		—		346
U.S. Treasury securities and agency debentures		274		160		—		434
State and municipal		—		265		—		265
Other		—		21		—		21
Cash equivalents and other		8		98		—		106

Total assets	$	1,976	$	2,039	$	59	$	4,074

Liabilities
Derivatives:
Commodity	$	11	$	844	$	76	$	931

Total liabilities	$	11	$	844	$	76	$	931


As of December 31, 2009
Assets
Derivatives:
Commodity	$	85	$	1,058	$	41	$	1,184
Interest rate		—		176		—		176
Foreign currency		—		2		—		2
Investments⁽¹⁾:
Equity securities:
U.S.:
Large cap		1,520		—		—		1,520
Other		43		1		—		44
Non-U.S.:
Large cap		12		—		—		12
Fixed Income:
Corporate debt instruments		—		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

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

PAGE 21

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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
(millions)
Beginning balance	$	32		$	31		$	(66	)	$	99
Total realized and unrealized gains (losses):
Included in earnings		27			3			40			(128	)
Included in other comprehensive income (loss)		(65	)		(7	)		20			(95	)
Included in regulatory assets/liabilities		(13	)		(45	)		1			10
Purchases, issuances and settlements		(23	)		5			(41	)		118
Transfers out of Level 3		25			2			29			(15	)

Ending balance	$	(17	)	$	(11	)	$	(17	)	$	(11	)

The amount of gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets/liabilities still held at the reporting date	$	4		$	7		$	(3	)	$	2

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


	Operating revenue			Electric fuel and other energy-related purchases			Purchased gas			Total
(millions)
Three Months Ended September 30, 2010
Total gains (losses) included in earnings	$	5		$	22		$	—		$	27
The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets/liabilities still held at the reporting date		4			—			—			4


Three Months Ended September 30, 2009
Total gains (losses) included in earnings	$	17		$	(14	)	$	—		$	3
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		6			—			1			7


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


Nine Months Ended September 30, 2009
Total gains (losses) included in earnings	$	31		$	(152	)	$	(7	)	$	(128	)
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		5			—			(3	)		2

PAGE 22

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 September 30, 2010
Assets
Derivatives:
Commodity	$	—	$	15	$	5	$	20
Interest rate		—		4		—		4
Investments⁽¹⁾:
Equity securities:
U.S.:
Large cap		614		—		—		614
Other		22		—		—		22
Fixed income:
Corporate debt instruments		—		234		—		234
U.S. Treasury securities and agency debentures		109		49		—		158
State and municipal		—		86		—		86
Other		—		16		—		16
Cash equivalents and other		—		53		—		53

Total assets	$	745	$	457	$	5	$	1,207

Liabilities
Derivatives:
Commodity	$	—	$	9	$	13	$	22

Total liabilities	$	—	$	9	$	13	$	22


As of December 31, 2009
Assets
Derivatives:
Commodity	$	—	$	30	$	2	$	32
Interest rate		—		86		—		86
Foreign currency		—		2		—		2
Investments⁽¹⁾:
Equity securities:
U.S.:
Large cap		615		—		—		615
Other		19		—		—		19
Fixed Income:
Corporate debt instruments		—		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

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

PAGE 23

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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
(millions)
Beginning balance	$	5		$	(8	)	$	(10	)	$	(69	)
Total realized and unrealized gains (losses):
Included in earnings		22			(14	)		48			(152	)
Included in regulatory assets/liabilities		(13	)		(45	)		2			10
Purchases, issuances and settlements		(22	)		15			(48	)		157
Transfers out of Level 3		—			—			—			2

Ending balance	$	(8	)	$	(52	)	$	(8	)	$	(52	)

The gains and losses included in earnings in the Level 3 fair value category were classified in electric fuel and other energy-related purchases expense in Virginia Power’s Consolidated Statements of Income for the three and nine months ended September 30, 2010 and 2009. There were no unrealized gains and losses included in earnings in the Level 3 fair value category relating to assets/liabilities still held at the reporting date for the three and nine months ended September 30, 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. For Dominion’s and Virginia Power’s financial instruments that are not recorded at fair value, the carrying amounts and estimated fair values are as follows:


	September 30, 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⁾	$	15,064	$	17,352	$	14,867	$	15,970
Junior subordinated notes payable to affiliates		268		265		268		255
Enhanced junior subordinated notes		1,467		1,573		1,483		1,487
Subsidiary preferred stock⁽³⁾		257		252		257		251


Virginia Power
Long-term debt, including securities due within one year⁽²⁾	$	6,747	$	7,771	$	6,458	$	6,977
Preferred stock⁽³⁾		257		252		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 September 30, 2010 and December 31, 2009, includes the valuation of certain fair value hedges associated with Dominion’s fixed rate debt of approximately $59 million and $23 million, respectively.

(3)	Includes issuance expenses of $2 million at September 30, 2010 and December 31, 2009.

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.

PAGE 24

Dominion

The following table presents the volume of Dominion’s derivative activity as of September 30, 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⁾		516		116
Basis⁽¹⁾		1,107		522
Electricity (MWh):
Fixed price⁽²⁾		22,096,134		9,608,229
FTRs		76,735,785		2,208,448
Capacity (MW)		1,448,200		4,339,950
Liquids (gallons)⁽³⁾		149,184,000		380,772,000
Interest rate	$	75,000,000	$	750,000,000

(1)	Includes options.

(2)	Includes power options.

(3)	Includes NGL and oil derivatives.

For the three and nine months ended September 30, 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 and nine months ended September 30, 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 September 30, 2010:


	AOCI After-Tax			Amounts Expected to be Reclassified to Earnings during the next 12 Months After-Tax			Maximum Term
(millions)
Commodities:
Gas	$	(24	)	$	(10	)		51 months
Electricity		204			168			32 months
NGLs		(2	)		(2	)		51 months
Other		10			3			56 months
Interest rate		32			(1	)		339 months

Total	$	220		$	158

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

PAGE 25

Fair Value and Gains and Losses on Derivative Instruments

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


	Fair Value – Derivatives under Hedge Accounting		Fair Value – Derivatives not under Hedge Accounting		Total Fair Value
(millions)
September 30, 2010
ASSETS
Current Assets
Commodity	$	461	$	572	$	1,033
Interest rate		24		—		24

Total current derivative assets		485		572		1,057

Noncurrent Assets
Commodity		111		88		199
Interest rate		39		—		39

Total noncurrent derivative assets⁽¹⁾		150		88		238

Total derivative assets	$	635	$	660	$	1,295

LIABILITIES
Current Liabilities
Commodity	$	185	$	569	$	754

Total current derivative liabilities		185		569		754

Noncurrent Liabilities
Commodity		67		110		177

Total noncurrent derivative liabilities⁽²⁾		67		110		177

Total derivative liabilities	$	252	$	679	$	931


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 26


Derivatives in cash flow hedging relationships	Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion)⁽¹⁾			Amount of Gain (Loss) Reclassified from AOCI to Income			Increase (Decrease) in Derivatives Subject to Regulatory Treatment⁽²⁾
(millions)
Three Months Ended September 30, 2010
Derivative Type and Location of Gains (Losses)
Commodity:
Operating revenue				$	88
Purchased gas					(6	)
Electric fuel and other energy-related purchases					4
Purchased electric capacity					1

Total commodity	$	(5	)		87		$	(6	)

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

Total	$	(5	)	$	87		$	(5	)

Three Months Ended September 30, 2009
Derivative Type and Location of Gains (Losses)
Commodity:
Operating revenue				$	307
Purchased gas					(16	)
Electric fuel and other energy-related purchases					(2	)
Purchased electric capacity					1

Total commodity	$	50			290		$	4

Interest rate⁽³⁾		(15	)		(1	)		(18	)
Foreign currency⁽⁴⁾		—			1			(2	)

Total	$	35		$	290		$	(16	)

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

Total commodity	$	277			260		$	(17	)

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

Total	$	274		$	370		$	(42	)

Nine Months Ended September 30, 2009
Derivative Type and Location of Gains (Losses)
Commodity:
Operating revenue				$	829
Purchased gas					(99	)
Electric fuel and other energy-related purchases					(9	)
Purchased electric capacity					4

Total commodity	$	424			725		$	9

Interest rate⁽³⁾		109			(3	)		57
Foreign currency⁽⁴⁾		1			2			(2	)

Total	$	534		$	724		$	64

(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 27


	Amount of Gain (Loss) Recognized in Income on Derivatives⁽¹⁾
	Three Months Ended September 30,						Nine Months Ended September 30,
Derivatives not designated as hedging instruments	2010			2009			2010			2009
(millions)
Derivative Type and Location of Gains (Losses)
Commodity
Operating revenue	$	45		$	28		$	71		$	74
Purchased gas		(13	)		(15	)		(42	)		(61	)
Electric fuel and other energy-related purchases		23			(14	)		48			(151	)
Interest Rate⁽²⁾		—			—			(37	)		—

Total	$	55		$	(1	)	$	40		$	(138	)

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

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

Virginia Power

The following table presents the volume of Virginia Power’s derivative activity as of September 30, 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		4		—
Basis		2		—
Electricity (MWh):
Fixed price		901,600		—
FTRs		76,296,000		2,208,448
Capacity (MW)		352,600		304,500
Interest rate	$	75,000,000		—

The following table presents selected information related to gains on cash flow hedges included in AOCI in Virginia Power’s Consolidated Balance Sheet at September 30, 2010:


	AOCI After-Tax		Amounts Expected to be Reclassified to Earnings during the next 12 Months After-Tax		Maximum Term
(millions)
Interest rate	$	3	$	—		339 months
Other		1		1		44 months

Total	$	4	$	1

PAGE 28

Fair Value and Gains and Losses on Derivative Instruments

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


	Fair Value – Derivatives under Hedge Accounting		Fair Value – Derivatives not under Hedge Accounting		Total Fair Value
(millions)
September 30, 2010
ASSETS
Current Assets
Commodity	$	15	$	5	$	20
Interest rate		4		—		4

Total current derivative assets⁽¹⁾		19		5		24

Total derivative assets	$	19	$	5	$	24

LIABILITIES
Current Liabilities
Commodity	$	6	$	13	$	19

Total current derivative liabilities⁽³⁾		6		13		19

Noncurrent Liabilities
Commodity		3		—		3

Total noncurrent derivative liabilities⁽⁴⁾		3		—		3

Total derivative liabilities	$	9	$	13	$	22


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 29


Derivatives in cash flow hedging relationships	Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion)⁽¹⁾			Amount of Gain (Loss) Reclassified from AOCI to Income			Increase (Decrease) in Derivatives Subject to Regulatory Treatment⁽²⁾
(millions)
Three Months Ended September 30, 2010
Derivative Type and Location of Gains (Losses)
Commodity:
Purchased electric capacity				$	1

Total commodity	$	(1	)		1		$	(6	)

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

Total	$	(1	)	$	1		$	(5	)


Three Months Ended September 30, 2009
Derivative Type and Location of Gains (Losses)
Commodity:
Electric fuel and other energy-related purchases				$	(2	)
Purchased electric capacity					1

Total commodity	$	—			(1	)	$	4

Interest rate⁽³⁾		(3	)		—			(18	)
Foreign currency⁽⁴⁾		—			—			(2	)

Total	$	(3	)	$	(1	)	$	(16	)


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

Total commodity	$	(2	)		2		$	(17	)

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

Total	$	(3	)	$	11		$	(42	)


Nine Months Ended September 30, 2009
Derivative Type and Location of Gains (Losses)
Commodity:
Electric fuel and other energy-related purchases				$	(8	)
Purchased electric capacity					4

Total commodity	$	(2	)		(4	)	$	9

Interest rate⁽³⁾		10			—			57
Foreign currency⁽⁴⁾		—			1			(2	)

Total	$	8		$	(3	)	$	64

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

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

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

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

PAGE 30


	Amount of Gain (Loss) Recognized in Income on Derivatives⁽¹⁾
	Three Months Ended September 30,					Nine Months Ended September 30,
Derivatives not designated as hedging instruments	2010		2009			2010			2009
(millions)
Derivative Type and Location of Gains (Losses)
Commodity⁽²⁾	$	22	$	(14	)	$	49		$	(152	)
Interest Rate⁽³⁾		—		—			(3	)		—

Total	$	22	$	(14	)	$	46		$	(152	)

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

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

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

Note 11. Investments

Dominion

Rabbi Trust Securities

Marketable equity and debt securities and cash equivalents held in Dominion’s rabbi trusts and classified as trading totaled $86 million and $96 million at September 30, 2010 and December 31, 2009, respectively. Cost method investments held in Dominion’s rabbi trusts totaled $18 million and $17 million at September 30, 2010 and December 31, 2009, respectively.

Decommissioning Trust Securities

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

Amortized
Cost

Total Unrealized
Gains⁽¹⁾

Total Unrealized
Losses⁽¹⁾

Fair Value

(millions)

September 30, 2010

Marketable equity securities

1,187

378

—

1,565

Marketable debt securities:

Corporate bonds

323

—

346

U.S. Treasury securities and agency debentures

415

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company