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, 2012

¨	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 September 30, 2012, the latest practicable date for determination, Dominion Resources, Inc. had 574,609,995 shares of common stock outstanding and Virginia Electric and Power Company had 274,723 shares of common stock outstanding. Dominion Resources, Inc. is the sole holder of Virginia Electric and Power Company’s common stock.

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

COMBINED INDEX


		Page Number

	Glossary of Terms		3

	PART I. Financial Information

Item 1.	Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		54
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		72
Item 4.	Controls and Procedures		73

	PART II. Other Information

Item 1.	Legal Proceedings		73
Item 1A.	Risk Factors		74
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		75
Item 6.	Exhibits		76

PAGE 2

GLOSSARY OF TERMS

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


Abbreviation or Acronym		Definition
AFUDC		Allowance for funds used during construction

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

ATEX line		Appalachia to Texas Express ethane line

bcf		Billion cubic feet

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

BOD		Board of Directors

Brayton Point		Brayton Point power station

Bremo		Bremo power station

CAA		Clean Air Act

CAIR		Clean Air Interstate Rule

CEO		Chief Executive Officer

CERCLA		Comprehensive Environmental Response, Compensation and Liability Act of 1980

CFO		Chief Financial Officer

CFTC		Commodity Futures Trading Commission

CO₂		Carbon dioxide

Companies		Dominion and Virginia Power, collectively

Cooling degree days		Units measuring the extent to which the average daily temperature is greater than 65 degrees Fahrenheit, calculated as the difference between 65 degrees and the average temperature for that day

Cove Point		Dominion Cove Point LNG, LP

CSAPR		Cross State Air Pollution Rule

CWA		Clean Water Act

DEI		Dominion Energy, Inc.

DOE		Department of Energy

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

DRS		Dominion Resources Services, Inc.

DSM		Demand-side management

Dth		Dekatherm

DVP		Dominion Virginia Power operating segment

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

Elwood		Elwood power station

Enterprise		Enterprise Products Partners, L.P.

EPA		Environmental Protection Agency

EPS		Earnings per share

ERM		Enterprise Risk Management

Fairless		Fairless power station

FCM		Futures Commission Merchant

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

Gal		Gallon

PAGE 3


Abbreviation or Acronym		Definition
GHG		Greenhouse gas

Harrisonburg-to-Endless-Caverns line		Virginia Power project to construct a 20-mile 230 kilovolt line from the Harrisonburg substation to the Endless Caverns substation

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

ISO-NE		ISO New England

Juniper		Juniper Capital L.P.

Kewaunee		Kewaunee nuclear power station

Kincaid		Kincaid power station

LNG		Liquefied natural gas

Manchester Street		Manchester Street power station

MATS		Utility Mercury and Air Toxics Standard Rule

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

MF Global		MF Global Inc.

Millstone		Millstone nuclear power station

MISO		Midwest Independent Transmission System Operators, Inc.

Moody’s		Moody’s Investors Service

MW		Megawatt

MWh		Megawatt hour

NCEMC		North Carolina Electric Membership Corporation

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

NGLs		Natural gas liquids

North Anna		North Anna nuclear power station

North Carolina Commission		North Carolina Utilities Commission

NO_x		Nitrogen oxide

NPDES		National Pollutant Discharge Elimination System

NRC		Nuclear Regulatory Commission

NSPS		New Source Performance Standards

O&M		Operations and maintenance

ODEC		Old Dominion Electric Cooperative

OPEB		Other Postretirement Employee Benefits

PIPP		Percentage of Income Payment Plan

PJM		PJM Interconnection, LLC

ppb		Parts-per-billion

RCC		Replacement Capital Covenants

RGGI		Regional Greenhouse Gas Initiative

Rider A1		A rate adjustment clause to reduce anticipated over-collected fuel expense for the second half of 2012, effective November 1, 2012 to December 31, 2012

Rider T		A rate adjustment clause associated with the recovery of certain electric transmission-related expenditures

Rider T1		A rate adjustment clause to recover the difference between revenues produced from current Rider T rates included in base rates, and the new revenue requirement developed for the rate year beginning September 1, 2012

Riders C1A and C2A		Rate adjustment clauses associated with the recovery of costs related to certain DSM programs approved in the 2011 DSM case

ROE		Return on equity

RTO		Regional transmission organization

Salem Harbor		Salem Harbor power station

SEC		Securities and Exchange Commission

September 2006 hybrids		2006 Series B Enhanced Junior Subordinated Notes due 2066

PAGE 4


Abbreviation or Acronym		Definition
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

UAO		Unilateral Administrative Order

VIE		Variable interest entity

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

PAGE 5

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,
	2012			2011⁽¹⁾		2012			2011⁽¹⁾
(millions, except per share amounts)
Operating Revenue	$	3,411		$	3,745	$	9,926		$	11,016

Operating Expenses
Electric fuel and other energy-related purchases		1,052			1,217		2,893			3,195
Purchased electric capacity		86			109		297			344
Purchased gas		191			335		818			1,342
Other operations and maintenance		1,134			859		2,549			2,387
Depreciation, depletion and amortization		306			268		882			783
Other taxes		124			129		439			411

Total operating expenses		2,893			2,917		7,878			8,462

Income from operations		518			828		2,048			2,554

Other income		56			16		174			112
Interest and related charges		215			249		667			691

Income from continuing operations including noncontrolling interests before income tax expense		359			595		1,555			1,975
Income tax expense		139			203		552			730

Income from continuing operations including noncontrolling interests		220			392		1,003			1,245
Income (loss) from discontinued operations⁽²⁾		(5	)		4		(22	)		(26	)

Net Income Including Noncontrolling Interests		215			396		981			1,219
Noncontrolling Interests		6			4		20			12

Net Income Attributable to Dominion	$	209		$	392	$	961		$	1,207

Amounts Attributable to Dominion:
Income from continuing operations, net of tax	$	214		$	388	$	983		$	1,233
Income (loss) from discontinued operations, net of tax		(5	)		4		(22	)		(26	)

Net income attributable to Dominion	$	209		$	392	$	961		$	1,207

Earnings Per Common Share-Basic
Income from continuing operations	$	0.37		$	0.68	$	1.72		$	2.15
Income (loss) from discontinued operations		(0.01	)		0.01		(0.04	)		(0.05	)

Net income attributable to Dominion	$	0.36		$	0.69	$	1.68		$	2.10

Earnings Per Common Share-Diluted
Income from continuing operations	$	0.37		$	0.68	$	1.72		$	2.14
Income (loss) from discontinued operations		(0.01	)		0.01		(0.04	)		(0.04	)

Net income attributable to Dominion	$	0.36		$	0.69	$	1.68		$	2.10

Dividends declared per common share	$	0.5275		$	0.4925	$	1.5825		$	1.4775

(1)	Dominion’s Consolidated Statements of Income for the three and nine months ended September 30, 2011 have been recast to reflect Salem Harbor and State Line as discontinued operations, as discussed in Note 3.

(2)	Includes income tax benefit (expense) of $14 million and $(1) million for the three months ended September 30, 2012 and 2011, respectively, and $27 million and $8 million for the nine months ended September 30, 2012 and 2011, respectively.

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

PAGE 6

DOMINION RESOURCES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
(millions)
Net income including noncontrolling interests	$	215		$	396		$	981		$	1,219
Other comprehensive income (loss), net of taxes:
Net deferred gains (losses) on derivatives-hedging activities⁽¹⁾		(86	)		(85	)		40			(159	)
Changes in unrealized net gains (losses) on investment securities⁽²⁾		49			(101	)		110			(61	)
Changes in net unrecognized pension and other postretirement benefit costs⁽³⁾		(6	)		—			(4	)		23
Amounts reclassified to net income:
Net derivative gains-hedging activities⁽⁴⁾		(20	)		(9	)		(63	)		(13	)
Net realized (gains) losses on investment securities⁽⁵⁾		(4	)		18			(18	)		12
Net pension and other postretirement benefit costs⁽⁶⁾		15			7			38			29

Total other comprehensive income (loss)		(52	)		(170	)		103			(169	)

Comprehensive income including noncontrolling interests		163			226			1,084			1,050
Comprehensive income attributable to noncontrolling interests		6			4			20			12

Comprehensive income attributable to Dominion	$	157		$	222		$	1,064		$	1,038

(1)	Net of $57 million and $50 million tax for the three months ended September 30, 2012 and 2011, respectively, and net of $(28) million and $101 million tax for the nine months ended September 30, 2012 and 2011, respectively.

(2)	Net of $(33) million and $67 million tax for the three months ended September 30, 2012 and 2011, respectively, and net of $(73) million and $40 million tax for the nine months ended September 30, 2012 and 2011, respectively.

(3)	Net of $(7) million and $— tax for both the three months ended September 30, 2012 and 2011, and net of $(8) million and $(15) million tax for the nine months ended September 30, 2012 and 2011, respectively.

(4)	Net of $12 million and $6 million tax for the three months ended September 30, 2012 and 2011, respectively, and net of $39 million and $11 million tax for the nine months ended September 30, 2012 and 2011, respectively.

(5)	Net of $3 million and $(12) million tax for the three months ended September 30, 2012 and 2011, respectively, and net of $12 million and $(8) million tax for the nine months ended September 30, 2012 and 2011, respectively.

(6)	Net of $(6) million and $(7) million tax for the three months ended September 30, 2012 and 2011, respectively, and net of $(23) million and $(19) million tax for the nine months ended September 30, 2012 and 2011, respectively.

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

PAGE 7

DOMINION RESOURCES, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	September 30, 2012			December 31, 2011⁽¹⁾
(millions)
ASSETS
Current Assets
Cash and cash equivalents	$	81		$	102
Customer receivables (less allowance for doubtful accounts of $28 and $29)		1,510			1,780
Other receivables (less allowance for doubtful accounts of $4 and $8)		169			255
Inventories		1,257			1,348
Derivative assets		514			705
Other		1,122			1,240

Total current assets		4,653			5,430

Investments
Nuclear decommissioning trust funds		3,322			2,999
Investment in equity method affiliates		538			553
Restricted cash equivalents		49			141
Other		269			292

Total investments		4,178			3,985

Property, Plant and Equipment
Property, plant and equipment		44,397			42,033
Property, plant and equipment, VIE		957			957
Accumulated depreciation, depletion and amortization		(13,831	)		(13,320	)

Total property, plant and equipment, net		31,523			29,670

Deferred Charges and Other Assets
Goodwill		3,141			3,141
Regulatory assets		1,306			1,382
Other		2,085			2,006

Total deferred charges and other assets		6,532			6,529

Total assets	$	46,886		$	45,614

(1)	Dominion’s Consolidated Balance Sheet at December 31, 2011 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 8

DOMINION RESOURCES, INC.

CONSOLIDATED BALANCE SHEETS—(Continued)

(Unaudited)


	September 30, 2012			December 31, 2011⁽¹⁾
(millions)
LIABILITIES AND EQUITY
Current Liabilities
Securities due within one year	$	1,308		$	1,479
Securities due within one year, VIE		867			—
Short-term debt		1,382			1,814
Accounts payable		1,020			1,250
Derivative liabilities		499			951
Other		1,486			1,468

Total current liabilities		6,562			6,962

Long-Term Debt
Long-term debt		15,513			14,785
Long-term debt, VIE		—			890
Junior subordinated notes payable to affiliates		268			268
Enhanced junior subordinated notes		1,363			1,451

Total long-term debt		17,144			17,394

Deferred Credits and Other Liabilities
Deferred income taxes and investment tax credits		6,337			5,216
Asset retirement obligations		1,610			1,383
Regulatory liabilities		1,508			1,324
Other		1,590			1,575

Total deferred credits and other liabilities		11,045			9,498

Total liabilities		34,751			33,854

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

Equity
Common stock – no par⁽²⁾		5,420			5,180
Other paid-in capital		152			179
Retained earnings		6,753			6,697
Accumulated other comprehensive loss		(507	)		(610	)

Total common shareholders’ equity		11,818			11,446

Noncontrolling interest		60			57

Total equity		11,878			11,503

Total liabilities and equity	$	46,886		$	45,614

(1)	Dominion’s Consolidated Balance Sheet at December 31, 2011 has been derived from the audited Consolidated Financial Statements at that date.

(2)	1 billion shares authorized; 575 million shares and 570 million shares outstanding at September 30, 2012 and December 31, 2011, respectively.

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

PAGE 9

DOMINION RESOURCES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


Nine Months Ended September 30,	2012			2011
(millions)
Operating Activities
Net income including noncontrolling interests	$	981		$	1,219
Adjustments to reconcile net income including noncontrolling interests to net cash provided by operating activities:
Impairment of merchant generation assets		444			55
Depreciation, depletion and amortization (including nuclear fuel)		1,080			951
Deferred income taxes and investment tax credits		550			643
Rate refunds		(132	)		(64	)
Other adjustments		(91	)		(96	)
Changes in:
Accounts receivable		371			527
Inventories		35			(162	)
Deferred fuel and purchased gas costs, net		332			(60	)
Prepayments		(72	)		(53	)
Accounts payable		(216	)		(419	)
Accrued interest, payroll and taxes		1			(201	)
Margin deposit assets and liabilities		126			(92	)
Other operating assets and liabilities		53			150

Net cash provided by operating activities		3,462			2,398

Investing Activities
Plant construction and other property additions (including nuclear fuel)		(2,884	)		(2,616	)
Proceeds from sales of securities		1,040			1,404
Purchases of securities		(1,047	)		(1,459	)
Restricted cash equivalents		92			196
Other		15			111

Net cash used in investing activities		(2,784	)		(2,364	)

Financing Activities
Repayment of short-term debt, net		(433	)		(602	)
Issuance and remarketing of long-term debt		1,500			2,245
Repayment of long-term debt		(1,037	)		(74	)
Issuance of common stock		197			37
Repurchase of common stock		—			(601	)
Common dividend payments		(906	)		(848	)
Subsidiary preferred dividend payments		(12	)		(12	)
Other		(8	)		(29	)

Net cash provided by (used in) financing activities		(699	)		116
Increase (decrease) in cash and cash equivalents		(21	)		150
Cash and cash equivalents at beginning of period		102			62

Cash and cash equivalents at end of period	$	81		$	212

Supplemental Cash Flow Information
Significant noncash investing activities:
Accrued capital expenditures	$	328		$	237

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

PAGE 10

VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
(millions)
Operating Revenue	$	2,086	$	2,177	$	5,596	$	5,691

Operating Expenses
Electric fuel and other energy-related purchases		634		746		1,850		1,922
Purchased electric capacity		86		108		296		342
Other operations and maintenance:
Affiliated suppliers		91		79		256		229
Other		278		435		861		943
Depreciation and amortization		203		184		579		533
Other taxes		48		57		179		172

Total operating expenses		1,340		1,609		4,021		4,141

Income from operations		746		568		1,575		1,550

Other income		25		25		65		64
Interest and related charges		97		114		297		290

Income before income tax expense		674		479		1,343		1,324
Income tax expense		259		182		513		508

Net Income		415		297		830		816
Preferred dividends		4		4		12		12

Balance available for common stock	$	411	$	293	$	818	$	804

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

PAGE 11

VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
(millions)
Net income	$	415		$	297		$	830		$	816
Other comprehensive income (loss), net of taxes:
Net deferred losses on derivatives-hedging activities⁽¹⁾		(2	)		(3	)		(5	)		(3	)
Changes in unrealized net gains (losses) on nuclear decommissioning trust funds⁽²⁾		4			(10	)		11			(5	)
Amounts reclassified to net income:
Net derivative (gains) losses-hedging activities⁽³⁾		1			1			2			(2	)
Net realized (gains) losses on nuclear decommissioning trust funds⁽⁴⁾		—			1			(1	)		1

Other comprehensive income (loss)		3			(11	)		7			(9	)

Comprehensive income	$	418		$	286		$	837		$	807

(1)	Net of $1 million and $3 million tax for the three months ended September 30, 2012 and 2011, respectively, and net of $3 million tax for both the nine months ended September 30, 2012 and 2011.

(2)	Net of $(4) million and $5 million tax for the three months ended September 30, 2012 and 2011, respectively, and net of $(7) million and $4 million tax for the nine months ended September 30, 2012 and 2011, respectively.

(3)	Net of $— million tax for both the three months ended September 30, 2012 and 2011, and net of $(2) million and $— million tax for the nine months ended September 30, 2012 and 2011, respectively.

(4)	Net of $— million and $(1) million tax for the three months ended September 30, 2012 and 2011, respectively, and net of $1 million and $— million tax for the nine months ended September 30, 2012 and 2011, respectively.

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

PAGE 12

VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	September 30, 2012			December 31, 2011⁽¹⁾
(millions)
ASSETS
Current Assets
Cash and cash equivalents	$	21		$	29
Customer receivables (less allowance for doubtful accounts of $10 and $11)		930			892
Other receivables (less allowance for doubtful accounts of $3 and $7)		122			145
Inventories (average cost method)		757			797
Prepayments		28			41
Other		249			532

Total current assets		2,107			2,436

Investments
Nuclear decommissioning trust funds		1,506			1,370
Other		14			36

Total investments		1,520			1,406

Property, Plant and Equipment
Property, plant and equipment		29,942			28,626
Accumulated depreciation and amortization		(9,975	)		(9,615	)

Total property, plant and equipment, net		19,967			19,011

Deferred Charges and Other Assets
Intangible assets		178			183
Regulatory assets		350			399
Other		97			109

Total deferred charges and other assets		625			691

Total assets	$	24,219		$	23,544

(1)	Virginia Power’s Consolidated Balance Sheet at December 31, 2011 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 13

VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED BALANCE SHEETS—(Continued)

(Unaudited)


	September 30, 2012		December 31, 2011⁽¹⁾
(millions)
LIABILITIES AND SHAREHOLDER’S EQUITY
Current Liabilities
Securities due within one year	$	1,042	$	616
Short-term debt		105		894
Accounts payable		410		405
Payables to affiliates		108		108
Affiliated current borrowings		187		187
Accrued interest, payroll and taxes		296		226
Other		475		685

Total current liabilities		2,623		3,121

Long-Term Debt		6,258		6,246

Deferred Credits and Other Liabilities
Deferred income taxes and investment tax credits		3,667		3,180
Asset retirement obligations		696		624
Regulatory liabilities		1,269		1,095
Other		252		271

Total deferred credits and other liabilities		5,884		5,170

Total liabilities		14,765		14,537

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		1,112		1,111
Retained earnings		2,321		1,882
Accumulated other comprehensive income		26		19

Total common shareholder’s equity		9,197		8,750

Total liabilities and shareholder’s equity	$	24,219	$	23,544

(1)	Virginia Power’s Consolidated Balance Sheet at December 31, 2011 has been derived from the audited Consolidated Financial Statements at that date.

(2)	500,000 shares authorized; 274,723 shares outstanding at September 30, 2012 and December 31, 2011.

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

PAGE 14

VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


Nine Months Ended September 30,	2012			2011
(millions)
Operating Activities
Net income	$	830		$	816
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization (including nuclear fuel)		687			625
Deferred income taxes and investment tax credits		331			449
Rate refunds		(132	)		(64	)
Other adjustments		(47	)		9
Changes in:
Accounts receivable		(2	)		14
Affiliated accounts receivable and payable		40			7
Inventories		40			(135	)
Deferred fuel expenses		321			(58	)
Accounts payable		28			6
Accrued interest, payroll and taxes		70			72
Other operating assets and liabilities		121			(44	)

Net cash provided by operating activities		2,287			1,697

Investing Activities
Plant construction and other property additions		(1,402	)		(1,392	)
Purchases of nuclear fuel		(142	)		(169	)
Purchases of securities		(491	)		(850	)
Proceeds from sales of securities		481			838
Restricted cash equivalents		21			131
Other		(18	)		11

Net cash used in investing activities		(1,551	)		(1,431	)

Financing Activities
Repayment of short-term debt, net		(789	)		(50	)
Issuance of affiliated current borrowings, net		—			112
Issuance and remarketing of long-term debt		450			160
Repayment of long-term debt		(10	)		(10	)
Common dividend payments		(379	)		(448	)
Preferred dividend payments		(12	)		(12	)
Other		(4	)		1

Net cash used in financing activities		(744	)		(247	)

Increase (decrease) in cash and cash equivalents		(8	)		19
Cash and cash equivalents at beginning of period		29			5

Cash and cash equivalents at end of period	$	21		$	24

Supplemental Cash Flow Information
Significant noncash investing activities:
Accrued capital expenditures	$	136		$	86

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

PAGE 15

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, 2011 and their Quarterly Reports on Form 10-Q for the quarters ended March 31, 2012 and June 30, 2012.

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, 2012, their results of operations for the three and nine months ended September 30, 2012 and 2011 and their cash flows for the nine months ended September 30, 2012 and 2011. Such adjustments are normal and recurring in nature unless otherwise noted.

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

Dominion’s and Virginia Power’s accompanying unaudited Consolidated Financial Statements include, after eliminating intercompany transactions and balances, their accounts and those of their respective majority-owned subsidiaries and those VIEs where Dominion has been determined to be the primary beneficiary.

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

Certain amounts in Dominion’s and Virginia Power’s 2011 Consolidated Financial Statements and Notes have been reclassified to conform to the 2012 presentation for comparative purposes. The reclassifications did not affect the Companies’ net income, total assets, liabilities, equity or cash flows.

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

Note 3. Dispositions

In June 2012, Dominion entered into an agreement to sell Salem Harbor, which closed in the third quarter of 2012. In the second quarter of 2012, the assets and liabilities to be disposed were classified as held for sale and adjusted to their estimated fair value less cost to sell, resulting in a pre-tax charge of $27 million ($16 million after-tax), which is included in loss from discontinued operations in Dominion’s Consolidated Statements of Income. This was considered a Level 2 fair value measurement as it was based on the negotiated sales price.

During the second quarter of 2012, Dominion sold State Line, which ceased operations in March 2012.

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


	Three Months Ended September 30,					Nine Months Ended September 30,
	2012			2011		2012			2011
(millions)
Operating revenue	$	5		$	58	$	57		$	185
Income (loss) before income taxes		(19	)		5		(49	)		(34	)

PAGE 16

Note 4. Operating Revenue

The Companies’ operating revenue consists of the following:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
(millions)
Dominion
Electric sales:
Regulated	$	2,046	$	2,136	$	5,495	$	5,594
Nonregulated		739		857		2,122		2,465
Gas sales:
Regulated		34		25		166		208
Nonregulated		177		281		740		1,220
Gas transportation and storage		297		291		1,007		1,151
Other		118		155		396		378

Total operating revenue	$	3,411	$	3,745	$	9,926	$	11,016

Virginia Power
Regulated electric sales	$	2,046	$	2,136	$	5,495	$	5,594
Other		40		41		101		97

Total operating revenue	$	2,086	$	2,177	$	5,596	$	5,691

Note 5. 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,	2012			2011			2012			2011
U.S. statutory rate		35.0	%		35.0	%		35.0	%		35.0	%
Increases (reductions) resulting from:
State taxes, net of federal benefit		5.0			3.6			3.9			3.9
AFUDC – equity		(1.1	)		(0.5	)		(0.8	)		(0.6	)
Employee stock ownership plan deduction		(0.8	)		(0.6	)		—			—
Production tax credits		(0.7	)		(0.5	)		—			—
Valuation allowances		(0.6	)		0.1			—			—
Other, net		(1.3	)		(0.2	)		0.1			0.1

Effective tax rate		35.5	%		36.9	%		38.2	%		38.4	%

Dominion’s effective tax rate in 2012 reflects a $20 million reduction of a valuation allowance related to state operating loss carryforwards attributable to Fairless. After considering the results of Fairless’ operations in recent years and a forecast of future operating results reflecting Dominion’s planned purchase of the facility, Dominion has concluded that it is more likely than not that the tax benefit of the operating losses will be realized. Significant assumptions include future commodity prices, in particular, those for electric energy produced by Fairless and those for natural gas, as compared to other fuels used for the generation of electricity, which will significantly influence the extent to which Fairless is dispatched by PJM. In addition, as disclosed in Note 15, in the third quarter of 2012, Dominion announced its intention to sell Brayton Point. Based on an evaluation of state tax credits previously recognized for Brayton Point, Dominion recorded an $11 million increase in valuation allowance related to credit carryforwards and a $14 million deferred tax liability, representing potential recapture of credits claimed in prior years. Dominion will continue to evaluate the likelihood of realizing these tax benefits on a quarterly basis.

As of September 30, 2012, there have been no material changes in Dominion’s and Virginia Power’s unrecognized tax benefits or possible changes that could reasonably be expected to occur during the next twelve months. 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, 2011 for a discussion of these unrecognized tax benefits.

PAGE 17

Discontinued Operations

Dominion’s effective tax rate for the nine months ended September 30, 2012 reflects the dispositions of State Line and Salem Harbor.

Dominion’s effective tax rate for the nine months ended September 30, 2011 reflects an expectation that State Line’s deferred tax assets, including 2011 operating losses, will not be realized in State Line’s separately filed state tax returns.

PAGE 18

Note 6. 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,
	2012		2011		2012		2011
(millions, except EPS)
Net income attributable to Dominion	$	209	$	392	$	961	$	1,207

Average shares of common stock outstanding – Basic		573.8		569.4		572.1		574.2
Net effect of potentially dilutive securities⁽¹⁾		0.9		1.8		1.1		1.4

Average shares of common stock outstanding – Diluted		574.7		571.2		573.2		575.6

Earnings Per Common Share – Basic	$	0.36	$	0.69	$	1.68	$	2.10
Earnings Per Common Share – Diluted	$	0.36	$	0.69	$	1.68	$	2.10

(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 nine months ended September 30, 2012 and 2011.

Note 7. 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, 2011. See Note 8 in this report for further information about their derivatives and hedge accounting activities.

Dominion’s and Virginia Power’s commodity derivative valuations are prepared by the ERM department. The ERM department reports directly to the Companies’ CFO. The ERM department creates a daily file containing market valuations for the Companies’ derivative transactions. The inputs that go into the market valuations are transactional information stored in the systems of record and market pricing information that resides in data warehouses. The majority of forward prices are automatically uploaded into the data warehouses from various third-party sources. Inputs obtained from third-party sources are evaluated for reliability considering the reputation, independence, market presence, and methodology used by the third-party. If forward prices are not available from third-party sources, then the ERM department models the forward prices based on other available market data. A team consisting of risk management and risk quantitative analysts meets each business day to assess the validity of market prices and valuations. During this meeting, the changes in market valuations from period to period are examined and qualified against historical expectations. If any discrepancies are identified during this process, the mark-to-market valuations or the market pricing information is evaluated further and adjusted, if necessary.

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

The following table presents Dominion’s quantitative information about Level 3 fair value measurements. Included are descriptions of the valuation techniques, the significant unobservable inputs, and the range of market price, price correlation and price volatility inputs used in the fair value measurements at September 30, 2012 for each category of transaction and commodity type. The range and weighted average are presented in dollars for market price inputs and percentages for price volatility, price correlations, load shaping, and usage factors.

PAGE 19


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

At September 30, 2012
Assets:
Physical and Financial Forwards and Futures:
Natural Gas⁽²⁾	$	29	Discounted Cash Flow	Market Price (per Dth)⁽³⁾		(1) - 6			3
Electricity		63	Discounted Cash Flow	Market Price (per MWh)⁽³⁾		30 - 64			44
FTRs		6	Discounted Cash Flow	Market Price (per MWh)⁽³⁾		(5) - 7			0
Capacity		8	Discounted Cash Flow	Market Price (per MW)⁽³⁾		95 - 115			100
Liquids		29	Discounted Cash Flow	Market Price (per Gal)⁽³⁾		0 - 3			1
Physical and Financial Options:
Natural Gas		4	Option Model	Market Price (per Dth)⁽³⁾		0 - 5			4
				Price Volatility⁽⁴⁾		20% - 53	%		25	%
				Price Correlation⁽⁵⁾		73% - 99	%		77	%
Full Requirements Contracts:
Electricity		31	Discounted Cash Flow	Market Price (per MWh)⁽³⁾		9 - 420			40
				Load Shaping⁽⁶⁾		2% - 6	%		4	%
				Usage Factor⁽⁷⁾		1% - 15	%		8	%

Total assets	$	170

Liabilities:
Physical and Financial Forwards and Futures:
Natural Gas⁽²⁾	$	19	Discounted Cash Flow	Market Price (per Dth)⁽³⁾		(1) - 6			4
Electricity		13	Discounted Cash Flow	Market Price (per MWh)⁽³⁾		27 - 64			43
FTRs		3	Discounted Cash Flow	Market Price (per MWh)⁽³⁾		(2) - 10			1
Liquids⁽⁸⁾		14	Discounted Cash Flow	Market Price (per Gal)⁽³⁾		1 - 3			2
Physical and Financial Options:
Natural Gas⁽²⁾		18	Option Model	Market Price (per Dth)⁽³⁾		3 - 5			4
				Price Volatility⁽⁴⁾		20% - 50	%		27	%
				Price Correlation⁽⁵⁾		99	%		99	%

Total liabilities	$	67

(1)	Averages weighted by volume.

(2)	Includes basis.

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

(4)	Represents volatilities unrepresented in published markets.

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

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

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

(8)	Includes NGLs and oil.

PAGE 20

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


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

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

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

Non-recurring Fair Value Measurements

In April 2011, Dominion announced it would pursue a sale of Kewaunee since it was not able to move forward with its original plan to grow its nuclear fleet in the Midwest to take advantage of economies of scale. Dominion has been unable to find a buyer for the facility. In addition, the power purchase agreements for the two utilities that contract to buy Kewaunee’s generation will expire in December 2013 at a time of projected low wholesale electricity prices in the region. At September 30, 2012, Dominion expected that it would permanently cease generation operations at Kewaunee in 2013 and commence decommissioning of the facility. As a result, Dominion evaluated Kewaunee for impairment since it was more likely than not that Kewaunee would be retired before the end of its previously estimated useful life. As management is 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 Kewaunee’s long-lived assets. This is considered a Level 3 fair value measurement due to the use of significant unobservable inputs including estimates of future power and other commodity prices.

As a result of this evaluation, Dominion recorded impairment and other charges of $435 million ($281 million after-tax) largely reflected in other O&M expense in its Consolidated Statement of Income for the three and nine months ended September 30, 2012. This primarily reflects a $378 million ($244 million after-tax) charge for the full impairment of Kewaunee’s long-lived assets, a write down of materials and supplies inventories of $33 million ($21 million after-tax), and a $24 million ($16 million after-tax) charge related to severance costs. In addition to these initial charges, Dominion anticipates recording additional charges related to the exit plan of approximately $50 million ($30 million after-tax). This primarily reflects expected cash expenditures for employee retention costs.

The decision to decommission Kewaunee was approved by Dominion’s BOD on October 18, 2012 after consideration of the factors discussed above, which made it uneconomic for Kewaunee to continue operations. Pending a grid reliability review by MISO, the station is expected to cease power production in the second quarter of 2013 and move to safe shutdown. Following station shutdown, Dominion plans to meet its obligations to the two utilities that purchase Kewaunee’s generation through market purchases, until the power purchase agreements expire in December 2013.

In the third quarter of 2011, Dominion and Virginia Power evaluated their SO₂ emissions allowances not expected to be consumed by generating units for potential impairment due to the EPA’s issuance of CSAPR, as discussed in Note 15. Prior to the issuance of CSAPR, Dominion and Virginia Power held $57 million and $43 million, respectively, of SO₂ emissions allowances obtained for ARP and CAIR compliance. Due to CSAPR’s establishment of a new allowance program and the elimination of CAIR, Dominion and Virginia Power had more SO₂ emissions allowances than needed for ARP compliance. As a result of this evaluation, Dominion and Virginia Power recorded an impairment charge of $57 million ($34 million after-tax) and $43 million ($26 million after-tax), respectively, in other operations and maintenance expense in their Consolidated Statements of Income, to write down these emissions allowances to their estimated fair value of less than $1 million. To estimate the value of these emissions allowances, Dominion utilized a market approach by obtaining broker quotes to validate CSAPR’s impact on emissions allowance prices. However, due to limited market activity for future SO₂ vintage year allowances, this was considered a Level 3 fair value measurement.

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,

PAGE 21

Dominion recorded an impairment charge of $55 million ($39 million after-tax), which is now reflected in loss from discontinued operations 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 in the impairment test. 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. State Line was retired in March 2012 and sold in the second quarter of 2012. See Note 3 for further information.

See Note 3 for a non-recurring fair value measurement related to Salem Harbor.

PAGE 22

Recurring Fair Value Measurements

Dominion

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


	Level 1		Level 2		Level 3		Total
(millions)
At September 30, 2012
Assets:
Derivatives:
Commodity	$	13	$	573	$	170	$	756
Interest rate		—		93		—		93
Investments⁽¹⁾:
Equity securities:
U.S.:
Large cap		1,967		—		—		1,967
Other		57		—		—		57
Non-U.S.:
Large cap		11		—		—		11
Fixed income:
Corporate debt instruments		—		318		—		318
U.S. Treasury securities and agency debentures		332		154		—		486
State and municipal		—		357		—		357
Other		—		11		—		11
Cash equivalents and other		1		74		—		75
Restricted cash equivalents		—		49		—		49

Total assets	$	2,381	$	1,629	$	170	$	4,180

Liabilities:
Derivatives:
Commodity	$	8	$	440	$	67	$	515
Interest rate		—		138		—		138

Total liabilities	$	8	$	578	$	67	$	653

At December 31, 2011
Assets:
Derivatives:
Commodity	$	44	$	828	$	93	$	965
Interest rate		—		105		—		105
Investments⁽¹⁾:
Equity securities:
U.S.:
Large cap		1,718		—		—		1,718
Other		51		—		—		51
Non-U.S.:
Large cap		10		—		—		10
Fixed income:
Corporate debt instruments		—		332		—		332
U.S. Treasury securities and agency debentures		277		181		—		458
State and municipal		—		329		—		329
Other		—		23		—		23
Cash equivalents and other		—		60		—		60
Restricted cash equivalents		—		141		—		141

Total assets	$	2,100	$	1,999	$	93	$	4,192

Liabilities:
Derivatives:
Commodity	$	10	$	714	$	164	$	888
Interest rate		—		269		—		269

Total liabilities	$	10	$	983	$	164	$	1,157

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

PAGE 23

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,
	2012			2011			2012			2011
(millions)
Beginning balance	$	155		$	(122	)	$	(71	)	$	(50	)
Total realized and unrealized gains (losses):
Included in earnings		(8	)		(16	)		(31	)		(24	)
Included in other comprehensive income (loss)		(48	)		75			124			16
Included in regulatory assets/liabilities		2			(3	)		30			(35	)
Settlements		3			24			54			47
Transfers out of Level 3		(1	)		—			(3	)		4

Ending balance	$	103		$	(42	)	$	103		$	(42	)

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	$	(15	)	$	7		$	25		$	29

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


	Operating revenue			Electric fuel and other energy-related purchases			Total
(millions)
Three Months Ended September 30, 2012
Total gains (losses) included in earnings	$	(10	)	$	2		$	(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		(15	)		—			(15	)

Three Months Ended September 30, 2011
Total gains (losses) included in earnings	$	(8	)	$	(8	)	$	(16	)
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		7			—			7

Nine Months Ended September 30, 2012
Total gains (losses) included in earnings	$	13		$	(44	)	$	(31	)
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		25			—			25

Nine Months Ended September 30, 2011
Total gains (losses) included in earnings	$	(8	)	$	(16	)	$	(24	)
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		29			—			29

PAGE 24

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 September 30, 2012
Assets:
Derivatives:
Commodity	$	—	$	3	$	6	$	9
Investments⁽¹⁾:
Equity securities:
U.S.:
Large cap		775		—		—		775
Other		26		—		—		26
Fixed income:
Corporate debt instruments		—		194		—		194
U.S. Treasury securities and agency debentures		138		64		—		202
State and municipal		—		144		—		144
Other		—		7		—		7
Cash equivalents and other		—		30		—		30
Restricted cash equivalents		—		11		—		11

Total assets	$	939	$	453	$	6	$	1,398

Liabilities:
Derivatives:
Commodity	$	—	$	3	$	3	$	6
Interest rate		—		92		—		92

Total liabilities	$	—	$	95	$	3	$	98

At December 31, 2011
Assets:
Derivatives:
Commodity	$	—	$	—	$	2	$	2
Investments⁽¹⁾:
Equity securities:
U.S.:
Large cap		679		—		—		679
Other		23		—		—		23
Fixed income:
Corporate debt instruments		—		214		—		214
U.S. Treasury securities and agency debentures		107		63		—		170
State and municipal		—		125		—		125
Other		—		16		—		16
Cash equivalents and other		—		40		—		40
Restricted cash equivalents		—		32		—		32

Total assets	$	809	$	490	$	2	$	1,301

Liabilities:
Derivatives:
Commodity	$	—	$	17	$	30	$	47
Interest rate		—		100		—		100

Total liabilities	$	—	$	117	$	30	$	147

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

PAGE 25

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,
	2012			2011			2012			2011
(millions)
Beginning balance	$	1		$	(18	)	$	(28	)	$	14
Total realized and unrealized gains (losses):
Included in earnings		2			(8	)		(44	)		(16	)
Included in regulatory assets/liabilities		2			(3	)		31			(35	)
Settlements		(2	)		8			44			16

Ending balance	$	3		$	(21	)	$	3		$	(21	)

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 nine months ended September 30, 2012 and 2011. 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, 2012 and 2011.

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, 2012				December 31, 2011
	Carrying Amount		Estimated Fair Value⁽¹⁾		Carrying Amount		Estimated Fair Value⁽¹⁾
(millions)
Dominion
Long-term debt, including securities due within one year⁽²⁾	$	16,821	$	19,952	$	16,264	$	18,936
Long-term debt, including securities due within one year, VIE⁽³⁾		867		874		890		892
Junior subordinated notes payable to affiliates		268		271		268		268
Enhanced junior subordinated notes		1,363		1,451		1,451		1,518
Subsidiary preferred stock⁽⁴⁾		257		262		257		256

Virginia Power
Long-term debt, including securities due within one year⁽²⁾	$	7,300	$	8,900	$	6,862	$	8,281
Preferred stock⁽⁴⁾		257		262		257		256

(1)

Fair value is estimated using market prices, where available, and interest rates currently available for issuance of debt with similar terms and remaining maturities. All fair value measurements are classified as Level 2. The carrying amount of debt issues with short-term maturities and variable rates refinanced at current market rates is a reasonable estimate of their fair value.

(2)	Includes amounts which represent the unamortized discount and premium. At September 30, 2012 and December 31, 2011, includes the valuation of certain fair value hedges associated with Dominion’s fixed rate debt of approximately $93 million and $105 million, respectively.

(3)	Includes amounts which represent the unamortized premium.

(4)	Includes deferred issuance expenses of $2 million at September 30, 2012 and December 31, 2011.

Note 8. 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, 2011. See Note 7 in this report for further information about fair value measurements and associated valuation methods for derivatives.

PAGE 26

Dominion

The following table presents the volume of Dominion’s derivative activity as of September 30, 2012. These volumes are based on open derivative positions and represent the combined absolute value of their long and short positions, except in the case of offsetting transactions, for which they represent the absolute value of the net volume of their long and short positions.


	Current		Noncurrent
Natural Gas (bcf):
Fixed price⁽¹⁾		253		74
Basis⁽¹⁾		820		500
Electricity (MWh):
Fixed price⁽¹⁾		21,889,805		15,308,096
FTRs		71,103,622		237,523
Capacity (MW)		100,425		207,460
Liquids (Gal)⁽²⁾		140,658,000		168,210,000
Interest rate	$	1,900,000,000	$	2,340,000,000

(1)	Includes options.

(2)	Includes NGLs and oil.

For the three and nine months ended September 30, 2012 and 2011, gains or losses on hedging instruments determined to be ineffective and amounts excluded from the assessment of effectiveness were not material. Amounts excluded from the assessment of effectiveness include gains or losses attributable to changes in the time value of options and changes in the differences between spot prices and forward prices.

The following table presents selected information related to gains (losses) on cash flow hedges included in AOCI in Dominion’s Consolidated Balance Sheet at September 30, 2012:


	AOCI After-Tax			Amounts Expected to be Reclassified to Earnings during the next 12 Months After-Tax			Maximum Term
(millions)
Commodities:
Gas	$	(27	)	$	(23	)		27 months
Electricity		108			39			39 months
NGLs		9			3			27 months
Other		4			3			44 months
Interest rate		(171	)		(22	)		360 months

Total	$	(77	)	$	—

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.

PAGE 27

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, 2012
ASSETS
Current Assets
Commodity	$	148	$	328	$	476
Interest rate		38		—		38

Total current derivative assets		186		328		514

Noncurrent Assets
Commodity		176		104		280
Interest rate		55		—		55

Total noncurrent derivative assets⁽¹⁾		231		104		335

Total derivative assets	$	417	$	432	$	849

LIABILITIES
Current Liabilities
Commodity	$	81	$	290	$	371
Interest rate		99		29		128

Total current derivative liabilities		180		319		499

Noncurrent Liabilities
Commodity		65		79		144
Interest rate		3		7		10

Total noncurrent derivative liabilities⁽²⁾		68		86		154

Total derivative liabilities	$	248	$	405	$	653

December 31, 2011
ASSETS
Current Assets
Commodity	$	176	$	495	$	671
Interest rate		34		—		34

Total current derivative assets		210		495		705

Noncurrent Assets
Commodity		198		96		294
Interest rate		71		—		71

Total noncurrent derivative assets⁽¹⁾		269		96		365

Total derivative assets	$	479	$	591	$	1,070

LIABILITIES
Current Liabilities
Commodity	$	162	$	530	$	692
Interest rate		222		37		259

Total current derivative liabilities		384		567		951

Noncurrent Liabilities
Commodity		118		78		196
Interest rate		—		10		10

Total noncurrent derivative liabilities⁽²⁾		118		88		206

Total derivative liabilities	$	502	$	655	$	1,157

(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 28

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 September 30, 2012
Derivative Type and Location of Gains (Losses)
Commodity:
Operating revenue				$	44
Purchased gas					(9	)
Electric fuel and other energy-related purchases					(4	)

Total commodity	$	(128	)		31		$	7

Interest rate⁽³⁾		(15	)		1			(4	)

Total	$	(143	)	$	32		$	3

Three Months Ended September 30, 2011
Derivative Type and Location of Gains (Losses)
Commodity:
Operating revenue				$	28
Purchased gas					(7	)
Electric fuel and other energy-related purchases					2

Total commodity	$	69			23		$	(1	)

Interest rate⁽³⁾		(204	)		(8	)		(76	)

Total	$	(135	)	$	15		$	(77	)

Nine Months Ended September 30, 2012
Derivative Type and Location of Gains (Losses)
Commodity:
Operating revenue				$	171
Purchased gas					(55	)
Electric fuel and other energy-related purchases					(16	)

Total commodity	$	159			100		$	14

Interest rate⁽³⁾		(91	)		2			(44	)

Total	$	68		$	102		$	(30	)

Nine Months Ended September 30, 2011
Derivative Type and Location of Gains (Losses)
Commodity:
Operating revenue				$	88
Purchased gas					(61	)
Electric fuel and other energy-related purchases					4
Purchased electric capacity					1

Total commodity	$	(24	)		32		$	(10	)

Interest rate⁽³⁾		(236	)		(8	)		(76	)

Total	$	(260	)	$	24		$	(86	)

(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.

PAGE 29


	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	2012		2011			2012			2011
(millions)
Derivative Type and Location of Gains (Losses)
Commodity
Operating revenue	$	5	$	15		$	108		$	56
Purchased gas		3		(10	)		(2	)		(28	)
Electric fuel and other energy-related purchases		3		(8	)		(33	)		(16	)
Interest rate⁽²⁾		10		(4	)		17			(4	)

Total	$	21	$	(7	)	$	90		$	8

(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.

Virginia Power

The following table presents the volume of Virginia Power’s derivative activity as of September 30, 2012. These volumes are based on open derivative positions and represent the combined absolute value of their long and short positions, except in the case of offsetting transactions, for which they represent the absolute value of the net volume of their long and short positions.


	Current		Noncurrent
Natural Gas (bcf):
Fixed price		12		—
Basis		6		—
Electricity (MWh):
Fixed price		564,800		—
FTRs		69,715,081		—
Capacity (MW)		61,000		139,800
Interest rate	$	900,000,000	$	340,000,000

PAGE 30

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 u nder Hedge Accounting		Total Fair Value
(millions)
September 30, 2012
ASSETS
Current Assets
Commodity	$	3	$	6	$	9

Total current derivative assets⁽¹⁾		3		6		9

Total derivative assets	$	3	$	6	$	9

LIABILITIES
Current Liabilities
Commodity	$	1	$	4	$	5
Interest rate		54		29		83

Total current derivative liabilities⁽²⁾		55		33		88

Noncurrent Liabilities
Commodity		1		—		1
Interest rate		2		7		9

Total noncurrent derivative liabilities⁽³⁾		3		7		10

Total derivative liabilities	$	58	$	40	$	98

December 31, 2011
ASSETS
Current Assets
Commodity	$	—	$	2	$	2

Total current derivative assets⁽¹⁾		—		2		2

Total derivative assets	$	—	$	2	$	2

LIABILITIES
Current Liabilities
Commodity	$	14	$	31	$	45
Interest rate		53		37		90

Total current derivative liabilities⁽²⁾		67		68		135

Noncurrent Liabilities
Commodity		2		—		2
Interest rate		—		10		10

Total noncurrent derivative liabilities⁽³⁾		2		10		12

Total derivative liabilities	$	69	$	78	$	147

(1)

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

(2)

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

(3)

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

PAGE 31

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


Derivatives in cash flow hedging relationships	Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion)⁽¹⁾			Amount of Gain (Loss) Reclassified from AOCI to Income			Increase (Decrease) in Derivatives Subject to Regulatory Treatment⁽²⁾
(millions)
Three Months Ended September 30, 2012
Derivative Type and Location of Gains (Losses)
Commodity:
Electric fuel and other energy-related purchases				$	(1	)

Total commodity	$	—			(1	)	$	7

Interest rate⁽³⁾		(3	)		—			(4	)

Total	$	(3	)	$	(1	)	$	3

Three Months Ended September 30, 2011
Derivative Type and Location of Gains (Losses)
Commodity:
Electric fuel and other energy-related purchases				$	(1	)

Total commodity	$	(1	)		(1	)	$	(1	)

Interest rate⁽³⁾		(5	)		—			(76	)

Total	$	(6	)	$	(1	)	$	(77	)

Nine Months Ended September 30, 2012
Derivative Type and Location of Gains (Losses)
Commodity:
Electric fuel and other energy-related purchases				$	(4	)

Total commodity	$	(1	)		(4	)	$	14

Interest rate⁽³⁾		(7	)		—			(44	)

Total	$	(8	)	$	(4	)	$	(30	)

Nine Months Ended September 30, 2011

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company