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 June 30, 2011

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

For the transition period from to


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

001-08489	DOMINION RESOURCES, INC.	54-1229715

001-02255	VIRGINIA ELECTRIC AND POWER COMPANY	54-0418825
	120 Tredegar Street Richmond, Virginia 23219 (804) 819-2000

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

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

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

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

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

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

Dominion Resources, Inc.

Virginia Electric and Power Company

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

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

At June 30, 2011, the latest practicable date for determination, Dominion Resources, Inc. had 569,208,521 shares of common stock outstanding and Virginia Electric and Power Company had 274,723 shares of common stock outstanding. Dominion Resources, Inc. is the sole holder of Virginia Electric and Power Company’s common stock.

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

COMBINED INDEX


		Page Number

	Glossary of Terms		PAGE 3

	PART I. Financial Information

Item 1.	Financial Statements		PAGE 6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		PAGE 44
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		PAGE 60
Item 4.	Controls and Procedures		PAGE 61

	PART II. Other Information

Item 1.	Legal Proceedings		PAGE 61
Item 1A.	Risk Factors		PAGE 62
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		PAGE 62
Item 6.	Exhibits		PAGE 63

PAGE 2

GLOSSARY OF TERMS

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


Abbreviation or Acronym		Definition
2009 Base Rate Review		Order entered by the Virginia Commission in January 2009, pursuant to the Regulation Act, initiating reviews of the base rates and terms and conditions of all investor-owned utilities in Virginia
AOCI		Accumulated other comprehensive income (loss)
ARO		Asset retirement obligation
ARP		Acid Rain Program, a market-based initiative for emissions allowance trading, established pursuant to Title IV of the CAA
bcf		Billion cubic feet
Bear Garden		A 580 MW combined cycle, natural gas-fired power station in Buckingham County, Virginia
BP		BP Wind Energy North America Inc.
Brayton Point		Brayton Point power station
BREDL		Blue Ridge Environmental Defense League
CAA		Clean Air Act
CAIR		Clean Air Interstate Rule
Carson-to-Suffolk line		An approximately 60-mile 500-kilovolt transmission line in southeastern Virginia
CATR		Clean Air Transport Rule
CEO		Chief Executive Officer
CERCLA		Comprehensive Environmental Response, Compensation and Liability Act of 1980, commonly known as Superfund
CFO		Chief Financial Officer
CFTC		Commodity Futures Trading Commission
Companies		Dominion and Virginia Power, collectively
CONSOL		CONSOL Energy, Inc.
Cooling degree days		Units measuring the extent to which the average daily temperature is greater than 65 degrees Fahrenheit, calculated as the difference between 65 degrees and the average temperature for that day
Cove Point		Dominion Cove Point LNG, LP
CSAPR		Cross State Air Pollution Rule
CWA		Clean Water Act
DEI		Dominion Energy, Inc.
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

PAGE 3


Abbreviation or Acronym		Definition
Fairless		Fairless power station
FERC		Federal Energy Regulatory Commission
Fowler Ridge		A wind-turbine facility joint venture between Dominion and BP Alternative Energy, Inc. in Benton County, Indiana
FTRs		Financial transmission rights
GAAP		U.S. generally accepted accounting principles
GHG		Greenhouse gas
Heating degree days		Units measuring the extent to which the average daily temperature is less than 65 degrees Fahrenheit, calculated as the difference between 65 degrees and the average temperature for that day
INPO		Institute of Nuclear Power Operations
ISO		Independent system operator
Kewaunee		Kewaunee nuclear power station
Kincaid		Kincaid power station
kWh		Kilowatt-hour
LNG		Liquefied natural gas
Local 310		International Union of Operating Engineers, Local 310
MACT		Maximum Achievable Control Technology
Mcf		Thousand cubic feet
MD&A		Management’s Discussion and Analysis of Financial Condition and Results of Operations
Meadow Brook-to-Loudoun line		An approximately 270-mile 500-kilovolt transmission line that begins in southwestern Pennsylvania, crosses West Virginia, and terminates in northern Virginia
Medicare Act		The Medicare Prescription Drug, Improvement and Modernization Act of 2003
Medicare Part D		Prescription drug benefit introduced in the Medicare Act
MGD		Million gallons a day
Millstone		Millstone nuclear power station
Moody’s		Moody’s Investors Service
MW		Megawatt
MWh		Megawatt hour
NedPower		A wind-turbine facility joint venture between Dominion and Shell WindEnergy Inc. in Grant County, West Virginia
NGLs		Natural gas liquids
NHSM		Non-hazardous secondary material
North Anna		North Anna nuclear power station
NO_X		Nitrogen oxide
NPDES		National Pollutant Discharge Elimination System
Ohio Commission		Public Utilities Commission of Ohio
OPEB		Other Postretirement Employee Benefits
Peoples		The Peoples Natural Gas Company
PIR		Pipeline Infrastructure Replacement program deployed by East Ohio

PAGE 4


Abbreviation or Acronym		Definition
PJM		PJM Interconnection, LLC
PNG Companies LLC		An indirect subsidiary of SteelRiver Infrastructure Fund North America
Regulation Act		Legislation effective July 1, 2007, that amended the Virginia Electric Utility Restructuring Act and fuel factor statute, which legislation is also known as the Virginia Electric Utility Regulation Act
Rider B		A rate adjustment clause associated with the recovery of costs related to the proposed conversion of three of Virginia Power’s coal-fired power stations to biomass
Rider R		A rate adjustment clause associated with the recovery of costs related to Bear Garden
Rider S		A rate adjustment clause associated with the recovery of costs related to the Virginia City Hybrid Energy Center
Rider T		A rate adjustment clause associated with the recovery of certain electric transmission-related expenditures
Rider W		A rate adjustment clause associated with the recovery of costs related to the proposed Warren County, Virginia power station
ROE		Return on equity
RTO		Regional transmission organization
Salem Harbor		Salem Harbor power station
SEC		Securities and Exchange Commission
SELC		Southern Environmental Law Center
SO₂		Sulfur dioxide
Standard & Poor’s		Standard & Poor’s Ratings Services, a division of the McGraw-Hill Companies, Inc.
State Line		State Line power station
Surry		Surry nuclear power station
U.S.		United States of America
VIE		Variable interest entity
Virginia City Hybrid Energy Center		A 585 MW baseload carbon-capture compatible, clean coal powered electric generation facility under construction in Wise County, Virginia
Virginia Commission		Virginia State Corporation Commission
Virginia Power		The legal entity, Virginia Electric and Power Company, one or more of its consolidated subsidiaries or operating segments or the entirety of Virginia Power and its consolidated subsidiaries
Virginia Settlement Approval Order		Order issued by the Virginia Commission in March 2010 concluding Virginia Power’s 2009 Base Rate Review
VPDES		Virginia Pollutant Discharge Elimination System
VSWCB		Virginia State Water Control Board

PAGE 5

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DOMINION RESOURCES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended June 30,					Six Months Ended June 30,
	2011		2010			2011		2010
(millions, except per share amounts)
Operating Revenue	$	3,341	$	3,333		$	7,398	$	7,501

Operating Expenses
Electric fuel and other energy-related purchases		978		956			2,027		1,984
Purchased electric capacity		116		109			235		217
Purchased gas		365		391			1,007		1,183
Other operations and maintenance		777		853			1,638		1,921
Depreciation, depletion and amortization		255		262			517		531
Other taxes		125		119			286		288

Total operating expenses		2,616		2,690			5,710		6,124
Gain on sale of Appalachian E&P operations		—		2,467			—		2,467

Income from operations		725		3,110			1,688		3,844

Other income (loss)		39		(25	)		96		46
Interest and related charges		216		188			443		371

Income from continuing operations including noncontrolling interests before income tax expense		548		2,897			1,341		3,519
Income tax expense		208		1,134			518		1,429

Income from continuing operations including noncontrolling interests		340		1,763			823		2,090
Income (loss) from discontinued operations⁽¹⁾		—		2			—		(147	)

Net Income Including Noncontrolling Interests		340		1,765			823		1,943
Noncontrolling Interests		4		4			8		8

Net Income Attributable to Dominion	$	336	$	1,761		$	815	$	1,935

Amounts Attributable to Dominion:
Income from continuing operations, net of tax	$	336	$	1,759		$	815	$	2,082
Income (loss) from discontinued operations, net of tax		—		2			—		(147	)

Net income attributable to Dominion	$	336	$	1,761		$	815	$	1,935

Earnings Per Common Share – Basic
Income from continuing operations	$	0.59	$	2.98		$	1.41	$	3.50
Loss from discontinued operations		—		—			—		(0.25	)

Net income attributable to Dominion	$	0.59	$	2.98		$	1.41	$	3.25

Earnings Per Common Share – Diluted
Income from continuing operations	$	0.58	$	2.98		$	1.41	$	3.50
Loss from discontinued operations		—		—			—		(0.25	)

Net income attributable to Dominion	$	0.58	$	2.98		$	1.41	$	3.25

Dividends declared per common share	$	0.4925	$	0.4575		$	0.9850	$	0.9150

(1)	Includes income tax expense of $1 million and $13 million for the three and six months ended June 30, 2010, respectively.

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

PAGE 6

DOMINION RESOURCES, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	June 30, 2011			December 31, 2010⁽¹⁾
(millions)
ASSETS
Current Assets
Cash and cash equivalents	$	80		$	62
Customer receivables (less allowance for doubtful accounts of $28 and $26)		1,695			2,158
Other receivables (less allowance for doubtful accounts of $10 and $9)		303			88
Inventories		1,194			1,163
Derivative assets		476			739
Other		1,214			1,190

Total current assets		4,962			5,400

Investments
Nuclear decommissioning trust funds		3,040			2,897
Investment in equity method affiliates		560			571
Restricted cash equivalents		301			400
Other		293			283

Total investments		4,194			4,151

Property, Plant and Equipment
Property, plant and equipment		41,163			39,855
Accumulated depreciation, depletion and amortization		(13,512	)		(13,142	)

Total property, plant and equipment, net		27,651			26,713

Deferred Charges and Other Assets
Goodwill		3,141			3,141
Regulatory assets		1,473			1,446
Other		1,990			1,966

Total deferred charges and other assets		6,604			6,553

Total assets	$	43,411		$	42,817

(1)	Dominion’s Consolidated Balance Sheet at December 31, 2010 has been derived from the audited Consolidated Financial Statements at that date.

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

PAGE 7

DOMINION RESOURCES, INC.

CONSOLIDATED BALANCE SHEETS—(Continued)

(Unaudited)


	June 30, 2011			December 31, 2010⁽¹⁾
(millions)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Securities due within one year	$	813		$	497
Short-term debt		1,786			1,386
Accounts payable		1,125			1,562
Accrued interest, payroll and taxes		582			849
Other		1,208			1,479

Total current liabilities		5,514			5,773

Long-Term Debt
Long-term debt		14,765			14,023
Junior subordinated notes payable to affiliates		268			268
Enhanced junior subordinated notes		1,467			1,467

Total long-term debt		16,500			15,758

Deferred Credits and Other Liabilities
Deferred income taxes and investment tax credits		5,081			4,708
Asset retirement obligations		1,633			1,577
Regulatory liabilities		1,421			1,392
Other		1,325			1,355

Total deferred credits and other liabilities		9,460			9,032

Total liabilities		31,474			30,563

Commitments and Contingencies (see Note 15)

Subsidiary Preferred Stock Not Subject to Mandatory Redemption		257			257

Common Shareholders’ Equity

Common stock – no par⁽²⁾		5,150			5,715
Other paid-in capital		194			194
Retained earnings		6,665			6,418
Accumulated other comprehensive loss		(329	)		(330	)

Total common shareholders’ equity		11,680			11,997

Total liabilities and shareholders’ equity	$	43,411		$	42,817

(1)	Dominion’s Consolidated Balance Sheet at December 31, 2010 has been derived from the audited Consolidated Financial Statements at that date.

(2)	1 billion shares authorized; 569 million and 581 million shares outstanding at June 30, 2011 and December 31, 2010, respectively.

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

PAGE 8

DOMINION RESOURCES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


Six Months Ended June 30,	2011			2010
(millions)
Operating Activities
Net income including noncontrolling interests	$	823		$	1,943
Adjustments to reconcile net income including noncontrolling interests to net cash provided by operating activities:
Gain from sale of Appalachian E&P operations		—			(2,467	)
Loss from sale of Peoples		—			113
Charges related to workforce reduction program		—			288
Impairment of merchant generation facility		55			163
Depreciation, depletion and amortization (including nuclear fuel)		627			629
Deferred income taxes and investment tax credits		454			(210	)
Contribution to employee pension plans		—			(250	)
Rate refunds		(45	)		(203	)
Other adjustments		(135	)		7
Changes in:
Accounts receivable		276			312
Inventories		(31	)		91
Deferred fuel and purchased gas costs		(90	)		(46	)
Prepayments		(10	)		299
Accounts payable		(394	)		(131	)
Accrued interest, payroll and taxes		(267	)		791
Margin deposit assets and liabilities		(142	)		5
Other operating assets and liabilities		166			72

Net cash provided by operating activities		1,287			1,406

Investing Activities
Plant construction and other property additions		(1,635	)		(1,654	)
Proceeds from the sale of Appalachian E&P operations		—			3,450
Proceeds from the sale of Peoples		—			741
Proceeds from sale of securities		938			1,140
Purchases of securities		(983	)		(2,064	)
Restricted cash equivalents		99			—
Other		46			48

Net cash provided by (used in) investing activities		(1,535	)		1,661

Financing Activities
Issuance (repayment) of short-term debt, net		401			(1,295	)
Issuance and remarketing of long-term debt		1,060			—
Repayment of long-term debt		(38	)		(411	)
Issuance of common stock		32			48
Repurchase of common stock		(601	)		(500	)
Common dividend payments		(568	)		(544	)
Subsidiary preferred dividend payments		(8	)		(8	)
Other		(12	)		4

Net cash provided by (used in) financing activities		266			(2,706	)

Increase in cash and cash equivalents		18			361
Cash and cash equivalents at beginning of period		62			50

Cash and cash equivalents at end of period	$	80		$	411

Supplemental Cash Flow Information
Significant noncash investing activities:
Accrued capital expenditures	$	197		$	215

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

PAGE 9

VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
(millions)
Operating Revenue	$	1,757	$	1,711	$	3,514	$	3,450

Operating Expenses
Electric fuel and other energy-related purchases		583		589		1,176		1,221
Purchased electric capacity		116		108		234		215
Other operations and maintenance:
Affiliated suppliers		77		88		150		208
Other		279		229		508		628
Depreciation and amortization		175		165		349		328
Other taxes		56		53		115		117

Total operating expenses		1,286		1,232		2,532		2,717

Income from operations		471		479		982		733

Other income		10		28		39		42
Interest and related charges		84		83		176		171

Income before income tax expense		397		424		845		604
Income tax expense		156		157		326		242

Net Income		241		267		519		362
Preferred dividends		4		4		8		8

Balance available for common stock	$	237	$	263	$	511	$	354

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

PAGE 10

VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	June 30, 2011			December 31, 2010⁽¹⁾
(millions)
ASSETS
Current Assets
Cash and cash equivalents	$	53		$	5
Customer receivables (less allowance for doubtful accounts of $10 and $11)		887			905
Other receivables (less allowance for doubtful accounts of $7 and $6)		186			54
Inventories (average cost method)		689			597
Prepayments		47			65
Other		380			355

Total current assets		2,242			1,981

Investments
Nuclear decommissioning trust funds		1,379			1,319
Restricted cash equivalents		106			169
Other		4			4

Total investments		1,489			1,492

Property, Plant and Equipment
Property, plant and equipment		28,490			27,607
Accumulated depreciation and amortization		(9,941	)		(9,712	)

Total property, plant and equipment, net		18,549			17,895

Deferred Charges and Other Assets
Intangible assets		217			212
Regulatory assets		444			370
Other		219			312

Total deferred charges and other assets		880			894

Total assets	$	23,160		$	22,262

(1)	Virginia Power’s Consolidated Balance Sheet at December 31, 2010 has been derived from the audited Consolidated Financial Statements at that date.

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

PAGE 11

VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED BALANCE SHEETS—(Continued)

(Unaudited)


	June 30, 2011		December 31, 2010⁽¹⁾
(millions)
LIABILITIES AND SHAREHOLDER’S EQUITY
Current Liabilities
Securities due within one year	$	15	$	15
Short-term debt		933		600
Accounts payable		410		499
Payables to affiliates		78		76
Affiliated current borrowings		58		103
Accrued interest, payroll and taxes		201		214
Other		527		571

Total current liabilities		2,222		2,078

Long-Term Debt		6,854		6,702

Deferred Credits and Other Liabilities
Deferred income taxes and investment tax credits		2,958		2,672
Asset retirement obligations		697		669
Regulatory liabilities		1,199		1,174
Other		201		203

Total deferred credits and other liabilities		5,055		4,718

Total liabilities		14,131		13,498

Commitments and Contingencies (see Note 15)

Preferred Stock Not Subject to Mandatory Redemption		257		257

Common Shareholder’s Equity
Common stock – no par⁽²⁾		5,738		5,738
Other paid-in capital		1,111		1,111
Retained earnings		1,897		1,634
Accumulated other comprehensive income		26		24

Total common shareholder’s equity		8,772		8,507

Total liabilities and shareholder’s equity	$	23,160	$	22,262

(1)	Virginia Power’s Consolidated Balance Sheet at December 31, 2010 has been derived from the audited Consolidated Financial Statements at that date.

(2)	500,000 shares and 300,000 shares authorized at June 30, 2011 and December 31, 2010, respectively; 274,723 shares outstanding at both June 30, 2011 and December 31, 2010.

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

PAGE 12

VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


Six Months Ended June 30,	2011			2010
(millions)
Operating Activities
Net income	$	519		$	362
Adjustments to reconcile net income to net cash provided by operating activities:
Charges related to workforce reduction program		—			114
Depreciation and amortization (including nuclear fuel)		410			383
Deferred income taxes and investment tax credits		328			129
Rate refunds		(45	)		(203	)
Other adjustments		(55	)		(29	)
Changes in:
Accounts receivable		(114	)		28
Affiliated accounts receivable and payable		2			18
Inventories		(92	)		23
Deferred fuel expenses		(105	)		(51	)
Accounts payable		(57	)		20
Accrued interest, payroll and taxes		(15	)		(24	)
Prepayments		19			(119	)
Other operating assets and liabilities		42			(92	)

Net cash provided by operating activities		837			559

Investing Activities
Plant construction and other property additions		(898	)		(1,041	)
Purchases of nuclear fuel		(118	)		(63	)
Purchases of securities		(616	)		(724	)
Proceeds from sales of securities		596			711
Restricted cash equivalents		63			—
Other		—			5

Net cash used in investing activities		(973	)		(1,112	)

Financing Activities
Issuance (repayment) of short-term debt, net		333			(442	)
Issuance (repayment) of affiliated current borrowings, net		(44	)		1,194
Remarketing of long-term debt		160			—
Repayment of long-term debt		(8	)		(9	)
Common dividend payments		(249	)		(189	)
Preferred dividend payments		(8	)		(8	)
Other		—			3

Net cash provided by financing activities		184			549

Increase (decrease) in cash and cash equivalents		48			(4	)
Cash and cash equivalents at beginning of period		5			19

Cash and cash equivalents at end of period	$	53		$	15

Supplemental Cash Flow Information
Significant noncash investing and financing activities:
Accrued capital expenditures	$	104		$	160
Settlement of debt and issuance of common stock to Dominion		—			433

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

PAGE 13

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Nature of Operations

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

Note 2. Significant Accounting Policies

As permitted by the rules and regulations of the SEC, Dominion’s and Virginia Power’s accompanying unaudited Consolidated Financial Statements contain certain condensed financial information and exclude certain footnote disclosures normally included in annual audited consolidated financial statements prepared in accordance with GAAP. These unaudited Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes in Dominion’s and Virginia Power’s Annual Report on Form 10-K for the year ended December 31, 2010 and their Quarterly Report on Form 10-Q for the quarter ended March 31, 2011.

In Dominion’s and Virginia Power’s opinion, the accompanying unaudited Consolidated Financial Statements contain all adjustments necessary to present fairly their financial position as of June 30, 2011, their results of operations for the three and six months ended June 30, 2011 and 2010 and their cash flows for the six months ended June 30, 2011 and 2010. Such adjustments are normal and recurring in nature unless otherwise noted.

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

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

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

Certain amounts in Dominion’s and Virginia Power’s 2010 Consolidated Financial Statements and Notes have been reclassified to conform to the 2011 presentation for comparative purposes. The reclassifications did not affect the Companies’ net income, total assets, liabilities, shareholders’ equity or cash flows.

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

Note 3. Dispositions

Sale of Appalachian E&P Operations

In April 2010, Dominion completed the sale of substantially all of its Appalachian E&P operations to a newly-formed subsidiary of CONSOL for approximately $3.5 billion. The transaction included the mineral rights to approximately 491,000 acres in the Marcellus Shale formation. Dominion retained certain oil and natural gas wells located on or near its natural gas storage fields. The transaction generated after-tax proceeds of approximately $2.2 billion and resulted in an after-tax gain of approximately $1.4 billion, which included a $134 million write-off of goodwill, recorded in the second quarter of 2010.

The results of operations for Dominion's Appalachian E&P business are not reported as discontinued operations in the Consolidated Statements of Income since Dominion did not sell its entire U.S. cost pool.

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

PAGE 14

Sale of Peoples

In February 2010, Dominion completed the sale of Peoples to PNG Companies LLC and netted after-tax proceeds of approximately $542 million. The sale resulted in an after-tax loss of approximately $140 million, including post-closing adjustments, and a $79 million write-off of goodwill. The sale also resulted in after-tax expenses of approximately $27 million, including transaction and benefit-related costs. Prior to the sale, Peoples had income from operations of $12 million after-tax during 2010.

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


	Three Months Ended June 30, 2010		Six Months Ended June 30, 2010
(millions)
Operating revenue	$	—	$	67
Income (loss) before income taxes		3		(134	)

Note 4. Ceiling Test

Dominion follows the full cost method of accounting for its gas and oil E&P activities, which subjects capitalized costs to a quarterly ceiling test using hedge-adjusted prices. Due to the April 2010 sale of substantially all of its Appalachian E&P operations, as of June 30, 2011, Dominion no longer has any significant gas and oil properties subject to the ceiling test calculation.

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

Note 5. Operating Revenue

The Companies’ operating revenue consists of the following:


	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
(millions)
Dominion
Electric sales:
Regulated	$	1,728	$	1,688	$	3,458	$	3,405
Nonregulated		794		840		1,735		1,785
Gas sales:
Regulated		44		39		183		184
Nonregulated		337		345		939		1,127
Gas transportation and storage		322		316		860		781
Other		116		105		223		219

Total operating revenue	$	3,341	$	3,333	$	7,398	$	7,501


Virginia Power
Regulated electric sales	$	1,728	$	1,688	$	3,458	$	3,405
Other		29		23		56		45

Total operating revenue	$	1,757	$	1,711	$	3,514	$	3,450

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
Six Months Ended June 30,	2011			2010			2011			2010
U.S. statutory rate		35.0	%		35.0	%		35.0	%		35.0	%
Increases (reductions) resulting from:
State taxes, net of federal benefit		3.7			4.5			3.9			3.9
Legislative changes		—			1.6			—			2.6
Other, net		(0.1	)		(0.5	)		(0.3	)		(1.4	)

Effective tax rate		38.6	%		40.6	%		38.6	%		40.1	%

Dominion’s and Virginia Power’s effective tax rates in 2010 reflect the reduction of deferred tax assets resulting from the enactment of the Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act of 2010 which eliminated the employer’s deduction, beginning in 2013, for that portion of its retiree prescription drug coverage cost that is being reimbursed by the Medicare Part D subsidy. In addition, Dominion’s effective tax rate in 2010 reflects higher state income taxes due to the sale of its Appalachian E&P operations.

During the quarter ended June 30, 2011, the Companies’ unrecognized tax benefits decreased $26 million to reflect resolution of several issues with tax authorities, including a recent Internal Revenue Service decision not to appeal rulings by the U.S. Tax Court in favor of two other taxpayers that street lighting assets are depreciable for tax purposes over seven years. See Note 6 to the Consolidated Financial Statements in Dominion’s and Virginia Power’s Annual Report on Form 10-K for the year ended December 31, 2010, for a discussion of the Companies’ unrecognized tax benefits, including possible changes that could reasonably 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.

Note 7. Earnings Per Share

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
(millions, except EPS)
Net income attributable to Dominion	$	336	$	1,761	$	815	$	1,935

Average shares of common stock outstanding – Basic		573.4		590.4		576.6		595.1
Net effect of potentially dilutive securities⁽¹⁾		1.8		1.0		1.3		1.0

Average shares of common stock outstanding – Diluted		575.2		591.4		577.9		596.1
Earnings Per Common Share – Basic	$	0.59	$	2.98	$	1.41	$	3.25
Earnings Per Common Share – Diluted	$	0.58	$	2.98	$	1.41	$	3.25

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

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

PAGE 16

Note 8. Comprehensive Income

The following table presents Dominion’s total comprehensive income:


	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
(millions)
Net income including noncontrolling interests	$	340		$	1,765		$	823		$	1,943
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		(6	)		(111	)⁽¹⁾		(78	)⁽²⁾		(5	)
Other, net of tax		4			(48	)⁽³⁾		79	⁽⁴⁾		16

Other comprehensive income (loss)		(2	)		(159	)		1			11

Comprehensive income including noncontrolling interests		338			1,606			824			1,954
Noncontrolling interests		4			4			8			8

Total comprehensive income attributable to Dominion	$	334		$	1,602		$	816		$	1,946

(1)	Reflects the impact of changes in commodity prices and the reclassification of gains related to interest rate derivatives to earnings.

(2)	Primarily reflects an increase in commodity prices.

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

(4)	Primarily reflects a net increase in unrealized gains on investments held in nuclear decommissioning trusts and changes in net unrecognized amounts related to pension and OPEB.

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


	Three Months Ended June 30,					Six Months Ended June 30,
	2011		2010			2011			2010
(millions)
Net income	$	241	$	267		$	519		$	362
Other comprehensive income (loss):
Net other comprehensive loss associated with effective portion of changes in fair value of derivatives designated as cash flow hedges, net of taxes and amounts reclassified to earnings		—		(3	)		(1	)		(8	)
Other, net of tax		—		(6	)		3			(4	)

Other comprehensive income (loss)		—		(9	)		2			(12	)

Total comprehensive income	$	241	$	258		$	521		$	350

PAGE 17

Note 9. Fair Value Measurements

Dominion’s and Virginia Power’s fair value measurements are made in accordance with the policies discussed in Note 7 to the Consolidated Financial Statements in their Annual Report on Form 10-K for the year ended December 31, 2010. See Note 10 in this report for further information about their derivatives and hedge accounting activities.

At June 30, 2011, Dominion’s and Virginia Power’s net balance of commodity derivatives categorized as Level 3 fair value measurements was a net liability of $122 million and $18 million, respectively. A hypothetical 10% increase in commodity prices would increase Dominion’s and Virginia Power’s Level 3 net liability by $112 million and $11 million, respectively, while a hypothetical 10% decrease in commodity prices would decrease Dominion’s and Virginia Power’s Level 3 net liability by $113 million and $11 million, respectively.

Non-recurring Fair Value Measurements

During March 2011, Dominion determined that it was unlikely that State Line would participate in the May 2011 PJM capacity base residual auction that would commit State Line’s capacity from June 2014 through May 2015. This determination reflected an expectation that margins for coal-fired generation will remain compressed in the 2014 and 2015 period in combination with the expectation that State Line may be impacted during the same time period by environmental regulations that would likely require significant capital expenditures. As a result, Dominion evaluated State Line for impairment since it was more likely than not that State Line would be retired before the end of its previously estimated useful life. As a result of this evaluation, Dominion recorded an impairment charge of $55 million ($39 million after-tax) reflected in other operations and maintenance expense in its Consolidated Statement of Income, to write down State Line’s long-lived assets to their estimated fair value of less than $1 million. As management was not aware of any recent market transactions for comparable assets with sufficient transparency to develop a market approach to fair value, Dominion used the income approach (discounted cash flows) to estimate the fair value of State Line’s long-lived assets. 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.

In June 2010, Dominion evaluated State Line for impairment due to the station’s relatively low level of profitability combined with the EPA’s issuance of a new stringent 1-hour primary National Ambient Air Quality Standard for SO₂ that would likely require significant environmental capital expenditures in the future. As a result of this evaluation, Dominion recorded an impairment charge of $163 million ($95 million after-tax) in other operations and maintenance expense in its Consolidated Statement of Income, to write down State Line’s long-lived assets to their estimated fair value of $59 million. 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.

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:

PAGE 18


	Level 1		Level 2		Level 3		Total
(millions)
At June 30, 2011
Assets
Derivatives:
Commodity	$	37	$	469	$	82	$	588
Interest rate		—		85		—		85
Investments⁽¹⁾:
Equity securities:
U.S.:
Large cap		1,819		—		—		1,819
Other		58		—		—		58
Non-U.S.:
Large cap		12		—		—		12
Fixed Income:
Corporate debt instruments		—		291		—		291
U.S. Treasury securities and agency debentures		348		164		—		512
State and municipal		—		268		—		268
Other		—		22		—		22
Cash equivalents and other		—		70		—		70
Restricted cash equivalents		—		301		—		301

Total assets	$	2,274	$	1,670	$	82	$	4,026

Liabilities
Derivatives:
Commodity	$	9	$	529	$	204	$	742
Interest Rate		—		34		—		34

Total liabilities	$	9	$	563	$	204	$	776


At December 31, 2010
Assets
Derivatives:
Commodity	$	62	$	734	$	47	$	843
Interest rate		—		54		—		54
Investments⁽¹⁾:
Equity securities:
U.S.:
Large cap		1,709		—		—		1,709
Other		56		—		—		56
Non-U.S.:
Large cap		12		—		—		12
Fixed Income:
Corporate debt instruments		—		327		—		327
U.S. Treasury securities and agency debentures		228		165		—		393
State and municipal		—		286		—		286
Other		—		19		—		19
Cash equivalents and other		25		97		—		122
Restricted cash equivalents		—		400		—		400

Total assets	$	2,092	$	2,082	$	47	$	4,221

Liabilities
Derivatives:
Commodity	$	12	$	716	$	97	$	825
Interest rate		—		5		—		5

Total liabilities	$	12	$	721	$	97	$	830

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

PAGE 19

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
(millions)
Beginning balance	$	(163	)	$	(60	)	$	(50	)	$	(66	)
Total realized and unrealized gains (losses):
Included in earnings		(22	)		12			(8	)		13
Included in other comprehensive income (loss)		35			61			(59	)		85
Included in regulatory assets/liabilities		(11	)		19			(32	)		14
Settlements		39			(3	)		23			(18	)
Transfers out of Level 3		—			3			4			4

Ending balance	$	(122	)	$	32		$	(122	)	$	32

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	$	27		$	3		$	31		$	(11	)

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 June 30, 2011
Total gains (losses) included in earnings	$	2		$	(24	)	$	—		$	(22	)
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		27			—			—			27

Three Months Ended June 30, 2010
Total gains (losses) included in earnings	$	6		$	6		$	—		$	12
The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets/liabilities still held at the reporting date		3			—			—			3

Six Months Ended June 30, 2011
Total gains (losses) included in earnings	$	—		$	(8	)	$	—		$	(8	)
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		31			—			—			31

Six Months Ended June 30, 2010
Total gains (losses) included in earnings	$	(10	)	$	26		$	(3	)	$	13
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	)		—			(2	)		(11	)

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)
At June 30, 2011
Assets
Derivatives:
Commodity	$	—	$	1	$	5	$	6
Interest rate		—		2		—		2
Investments⁽¹⁾:
Equity securities:
U.S.:
Large cap		718		—		—		718
Other		26		—		—		26
Fixed income:
Corporate debt instruments		—		175		—		175
U.S. Treasury securities and agency debentures		170		65		—		235
State and municipal		—		78		—		78
Other		—		17		—		17
Cash equivalents and other		—		48		—		48
Restricted cash equivalents		—		106		—		106

Total assets	$	914	$	492	$	5	$	1,411

Liabilities
Derivatives:
Commodity	$	—	$	5	$	23	$	28

Total liabilities	$	—	$	5	$	23	$	28


At December 31, 2010
Assets
Derivatives:
Commodity	$	—	$	12	$	15	$	27
Investments⁽¹⁾:
Equity securities:
U.S.:
Large cap		676		—		—		676
Other		25		—		—		25
Fixed Income:
Corporate debt instruments		—		215		—		215
U.S. Treasury securities and agency debentures		80		63		—		143
State and municipal		—		102		—		102
Other		—		15		—		15
Cash equivalents and other		10		61		—		71
Restricted cash equivalents		—		169		—		169

Total assets	$	791	$	637	$	15	$	1,443

Liabilities
Derivatives:
Commodity	$	—	$	5	$	1	$	6

Total liabilities	$	—	$	5	$	1	$	6

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

PAGE 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 June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
(millions)
Beginning balance	$	(7	)	$	(15	)	$	14		$	(10	)
Total realized and unrealized gains (losses):
Included in earnings		(24	)		6			(8	)		26
Included in regulatory assets/liabilities		(11	)		20			(32	)		15
Settlements		24			(6	)		8			(26	)

Ending balance	$	(18	)	$	5		$	(18	)	$	5

The gains and losses included in earnings in the Level 3 fair value category were classified in electric fuel and other energy-related purchases in Virginia Power’s Consolidated Statements of Income for the three and six months ended June 30, 2011 and 2010. There were no unrealized gains and losses included in earnings in the Level 3 fair value category relating to assets/liabilities still held at the reporting date for the three and six months ended June 30, 2011 and 2010.

Fair Value of Financial Instruments

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


	June 30, 2011				December 31, 2010
	Carrying Amount		Estimated Fair Value⁽¹⁾		Carrying Amount		Estimated Fair Value⁽¹⁾
(millions)
Dominion
Long-term debt, including securities due within one year⁽²⁾	$	15,578	$	17,323	$	14,520	$	16,112
Junior subordinated notes payable to affiliates		268		275		268		261
Enhanced junior subordinated notes		1,467		1,576		1,467		1,560
Subsidiary preferred stock⁽³⁾		257		264		257		249


Virginia Power
Long-term debt, including securities due within one year⁽²⁾	$	6,869	$	7,782	$	6,717	$	7,489
Preferred stock⁽³⁾		257		264		257		249

(1)

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

(2)	Includes amounts which represent the unamortized discount and premium. At June 30, 2011 and December 31, 2010, includes the valuation of certain fair value hedges associated with Dominion’s fixed rate debt of approximately $81 million and $49 million, respectively.

(3)	Includes issuance expenses of $2 million at June 30, 2011 and December 31, 2010.

Note 10. Derivatives and Hedge Accounting Activities

Dominion’s and Virginia Power’s accounting policies and objectives and strategies for using derivative instruments are discussed in Note 2 to the Consolidated Financial Statements in their Annual Report on Form 10-K for the year ended December 31, 2010. See Note 9 in this report for further information about fair value measurements and associated valuation methods for derivatives.

PAGE 22

The following table presents the volume of Dominion’s derivative activity as of June 30, 2011. These volumes are based on open derivative positions and represent the combined absolute value of their long and short positions, except in the case of offsetting deals, for which they represent the absolute value of the net volume of their long and short positions.


	Current		Noncurrent
Natural Gas (bcf):
Fixed price⁽¹⁾		245		60
Basis		1,019		458
Electricity (MWh):
Fixed price⁽¹⁾		19,363,209		24,512,834
FTRs		108,707,777		1,074,048
Capacity (MW)		201,416		297,985
Liquids (gallons)⁽²⁾		143,136,000		300,006,000
Interest rate	$	600,000,000	$	3,100,000,000

(1)	Includes options.

(2)	Includes NGLs and oil.

For the three and six months ended June 30, 2011 and 2010, gains or losses on hedging instruments determined to be ineffective were not material. Amounts excluded from the assessment of effectiveness include gains or losses attributable to changes in the time value of options and changes in the differences between spot prices and forward prices and were not material for the three and six months ended June 30, 2011 and 2010.

The following table presents selected information related to gains (losses) on cash flow hedges included in AOCI in Dominion’s Consolidated Balance Sheet at June 30, 2011:


	AOCI After-Tax			Amounts Expected to be Reclassified to Earnings during the next 12 Months After-Tax			Maximum Term
(millions)
Commodities:
Gas	$	(14	)	$	(5	)		42 months
Electricity		42			30			54 months
NGLs		(75	)		(32	)		42 months
Other		6			2			47 months
Interest rate		14			(6	)		378 months

Total	$	(27	)	$	(11	)

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

The sale of the majority of Dominion’s remaining E&P operations during 2010 resulted in the discontinuance of hedge accounting for certain cash flow hedges, as discussed in Note 3.

In addition, changes to Dominion’s financing needs during the first and second quarters of 2010 resulted in the discontinuance of hedge accounting for certain cash flow hedges, since it became probable that forecasted interest payments would not occur. In connection with the discontinuance of hedge accounting for these contracts, Dominion recognized a benefit recorded to interest and related charges reflecting the reclassification of gains from AOCI to earnings of $70 million ($43 million after-tax) in the three months ended June 30, 2010 and $110 million ($67 million after-tax) in the six months ended June 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 three and six months ended June 30, 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)
June 30, 2011
ASSETS
Current Assets
Commodity	$	163	$	273	$	436
Interest rate		40		—		40

Total current derivative assets		203		273		476

Noncurrent Assets
Commodity		82		70		152
Interest rate		45		—		45

Total noncurrent derivative assets⁽¹⁾		127		70		197

Total derivative assets	$	330	$	343	$	673

LIABILITIES
Current Liabilities
Commodity	$	172	$	344	$	516
Interest rate		27		—		27

Total current derivative liabilities⁽²⁾		199		344		543

Noncurrent Liabilities
Commodity		146		80		226
Interest rate		7		—		7

Total noncurrent derivative liabilities⁽³⁾		153		80		233

Total derivative liabilities	$	352	$	424	$	776


December 31, 2010
ASSETS
Current Assets
Commodity	$	291	$	425	$	716
Interest rate		23		—		23

Total current derivative assets		314		425		739

Noncurrent Assets
Commodity		44		83		127
Interest rate		31		—		31

Total noncurrent derivative assets⁽¹⁾		75		83		158

Total derivative assets	$	389	$	508	$	897

LIABILITIES
Current Liabilities
Commodity	$	178	$	455	$	633

Total current derivative liabilities⁽²⁾		178		455		633

Noncurrent Liabilities
Commodity		86		106		192
Interest rate		5		—		5

Total noncurrent derivative liabilities⁽³⁾		91		106		197

Total derivative liabilities	$	269	$	561	$	830

PAGE 24

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

(2)	Current derivative liabilities are presented in other current liabilities in Dominion’s Consolidated Balance Sheets.

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

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 June 30, 2011
Derivative Type and Location of Gains (Losses)
Commodity:
Operating revenue				$	32
Purchased gas					(7	)
Electric fuel and other energy-related purchases					1
Purchased electric capacity					1

Total commodity	$	49			27		$	(4	)

Interest rate⁽³⁾		(31	)		—			1

Total	$	18		$	27		$	(3	)

Three Months Ended June 30, 2010
Derivative Type and Location of Gains (Losses)
Commodity:
Operating revenue				$	114
Purchased gas					(19	)
Electric fuel and other energy-related purchases					(5	)
Purchased electric capacity					1

Total commodity	$	(16	)		91		$	2

Interest rate⁽³⁾		—			70			(23	)
Foreign currency⁽⁴⁾		—			(1	)		(1	)

Total	$	(16	)	$	160		$	(22	)

Six Months Ended June 30, 2011
Derivative Type and Location of Gains (Losses)
Commodity:
Operating revenue				$	60
Purchased gas					(55	)
Electric fuel and other energy-related purchases					2
Purchased electric capacity					2

Total commodity	$	(93	)		9		$	(9	)

Interest rate⁽³⁾		(32	)		—			—

Total	$	(125	)	$	9		$	(9	)

Six Months Ended June 30, 2010
Derivative Type and Location of Gains (Losses)
Commodity:
Operating revenue				$	295
Purchased gas					(116	)
Electric fuel and other energy-related purchases					(8	)
Purchased electric capacity					2

Total commodity	$	283			173		$	(11	)

Interest rate⁽³⁾		(3	)		110			(24	)
Foreign currency⁽⁴⁾		—			—			(2	)

Total	$	280		$	283		$	(37	)

PAGE 25

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

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

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

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


	Amount of Gain (Loss) Recognized in Income on Derivatives⁽¹⁾
	Three Months Ended June 30,						Six Months Ended June 30,
Derivatives not designated as hedging instruments	2011			2010			2011			2010
(millions)
Derivative Type and Location of Gains (Losses)
Commodity
Operating revenue	$	23		$	(14	)	$	42		$	26
Purchased gas		(7	)		2			(18	)		(29	)
Electric fuel and other energy-related purchases		(24	)		5			(8	)		26
Interest rate⁽²⁾		—			(37	)		—			(37	)

Total	$	(8	)	$	(44	)	$	16		$	(14	)

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

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

Note 11. Investments

Dominion

Equity and Debt Securities

Rabbi Trust Securities

Marketable equity and debt securities and cash equivalents held in Dominion’s rabbi trusts and classified as trading totaled $98 million and $93 million at June 30, 2011 and December 31, 2010, respectively. Net unrealized gains on trading securities totaled $1 million and $4 million for the three and six months ended June 30, 2011, respectively. Net unrealized losses on trading securities totaled $3 million and $1 million for the three and six months ended June 30, 2010, respectively. Cost-method investments held in Dominion’s rabbi trusts totaled $17 million and $18 million at June 30, 2011 and December 31, 2010, respectively.

PAGE 26

Decommissioning Trust Securities

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


	Amortized Cost		Total Unrealized Gains⁽¹⁾		Total Unrealized Losses ⁽¹⁾			Fair Value
(millions)
June 30, 2011
Marketable equity securities
U.S.:
Large Cap	$	1,187	$	597	$	—		$	1,784
Other		41		11		—			52
Marketable debt securities:
Corporate bonds		274		18		(1	)		291
U.S. Treasury securities and agency debentures		499		14		(1	)		512
State and municipal		213		13		(1	)		225
Other		22		—		—			22
Cost method investments		110		—		—			110
Cash equivalents and other⁽²⁾		44		—		—			44

Total	$	2,390	$	653	$	(3	)⁽³⁾	$	3,040

December 31, 2010
Marketable equity securities:
U.S.:
Large Cap	$	1,161	$	515	$	—		$	1,676
Other		39		11		—			50
Marketable debt securities:
Corporate bonds		310		18		(1	)		327
U.S. Treasury securities and agency debentures		380		12		(1	)		391
State and municipal		244		7		(4	)		247
Other		19		—		—			19
Cost method investments		108		—		—			108
Cash equivalents and other⁽²⁾		79		—		—			79

Total	$	2,340	$	563	$	(6	)⁽³⁾	$	2,897

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

(2)	Includes pending purchases of securities of $25 million and $43 million at June 30, 2011 and December 31, 2010, respectively.

(3)	The fair value of securities in an unrealized loss position was $235 million and $252 million at June 30, 2011 and December 31, 2010, respectively.

PAGE 27

The fair value of Dominion’s marketable debt securities held in nuclear decommissioning trust funds at June 30, 2011 by contractual maturity is as follows:


	Amount
(millions)
Due in one year or less	$	100
Due after one year through five years		300
Due after five years through ten years		316
Due after ten years		334

Total	$	1,050

Presented below is selected information regarding Dominion’s marketable equity and debt securities held in nuclear decommissioning trust funds.


	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
(millions)
Proceeds from sales	$	437	$	627	$	939	$	1,140
Realized gains⁽¹⁾		18		17		32		73
Realized losses⁽¹⁾		12		28		20		54

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

Dominion recorded other-than-temporary impairment losses on investments held in nuclear decommissioning trust funds as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
(millions)
Total other-than-temporary impairment losses⁽¹⁾	$	10		$	41		$	15		$	48
Losses recorded to decommissioning trust regulatory liability		(4	)		(13	)		(6	)		(16	)
Losses recognized in other comprehensive income (before taxes)		(1	)		(1	)		(1	)		(2	)

Net impairment losses recognized in earnings	$	5		$	27		$	8		$	30

(1)	Amount includes other-than-temporary impairment losses for debt securities of $1 million for the three months ended June 30, 2011 and 2010, and $2 million and $3 million for the six months ended June 30, 2011 and 2010, respectively.

PAGE 28

Virginia Power

Decommissioning Trust Securities

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


	Amortized Cost		Total Unrealized Gains⁽¹⁾		Total Unrealized Losses⁽¹⁾			Fair Value
(millions)
June 30, 2011
Marketable equity securities:
U.S.:
Large Cap	$	474	$	243	$	—		$	717
Other		20		6		—			26
Marketable debt securities:
Corporate bonds		166		10		(1	)		175
U.S. Treasury securities and agency debentures		232		4		(1	)		235
State and municipal		76		2		—			78
Other		17		—		—			17
Cost method investments		110		—		—			110
Cash equivalents and other⁽²⁾		21		—		—			21

Total	$	1,116	$	265	$	(2	)⁽³⁾	$	1,379

December 31, 2010
Marketable equity securities
U.S.:
Large Cap	$	469	$	207	$	—		$	676
Other		20		5		—			25
Marketable debt securities:
Corporate bonds		205		10		—			215
U.S. Treasury securities and agency debentures		141		2		—			143
State and municipal		103		1		(2	)		102
Other		15		—		—			15
Cost method investments		108		—		—			108
Cash equivalents and other⁽²⁾		35		—		—			35

Total	$	1,096	$	225	$	(2	)⁽³⁾	$	1,319

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

(2)	Includes pending purchases of securities of $27 million and $35 million at June 30, 2011 and December 31, 2010, respectively.

(3)	The fair value of securities in an unrealized loss position was $134 million and $159 million at June 30, 2011, and December 31, 2010, respectively.

The fair value of Virginia Power’s debt securities at June 30, 2011, by contractual maturity is as follows:


	Amount
(millions)
Due in one year or less	$	11
Due after one year through five years		157
Due after five years through ten years		199
Due after ten years		138

Total	$	505

PAGE 29

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
(millions)
Proceeds from sales	$	253	$	407	$	596	$	711
Realized gains⁽¹⁾		6		8		11		37
Realized losses⁽¹⁾		4		2		8		20

(1)	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 June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
(millions)
Total other-than-temporary impairment losses⁽¹⁾	$	5		$	16		$	7		$	19
Losses recorded to decommissioning trust regulatory liability		(4	)		(13	)		(6	)		(16	)

Net impairment losses recognized in earnings	$	1		$	3		$	1		$	3

(1)	Amount includes other-than-temporary impairment losses for debt securities of $1 million for the three months ended June 30, 2011 and 2010, and $2 million for the six months ended June 30, 2011 and 2010.

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, 2010 and Note 12 to the Consolidated Financial Statements in Dominion’s and Virginia Power’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011.

Virginia Fuel Expenses

In May 2011, Virginia Power submitted its annual fuel factor filing to the Virginia Commission, proposing an annual increase for the rate year beginning July 1, 2011. This revised factor included a projected $434 million balance of prior year under-recovered fuel expenses. To reduce the impact to customers, as an alternative, Virginia Power proposed to

PAGE 30

recover this projected prior year deferred fuel balance over a two-year period beginning July 1, 2011. In June 2011, the Virginia Commission approved the two-year recovery proposal, resulting in an increase of approximately $319 million.

Generation Riders R and S

In connection with the Bear Garden and Virginia City Hybrid Energy Center projects, in June 2011, Virginia Power filed annual updates for Riders R and S with the Virginia Commission. Virginia Power proposed an approximately $81 million revenue requirement for Rider R and an approximately $249 million revenue requirement for Rider S for the April 1, 2012 to March 31, 2013 rate year. The filings utilize a 12.5% placeholder ROE (inclusive of a 100 basis point performance incentive), pending the Virginia Commission’s ROE determination in the 2011 biennial review, plus a 100 basis point statutory enhancement for certain generation facilities. These requested revenue requirements for Riders R and S represent increases of approximately $3 million and $50 million, respectively, over the revenue requirements associated with the customer rates currently in effect for Riders R and S. Construction of Bear Garden was completed and the facility commenced commercial operations in the second quarter of 2011.

Transmission Rider T

In May 2011, Virginia Power filed its annual update to Rider T with the Virginia Commission. The proposed $481 million annual revenue requirement, effective September 1, 2011, represented an increase of approximately $144 million over the revenue requirement associated with the Rider T customer rates currently in effect. In July 2011, the Virginia Commission issued an order approving a revenue requirement of $466 million for the September 1, 2011 to August 31, 2012 rate year.

PAGE 31

Generation Rider W

In May 2011, Virginia Power requested approval from the Virginia Commission to construct and operate an intermediate, combined-cycle, natural gas-fired power station in Warren County, Virginia. Subject to the receipt of regulatory approvals, the project is expected to generate more than 1,300 MW of electricity, with commercial operations expected to commence by late 2014. The facility is expected to cost approximately $1.1 billion, excluding financing costs. In connection with the proposed Warren County power station, in May 2011, Virginia Power requested Virginia Commission approval of Rider W. Virginia Power proposed an approximately $39 million revenue requirement for Rider W for the April 1, 2012 to March 31, 2013 rate year. The filing utilizes a 12.5% placeholder ROE (inclusive of a 100 basis point performance incentive), pending the Virginia Commission’s ROE determination in the 2011 biennial review, plus a 100 basis point statutory enhancement for certain generation facilities.

Generation Rider B

In June 2011, Virginia Power filed applications with the Virginia Commission seeking regulatory approval to convert three of its coal-fired power stations to biomass. The expected cost of converting the Altavista, Hopewell and Southampton County power stations is approximately $166 million, excluding financing costs. The applications included a request for approval of Rider B. Virginia Power proposed an approximately $7 million revenue requirement for the April 1, 2012 to March 31, 2013 rate year. The filing utilizes a 12.5% placeholder ROE (inclusive of a 100 basis point performance incentive), pending the Virginia Commission’s ROE determination in the 2011 biennial review, plus a 200 basis point statutory enhancement for renewable generation facilities. To qualify for federal production tax credits associated with renewable energy generation, the power stations must commence operation as biomass generation facilities by December 31, 2013. Virginia Power has requested Virginia Commission approval of the biomass conversions on a schedule that will enable qualification for these tax credits.

Electric Transmission Projects

In October 2008, the Virginia Commission authorized construction of the Meadow Brook-to-Loudoun line and Carson-to-Suffolk line. The Meadow Brook-to-Loudoun line was energized in April 2011 and the Carson-to-Suffolk line was energized in May 2011.

FERC Gas Regulation

DTI Appalachian Gateway Project

In June 2011, FERC approved DTI’s $634 million Appalachian Gateway Project. The project is expected to provide approximately 484,000 dekatherms per day of firm transportation services for new Appalachian gas supplies from the supply areas in the Appalachian Basin in West Virginia and southwestern Pennsylvania to an interconnection with Texas Eastern Transmission, LP at Oakford, Pennsylvania. Subject to receipt of FERC approval to commence construction, transportation services are scheduled to begin by September 2012.

Cove Point

In May 2011, Cove Point filed a general rate case for its FERC-jurisdictional services, with proposed rates to be effective July 1, 2011. Cove Point proposed an annual cost of service of approximately $150 million. In June 2011, FERC accepted a July 1, 2011 effective date for all proposed rates but two which were suspended to be effective December 1, 2011.

Ohio Regulation

In March 2011, East Ohio filed a request with the Ohio Commission to accelerate the PIR program by nearly doubling its PIR spending to more than $200 million annually. East Ohio plans to accelerate the pace of the program by investing more resources in its infrastructure in the near term, in an effort to promote ongoing public safety and reduce operating costs over the longer term. In July 2011, East Ohio, the Staff of the Ohio Commission and other interested parties filed a stipulation and recommendation and requested approval from the Ohio Commission. The stipulation provides for an increase in annual PIR capital investment from the current level of approximately $120 million to approximately $160 million. In addition, the stipulation provides for cost recovery over a five-year period commencing upon the approval of the Ohio Commission.

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, 2010, 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 summer generation capacity of approximately 870 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

PAGE 32

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 entities 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 $1.4 billion as of June 30, 2011. Virginia Power paid $52 million and $53 million for electric capacity and $26 million and $34 million for electric energy to these entities in the three months ended June 30, 2011 and 2010, respectively. Virginia Power paid $105 million and $107 million for electric capacity and $65 million and $75 million for electric energy to these entities in the six months ended June 30, 2011 and 2010, respectively.

Virginia Power purchased shared services from DRS, an affiliated VIE, of approximately $99 million and $107 million for the three months ended June 30, 2011 and 2010, respectively, and $192 million and $248 million for the six months ended June 30, 2011 and 2010, 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 and as a bridge to long-term debt financings. 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. Collateral requirements are impacted by commodity prices, hedging levels, Dominion’s credit ratings and the credit quality of its counterparties.

At June 30, 2011, Dominion’s commercial paper and letters of credit outstanding, as well as capacity available under credit facilities, were as follows:


	Facility Limit		Outstanding Commercial Paper		Outstanding Letters of Credit		Facility Capacity Available
(millions)
Three-year joint revolving credit facility⁽¹⁾	$	3,000	$	1,786	$	1	$	1,213
Three-year joint revolving credit facility⁽²⁾		500		—		54		446

Total	$	3,500	$	1,786	$	55	$	1,659

(1)	This credit facility was entered into in September 2010 and terminates in September 2013. 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 September 2010 and terminates in September 2013. This credit facility can be used to support bank borrowings, commercial paper and letter of credit issuances.

Virginia Power’s short-term financing is supported by two three-year joint revolving credit facilities with Dominion. These credit facilities are being used for working capital, as support for the combined commercial paper programs of Dominion and Virginia Power and for other general corporate purposes.

PAGE 33

At June 30, 2011, Virginia Power’s share of commercial paper and letters of credit outstanding, as well as its capacity available under its joint credit facilities with Dominion were as follows:

Facility
Sub-limit

Outstanding
Commercial
Paper

Outstanding
Letters of
Credit

Facility
Capacity
Available

(millions)

Three-year joint revolving credit facility⁽¹⁾

1,000

933

Three-year joint revolving credit facility⁽²⁾

250

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company