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 March 31, 2013

¨	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 March 31, 2013, the latest practicable date for determination, Dominion Resources, Inc. had 577,676,451 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		53
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		66
Item 4.	Controls and Procedures		68

	PART II. Other Information

Item 1.	Legal Proceedings		68
Item 1A.	Risk Factors		68
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		70
Item 6.	Exhibits		71

PAGE2

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

AFUDC		Allowance for funds used during construction

AOCI		Accumulated other comprehensive income (loss)

Appalachian Gateway Project		Dominion Energy project completed in September 2012 to provide approximately 484,000 Dth per day of firm transportation services for new Appalachian gas supplies in West Virginia and southwestern Pennsylvania to an interconnection with Texas Eastern Transmission, LP at Oakford, Pennsylvania.

AROs		Asset retirement obligations

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

Blue Racer		Blue Racer Midstream, LLC, a joint venture with Caiman

BOD		Board of Directors

BP		BP Wind Energy North America Inc.

Brayton Point		Brayton Point power station, a 1,528 MW power station in Somerset, Massachusetts, with three coal-fired units and one unit fired by natural gas or oil

CAA		Clean Air Act

Caiman		Caiman Energy II, LLC

CAIR		Clean Air Interstate Rule

Carson-to-Suffolk line		Virginia Power 60-mile 500 kV transmission line in southeastern Virginia

CEO		Chief Executive Officer

CERCLA		Comprehensive Environmental Response, Compensation and Liability Act of 1980

CFO		Chief Financial Officer

CO₂		Carbon dioxide

COL		Combined Construction Permit and Operating License

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

DTI		Dominion Transmission, Inc.

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, a 1,424 MW power station outside Chicago, Illinois, with nine 158 MW natural gas-fired combustion turbines, in which Dominion owns a 50 percent interest (712 MW)

Energy Capital Partners		A private equity firm with offices in Short Hills, New Jersey and San Diego, California

EPA		Environmental Protection Agency

EPS		Earnings per share

ESBWR		General Electric-Hitachi’s Economic Simplified Boiling Water Reactor

Fairless		Fairless power station

PAGE3


Abbreviation or Acronym		Definition
FERC		Federal Energy Regulatory Commission

Fowler Ridge		A wind-turbine facility joint venture between Dominion and BP in Benton County, Indiana

FTRs		Financial transmission rights

GAAP		U.S. generally accepted accounting principles

Gal		Gallon

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

ISO-NE		ISO New England

Kewaunee		Kewaunee nuclear power station

Kincaid		Kincaid power station, a 1,158 MW power station in Kincaid, Illinois, with two 579 MW coal-fired units

kV		Kilovolt

kWh		Kilowatt – hour

Line TL-404		An approximately 26-mile, 24- and 30- inch interstate gas pipeline that extends from Wetzel County, West Virginia to Monroe County, Ohio

LNG		Liquefied natural gas

Maryland Commission		Maryland Public Service Commission

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

Meadow Brook-to-Loudoun line		Virginia Power 65-mile 500 kV transmission line that begins in Warren County, Virginia and terminates in Loudoun County, Virginia

Millstone		Millstone nuclear power station

MISO		Midwest Independent Transmission System Operator, 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 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

ODEC		Old Dominion Electric Cooperative

Ohio Commission		Public Utilities Commission of Ohio

PIPP		Percentage of Income Payment Plan

PIR		Pipeline Infrastructure Replacement program deployed by East Ohio

PJM		PJM Interconnection, L.L.C.

ppb		Parts-per-billion

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

RGGI		Regional Greenhouse Gas Initiative

Rider B		A rate adjustment clause associated with the recovery of costs related to the conversion of three of Virginia Power’s coal-fired power stations to biomass

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

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

PAGE4


Abbreviation or Acronym		Definition
ROE		Return on equity

RTO		Regional transmission organization

Salem Harbor		Salem Harbor power station

SEC		Securities and Exchange Commission

Shell		Shell WindEnergy, Inc.

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

TGP		Tennessee Gas Pipeline Company

U.S.		United States of America

UAO		Unilateral Administrative Order

VIE		Variable interest entity

Virginia City Hybrid Energy Center		A 600 MW baseload carbon-capture compatible, clean coal powered electric generation facility in Wise County, Virginia

Virginia Commission		Virginia State Corporation Commission

Virginia Power		The legal entity, Virginia Electric and Power Company, one or more of its consolidated subsidiaries or operating segments or the entirety of Virginia Power and its consolidated subsidiaries

Virginia Settlement Approval Order		Order issued by the Virginia Commission in March 2010 concluding Virginia Power’s 2009 Base Rate Review

Warren County		Warren County power station, a 1,329 MW combined-cycle, natural gas-fired power station under construction in Warren County, Virginia

PAGE5

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DOMINION RESOURCES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended March 31,
	2013		2012⁽¹⁾
(millions, except per share amounts)
Operating Revenue	$	3,523	$	3,397

Operating Expenses
Electric fuel and other energy-related purchases		951		912
Purchased electric capacity		88		113
Purchased gas		467		412
Other operations and maintenance		623		607
Depreciation, depletion and amortization		297		273
Other taxes		167		162

Total operating expenses		2,593		2,479

Income from operations		930		918

Other income		87		74
Interest and related charges		228		212

Income from continuing operations including noncontrolling interests before income tax expense		789		780
Income tax expense		288		269

Income from continuing operations including noncontrolling interests		501		511
Income (loss) from discontinued operations⁽²⁾		1		(10	)

Net Income Including Noncontrolling Interests		502		501
Noncontrolling Interests		7		7

Net Income Attributable to Dominion	$	495	$	494

Amounts Attributable to Dominion:
Income from continuing operations, net of tax	$	494	$	504
Income (loss) from discontinued operations, net of tax		1		(10	)

Net income attributable to Dominion	$	495	$	494

Earnings Per Common Share-Basic
Income from continuing operations	$	0.86	$	0.88
Income (loss) from discontinued operations		—		(0.02	)

Net income attributable to Dominion	$	0.86	$	0.86

Earnings Per Common Share-Diluted
Income from continuing operations	$	0.86	$	0.88
Income (loss) from discontinued operations		—		(0.02	)

Net income attributable to Dominion	$	0.86	$	0.86

Dividends declared per common share	$	0.5625	$	0.5275

(1)	Recast to reflect Brayton Point and Kincaid as discontinued operations, as discussed in Note 3.

(2)	Includes income tax (expense) benefit of $(—) and $10 million for the three months ended March 31, 2013 and 2012, respectively.

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

PAGE6

DOMINION RESOURCES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended March 31,
	2013			2012
(millions)
Net income including noncontrolling interests	$	502		$	501
Other comprehensive income (loss), net of taxes:
Net deferred gains (losses) on derivatives-hedging activities⁽¹⁾		(90	)		128
Changes in unrealized net gains on investment securities⁽²⁾		78			85
Amounts reclassified to net income:
Net derivative (gains) losses-hedging activities⁽³⁾		76			(16	)
Net realized gains on investment securities⁽⁴⁾		(27	)		(10	)
Net pension and other postretirement benefit costs⁽⁵⁾		20			12

Total other comprehensive income		57			199

Comprehensive income including noncontrolling interests		559			700
Comprehensive income attributable to noncontrolling interests		7			7

Comprehensive income attributable to Dominion	$	552		$	693

(1)	Net of $54 million and $(80) million tax for the three months ended March 31, 2013 and 2012, respectively.

(2)	Net of $(51) million and $(56) million tax for the three months ended March 31, 2013 and 2012, respectively.

(3)	Net of $(48) million and $12 million tax for the three months ended March 31, 2013 and 2012, respectively.

(4)	Net of $18 million and $6 million tax for the three months ended March 31, 2013 and 2012, respectively.

(5)	Net of $(9) million tax for both the three months ended March 31, 2013 and 2012.

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

PAGE7

DOMINION RESOURCES, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	March 31, 2013			December 31, 2012⁽¹⁾
(millions)
ASSETS
Current Assets
Cash and cash equivalents	$	35		$	248
Customer receivables (less allowance for doubtful accounts of $29 and $28)		1,758			1,621
Other receivables (less allowance for doubtful accounts of $4 at both dates)		73			96
Inventories		1,039			1,259
Derivative assets		527			518
Assets held for sale		313			—
Other		1,403			1,398

Total current assets		5,148			5,140

Investments
Nuclear decommissioning trust funds		3,547			3,330
Investment in equity method affiliates		559			558
Other		294			303

Total investments		4,400			4,191

Property, Plant and Equipment
Property, plant and equipment		43,705			43,364
Property, plant and equipment, VIE		957			957
Accumulated depreciation, depletion and amortization		(13,753	)		(13,548	)

Total property, plant and equipment, net		30,909			30,773

Deferred Charges and Other Assets
Goodwill		3,128			3,130
Regulatory assets		1,696			1,717
Other		1,835			1,887

Total deferred charges and other assets		6,659			6,734

Total assets	$	47,116		$	46,838

(1)	Dominion’s Consolidated Balance Sheet at December 31, 2012 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.

PAGE8

DOMINION RESOURCES, INC.

CONSOLIDATED BALANCE SHEETS—(Continued)

(Unaudited)


	March 31, 2013			December 31, 2012⁽¹⁾
(millions)
LIABILITIES AND EQUITY
Current Liabilities
Securities due within one year	$	1,193		$	1,363
Securities due within one year, VIE		852			860
Short-term debt		2,003			2,412
Accounts payable		950			1,137
Derivative liabilities		556			510
Liabilities held for sale		48			—
Other		1,370			1,481

Total current liabilities		6,972			7,763

Long-Term Debt
Long-term debt		15,904			15,478
Junior subordinated notes		1,373			1,373

Total long-term debt		17,277			16,851

Deferred Credits and Other Liabilities
Deferred income taxes and investment tax credits		6,070			5,800
Asset retirement obligations		1,611			1,641
Pension and other postretirement benefit liabilities		1,834			1,831
Regulatory liabilities		1,646			1,514
Other		521			556

Total deferred credits and other liabilities		11,682			11,342

Total liabilities		35,931			35,956

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

Equity
Common stock – no par⁽²⁾		5,571			5,493
Other paid-in capital		156			162
Retained earnings		5,961			5,790
Accumulated other comprehensive loss		(820	)		(877	)

Total common shareholders’ equity		10,868			10,568

Noncontrolling interest		60			57

Total equity		10,928			10,625

Total liabilities and equity	$	47,116		$	46,838

(1)	Dominion’s Consolidated Balance Sheet at December 31, 2012 has been derived from the audited Consolidated Financial Statements at that date.

(2)	1 billion shares authorized; 578 million shares and 576 million shares outstanding at March 31, 2013 and December 31, 2012, respectively.

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

PAGE9

DOMINION RESOURCES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


Three Months Ended March 31,	2013			2012
(millions)
Operating Activities
Net income including noncontrolling interests	$	502		$	501
Adjustments to reconcile net income including noncontrolling interests to net cash provided by operating activities:
Depreciation, depletion and amortization (including nuclear fuel)		366			353
Deferred income taxes and investment tax credits		266			269
Rate refunds		(5	)		(55	)
Other adjustments		(52	)		(72	)
Changes in:
Accounts receivable		(124	)		327
Inventories		133			99
Deferred fuel and purchased gas costs, net		16			162
Prepayments		(17	)		37
Accounts payable		(135	)		(275	)
Accrued interest, payroll and taxes		(33	)		89
Margin deposit assets and liabilities		(65	)		97
Other operating assets and liabilities		200			91

Net cash provided by operating activities		1,052			1,623

Investing Activities
Plant construction and other property additions (including nuclear fuel)		(904	)		(981	)
Proceeds from sales of securities		554			415
Purchases of securities		(574	)		(420	)
Other		62			40

Net cash used in investing activities		(862	)		(946	)

Financing Activities
Repayment of short-term debt, net		(409	)		(757	)
Issuance of long-term debt		1,250			450
Repayment of long-term debt		(712	)		(104	)
Repayment of affiliated notes payable		(258	)		—
Issuance of common stock		73			69
Common dividend payments		(324	)		(301	)
Subsidiary preferred dividend payments		(4	)		(4	)
Other		(19	)		1

Net cash used in financing activities		(403	)		(646	)

Increase (decrease) in cash and cash equivalents		(213	)		31
Cash and cash equivalents at beginning of period		248			102

Cash and cash equivalents at end of period	$	35		$	133

Supplemental Cash Flow Information
Significant noncash investing activities:
Accrued capital expenditures	$	200		$	298

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

PAGE10

VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended March 31,
	2013		2012
(millions)
Operating Revenue	$	1,781	$	1,754

Operating Expenses
Electric fuel and other energy-related purchases		570		614
Purchased electric capacity		88		113
Other operations and maintenance:
Affiliated suppliers		74		83
Other		245		223
Depreciation and amortization		207		188
Other taxes		67		65

Total operating expenses		1,251		1,286

Income from operations		530		468

Other income		25		23
Interest and related charges		93		100

Income before income tax expense		462		391
Income tax expense		175		148

Net Income		287		243
Preferred dividends		4		4

Balance available for common stock	$	283	$	239

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

PAGE11

VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended March 31,
	2013			2012
(millions)
Net income	$	287		$	243
Other comprehensive income (loss), net of taxes:
Net deferred gains (losses) on derivatives-hedging activities⁽¹⁾		2			(1	)
Changes in unrealized net gains on nuclear decommissioning trust funds⁽²⁾		8			9
Amounts reclassified to net income:
Net derivative losses-hedging activities⁽³⁾		—			1
Net realized gains on nuclear decommissioning trust funds⁽⁴⁾		(1	)		(1	)

Other comprehensive income		9			8

Comprehensive income	$	296		$	251

(1)	Net of $(1) million and $— million tax for the three months ended March 31, 2013 and 2012, respectively.

(2)	Net of $(5) million tax for both the three months ended March 31, 2013 and 2012.

(3)	Net of $— million and $(1) million tax for the three months ended March 31, 2013 and 2012, respectively.

(4)	Net of $1 million tax for both the three months ended March 31, 2013 and 2012.

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

PAGE12

VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	March 31, 2013			December 31, 2012⁽¹⁾
(millions)
ASSETS
Current Assets
Cash and cash equivalents	$	3		$	28
Customer receivables (less allowance for doubtful accounts of $10 at both dates)		892			849
Other receivables (less allowance for doubtful accounts of $3 at both dates)		39			51
Inventories (average cost method)		721			789
Prepayments		37			23
Other		189			241

Total current assets		1,881			1,981

Investments
Nuclear decommissioning trust funds		1,608			1,515
Other		14			14

Total investments		1,622			1,529

Property, Plant and Equipment
Property, plant and equipment		31,085			30,631
Accumulated depreciation and amortization		(10,157	)		(10,014	)

Total property, plant and equipment, net		20,928			20,617

Deferred Charges and Other Assets
Intangible assets		182			181
Regulatory assets		388			396
Other		117			107

Total deferred charges and other assets		687			684

Total assets	$	25,118		$	24,811

(1)	Virginia Power’s Consolidated Balance Sheet at December 31, 2012 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.

PAGE13

VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED BALANCE SHEETS—(Continued)

(Unaudited)


	March 31, 2013		December 31, 2012⁽¹⁾
(millions)
LIABILITIES AND SHAREHOLDER’S EQUITY
Current Liabilities
Securities due within one year	$	18	$	418
Short-term debt		661		992
Accounts payable		347		430
Payables to affiliates		61		67
Affiliated current borrowings		57		435
Accrued interest, payroll and taxes		294		204
Other		319		461

Total current liabilities		1,757		3,007

Long-Term Debt		7,445		6,251

Deferred Credits and Other Liabilities
Deferred income taxes and investment tax credits		3,918		3,879
Asset retirement obligations		709		705
Regulatory liabilities		1,414		1,285
Other		241		194

Total deferred credits and other liabilities		6,282		6,063

Total liabilities		15,484		15,321

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		1,113		1,113
Retained earnings		2,492		2,357
Accumulated other comprehensive income		34		25

Total common shareholder’s equity		9,377		9,233

Total liabilities and shareholder’s equity	$	25,118	$	24,811

(1)	Virginia Power’s Consolidated Balance Sheet at December 31, 2012 has been derived from the audited Consolidated Financial Statements at that date.

(2)	500,000 shares authorized; 274,723 shares outstanding at March 31, 2013 and December 31, 2012.

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

PAGE14

VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


Three Months Ended March 31,	2013			2012
(millions)
Operating Activities
Net income	$	287		$	243
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization (including nuclear fuel)		250			222
Deferred income taxes and investment tax credits		112			85
Rate refunds		(5	)		(55	)
Other adjustments		(17	)		(20	)
Changes in:
Accounts receivable		(31	)		125
Affiliated accounts receivable and payable		(6	)		(15	)
Inventories		68			20
Deferred fuel expenses		(19	)		156
Accounts payable		(65	)		(59	)
Accrued interest, payroll and taxes		90			137
Other operating assets and liabilities		43			67

Net cash provided by operating activities		707			906

Investing Activities
Plant construction and other property additions		(592	)		(483	)
Purchases of nuclear fuel		(47	)		(67	)
Purchases of securities		(206	)		(193	)
Proceeds from sales of securities		189			191
Other		1			(6	)

Net cash used in investing activities		(655	)		(558	)

Financing Activities
Repayment of short-term debt, net		(331	)		(639	)
Repayment of affiliated current borrowings, net		(378	)		—
Issuance of long-term debt		1,250			450
Repayment of long-term debt		(451	)		(1	)
Common dividend payments		(148	)		(149	)
Preferred dividend payments		(4	)		(4	)
Other		(15	)		(6	)

Net cash used in financing activities		(77	)		(349	)

Decrease in cash and cash equivalents		(25	)		(1	)
Cash and cash equivalents at beginning of period		28			29

Cash and cash equivalents at end of period	$	3		$	28

Supplemental Cash Flow Information
Significant noncash investing activities:
Accrued capital expenditures	$	117		$	208

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

PAGE15

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, 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 March 31, 2013, and their results of operations and cash flows for the three months ended March 31, 2013 and 2012. 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 2012 Consolidated Financial Statements and Notes have been reclassified to conform to the 2013 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

Sale of Brayton Point, Kincaid and Equity Method Investment in Elwood

In March 2013, Dominion entered into an agreement with Energy Capital Partners to sell Brayton Point, Kincaid, and its 50% interest in Elwood, which is an equity method investment.

PAGE16

The transaction is expected to close in the second quarter of 2013, subject to FERC approval. The sales price is approximately $472 million, subject to customary closing adjustments. In the first quarter of 2013, Brayton Point’s and Kincaid’s assets and liabilities to be disposed of were classified as held for sale and adjusted to their estimated fair value less cost to sell, resulting in a pre-tax impairment charge of $37 million ($22 million after-tax), which is included in discontinued operations in Dominion’s Consolidated Statement of Income. Dominion used the market approach to estimate the fair value of Brayton Point’s and Kincaid’s long-lived assets. This was considered a Level 2 fair value measurement given it was based on the agreed-upon sales price. The carrying amounts of the major classes of assets and liabilities classified as held for sale in Dominion’s Consolidated Balance Sheet are as follows:


At March 31,	2013
(millions)
Assets
Current assets	$	109
Property, plant and equipment, net		187
Other assets		17

Total assets	$	313

Liabilities
Current liabilities	$	28
Asset retirement obligations		19
Other liabilities		1

Total liabilities	$	48

The following table presents selected information regarding the results of operations of Brayton Point and Kincaid, which are reported as discontinued operations in Dominion’s Consolidated Statements of Income:


	Three Months Ended March 31,
	2013		2012
(millions)
Operating revenue	$	154	$	65
Income (loss) before income taxes		1		(22	)

Dominion’s 50% interest in Elwood is an equity method investment and therefore, in accordance with applicable accounting guidance, the carrying amount of this investment is not classified as held for sale nor are the equity earnings from this investment reported as discontinued operations.

Sale of Salem Harbor and State Line

In August 2012, Dominion completed the sale of Salem Harbor. During the second quarter of 2012, Dominion completed the sale of 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 Statement of Income:


Three months ended March 31,	2012
(millions)
Operating revenue	$	30
Income before income taxes		2

PAGE17

Note 4. Operating Revenue

The Companies’ operating revenue consists of the following:


	Three Months Ended March 31,
	2013		2012
(millions)
Dominion
Electric sales:
Regulated	$	1,761	$	1,724
Nonregulated		658		643
Gas sales:
Regulated		132		99
Nonregulated		345		398
Gas transportation and storage		467		405
Other		160		128

Total operating revenue	$	3,523	$	3,397

Virginia Power
Regulated electric sales	$	1,761	$	1,724
Other		20		30

Total operating revenue	$	1,781	$	1,754

Note 5. Income Taxes

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


	Dominion						Virginia Power
Three Months Ended March 31,	2013			2012			2013			2012
U.S. statutory rate		35.0	%		35.0	%		35.0	%		35.0	%
Increases (reductions) resulting from:
State taxes, net of federal benefit		4.0			4.0			3.9			3.9
Investment and production tax credits		(1.5	)		(0.5	)		—			—
Valuation allowances		0.1			(2.6	)		—			—
AFUDC – equity		(0.7	)		(0.7	)		(1.3	)		(0.9	)
Other, net		(0.4	)		(0.7	)		0.2			(0.2	)

Effective tax rate		36.5	%		34.5	%		37.8	%		37.8	%

Dominion’s effective tax rate in 2012 reflects a $20 million reduction of 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 concluded that it was more likely than not that the tax benefit of the operating losses would be realized. Significant assumptions included 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 would significantly influence the extent to which Fairless is dispatched by PJM.

As of March 31, 2013, 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 5 to the Consolidated Financial Statements in Dominion’s and Virginia Power’s Annual Report on Form 10-K for the year ended December 31, 2012 for a discussion of these unrecognized tax benefits.

PAGE18

Note 6. Earnings Per Share

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


	Three Months Ended March 31,
	2013		2012
(millions, except EPS)
Net income attributable to Dominion	$	495	$	494

Average shares of common stock outstanding – Basic		576.6		570.5
Net effect of potentially dilutive securities⁽¹⁾		0.9		1.4

Average shares of common stock outstanding – Diluted		577.5		571.9

Earnings Per Common Share – Basic	$	0.86	$	0.86
Earnings Per Common Share – Diluted	$	0.86	$	0.86

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

There were no potentially dilutive securities excluded from the calculation of diluted EPS for the three months ended March 31, 2013 and 2012.

PAGE19

Note 7. Accumulated Other Comprehensive Income

The following table presents Dominion’s changes in AOCI by component, net of tax for the three months ended March 31, 2013:


	Deferred gains and losses on derivatives- hedging activities			Unrealized gains and losses on investment securities			Unrecognized pension and other postretirement benefit costs			Total
(millions)
Beginning balance	$	(122	)	$	326		$	(1,081	)	$	(877	)
Other comprehensive income (loss) before reclassifications: gains (losses)		(90	)		78			—			(12	)
Amounts reclassified from accumulated other comprehensive income (loss)⁽¹⁾: (gains) losses		76			(27	)		20			69

Net current-period other comprehensive income (loss)		(14	)		51			20			57

Ending balance	$	(136	)	$	377		$	(1,061	)	$	(820	)

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

The following table presents Dominion’s reclassifications out of AOCI by component for the three months ended March 31, 2013:


Details about AOCI components	Amounts reclassified from AOCI			Affected line item in the Consolidated Statements of Income
(millions)
Deferred (gains) and losses on derivatives-hedging activities:
Commodity contracts	$	84		Operating revenue
		34		Purchased gas
		3		Electric fuel and other energy-related purchases
Interest rate contracts		3		Interest and related charges

		124
Tax		(48	)	Income tax expense

	$	76

Unrealized (gains) and losses on investment securities:
Realized (gain) loss on sale of securities	$	(47	)	Other income
Impairment		2		Other income

		(45	)
Tax		18		Income tax expense

	$	(27	)

Unrecognized pension and other postretirement benefit costs:
Actuarial (gains) losses	$	29		Other operations and maintenance

		29
Tax		(9	)	Income tax expense

	$	20

PAGE20

Note 8. Fair Value Measurements

Dominion’s and Virginia Power’s fair value measurements are made in accordance with the policies discussed in Note 6 to the Consolidated Financial Statements in their Annual Report on Form 10-K for the year ended December 31, 2012. See Note 9 in this report for further information about their derivatives and hedge accounting activities.

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, mean reversions, 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.

PAGE21

The following table presents Dominion’s quantitative information about Level 3 fair value measurements. 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.


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

At March 31, 2013
Assets:
Physical and Financial Forwards and Futures:
Natural Gas⁽²⁾	$	11	Discounted Cash Flow		Market Price (per Dth)	⁽³⁾	(1) - 6		3
Electricity		7	Discounted Cash Flow		Market Price (per MWh)	⁽³⁾	34 - 76		49
FTRs		2	Discounted Cash Flow		Market Price (per MWh)	⁽³⁾	(3) - 5		0
Liquids		18	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⁾	3 - 11		4
					Price Volatility	⁽⁴⁾	8% - 546%⁽⁹⁾		42	%
					Price Correlation	⁽⁵⁾	37% - 100%		57	%
					Mean Reversion	⁽⁶⁾	0 - 58		11
Full Requirements Contracts:
Electricity		9	Discounted Cash Flow		Market Price (per MWh)	⁽³⁾	11 - 480⁽¹⁰⁾		47
					Load Shaping	⁽⁷⁾	1% - 8%		4	%
					Usage Factor	⁽⁸⁾	1% - 7%		5	%

Total assets	$	51

Liabilities:
Physical and Financial Forwards and Futures:
Natural Gas⁽²⁾	$	18	Discounted Cash Flow		Market Price (per Dth)	⁽³⁾	(1) - 6		2
Electricity		1	Discounted Cash Flow		Market Price (per MWh)	⁽³⁾	23 - 43		33
FTRs		5	Discounted Cash Flow		Market Price (per MWh)	⁽³⁾	(1) - 18		1
Liquids		12	Discounted Cash Flow		Market Price (per Gal)	⁽³⁾	1 - 3		2
Physical and Financial Options:
Natural Gas		6	Option Model		Market Price (per Dth)	⁽³⁾	3 - 11		5
					Price Volatility	⁽⁴⁾	8% - 546%⁽⁹⁾		27	%
					Price Correlation	⁽⁵⁾	37% - 100%		57	%
					Mean Reversion	⁽⁶⁾	0 - 58		11

Total liabilities	$	42

(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)	Represents mean-reverting property in price simulation modeling.

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

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

(9)	The range in volatilities is the result of large variability in natural gas basis prices.

(10)	The range in market prices is the result of large variability in hourly power prices during peak and off-peak hours.

PAGE22

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)
Mean Reversion	Buy	Increase (decrease)	Loss (gain)
Mean Reversion	Sell	Increase (decrease)	Gain (loss)
Load Shaping	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

See Note 3 for a non-recurring fair value measurement related to Brayton Point and Kincaid.

PAGE23

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 March 31, 2013
Assets:
Derivatives:
Commodity	$	12	$	610	$	51	$	673
Interest rate		—		78		—		78
Investments⁽¹⁾:
Equity securities:
U.S.:
Large cap		2,065		—		—		2,065
Other		68		—		—		68
Non-U.S.:
Large cap		12		—		—		12
Fixed income:
Corporate debt instruments		—		364		—		364
U.S. Treasury securities and agency debentures		454		195		—		649
State and municipal		—		299		—		299
Other		—		8		—		8
Cash equivalents and other		1		80		—		81
Restricted cash equivalents		—		20		—		20

Total assets	$	2,612	$	1,654	$	51	$	4,317

Liabilities:
Derivatives:
Commodity	$	13	$	556	$	42	$	611
Interest rate		—		33		—		33

Total liabilities	$	13	$	589	$	42	$	644

At December 31, 2012
Assets:
Derivatives:
Commodity	$	12	$	639	$	84	$	735
Interest rate		—		93		—		93
Investments⁽¹⁾:
Equity securities:
U.S.:
Large cap		1,973		—		—		1,973
Other		59		—		—		59
Non-U.S.:
Large cap		12		—		—		12
Fixed income:
Corporate debt instruments		—		325		—		325
U.S. Treasury securities and agency debentures		391		152		—		543
State and municipal		—		315		—		315
Other		—		7		—		7
Cash equivalents and other		13		67		—		80
Restricted cash equivalents		—		33		—		33

Total assets	$	2,460	$	1,631	$	84	$	4,175

Liabilities:
Derivatives:
Commodity	$	8	$	528	$	59	$	595
Interest rate		—		66		—		66

Total liabilities	$	8	$	594	$	59	$	661

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

PAGE24

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


	Three Months Ended March 31,
	2013			2012
(millions)
Beginning balance	$	25		$	(71	)
Total realized and unrealized gains (losses):
Included in earnings		14			(35	)
Included in other comprehensive income (loss)		9			5
Included in regulatory assets/liabilities		(5	)		11
Settlements		(26	)		30
Transfers out of Level 3		(8	)		(1	)

Ending balance	$	9		$	(61	)

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	$	(5	)	$	1

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 March 31, 2013
Total gains (losses) included in earnings	$	12		$	2		$	14

The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets/liabilities still held at the reporting date		(5	)		—			(5	)
Three Months Ended March 31, 2012
Total gains (losses) included in earnings	$	(9	)	$	(26	)	$	(35	)

The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets/liabilities still held at the reporting date		1			—			1

PAGE25

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 March 31, 2013
Assets:
Derivatives:
Commodity	$	—	$	6	$	2	$	8
Interest rate		—		3		—		3
Investments⁽¹⁾:
Equity securities:
U.S.:
Large cap		864		—		—		864
Other		30		—		—		30
Fixed income:
Corporate debt instruments		—		214		—		214
U.S. Treasury securities and agency debentures		177		75		—		252
State and municipal		—		104		—		104
Other		—		1		—		1
Cash equivalents and other		—		29		—		29
Restricted cash equivalents		—		10		—		10

Total assets	$	1,071	$	442	$	2	$	1,515

Liabilities:
Derivatives:
Commodity	$	—	$	2	$	5	$	7

Total liabilities	$	—	$	2	$	5	$	7

At December 31, 2012
Assets:
Derivatives:
Commodity	$	—	$	1	$	5	$	6
Investments⁽¹⁾:
Equity securities:
U.S.:
Large cap		779		—		—		779
Other		27		—		—		27
Fixed income:
Corporate debt instruments		—		196		—		196
U.S. Treasury securities and agency debentures		168		66		—		234
State and municipal		—		118		—		118
Other		—		1		—		1
Cash equivalents and other		7		31		—		38
Restricted cash equivalents		—		10		—		10

Total assets	$	981	$	423	$	5	$	1,409

Liabilities:
Derivatives:
Commodity	$	—	$	6	$	3	$	9
Interest rate		—		25		—		25

Total liabilities	$	—	$	31	$	3	$	34

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

PAGE26

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


	Three Months Ended March 31,
	2013			2012
(millions)
Beginning balance	$	2		$	(28	)
Total realized and unrealized gains (losses):
Included in earnings		2			(27	)
Included in regulatory assets/liabilities		(5	)		11
Settlements		(2	)		27

Ending balance	$	(3	)	$	(17	)

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 months ended March 31, 2013 and 2012. There were no unrealized gains or losses included in earnings in the Level 3 fair value category relating to assets/liabilities still held at the reporting date for the three months ended March 31, 2013 and 2012.

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:


	March 31, 2013				December 31, 2012
	Carrying Amount		Estimated Fair Value⁽¹⁾		Carrying Amount		Estimated Fair Value⁽¹⁾
(millions)
Dominion

Long-term debt, including securities due within one year⁽²⁾	$	17,097	$	19,874	$	16,841	$	19,898

Securities due within one year, VIE⁽³⁾		852		855		860		864
Junior subordinated notes		1,373		1,435		1,373		1,430

Subsidiary preferred stock⁽⁴⁾		257		260		257		255
Virginia Power

Long-term debt, including securities due within one year⁽²⁾	$	7,463	$	8,929	$	6,669	$	8,270

Preferred stock⁽⁴⁾		257		260		257		255

(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 March 31, 2013 and December 31, 2012, includes the valuation of certain fair value hedges associated with Dominion’s fixed rate debt of approximately $72 million and $93 million, respectively.

(3)	Includes amounts which represent the unamortized premium.

(4)	Includes deferred issuance expenses of $2 million at March 31, 2013 and December 31, 2012.

Note 9. 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, 2012. See Note 8 in this report for further information about fair value measurements and associated valuation methods for derivatives.

Derivative assets and liabilities are presented gross on Dominion’s and Virginia Power’s Consolidated Balance Sheets. Dominion’s and Virginia Power’s derivative contracts include both over-the-counter transactions and those that are executed on

PAGE27

an exchange or other trading platform (exchange contracts) and centrally cleared. Over-the-counter contracts are bilateral contracts that are transacted directly with a third party. Exchange contracts utilize a financial intermediary, exchange, or clearinghouse to enter, execute, or clear the transactions. Certain over-the-counter and exchange contracts contain contractual rights of setoff through master netting arrangements, derivative clearing agreements, and contract default provisions. In addition, the contracts are subject to conditional rights of setoff through counterparty nonperformance, insolvency, or other conditions.

In general, most over-the-counter transactions and all exchange contracts are subject to collateral requirements. Types of collateral for over-the-counter and exchange contracts include cash, letters of credit, and in some cases other forms of security, none of which are subject to restrictions. Cash collateral is used in the table below to offset derivative assets and liabilities. Certain accounts receivable and accounts payable recognized on Dominion’s and Virginia Power’s Consolidated Balance Sheets, as well as letters of credit and other forms of security, all of which are not included in the tables below, are subject to offset under master netting agreements or similar agreements and would reduce the net exposure.

Dominion

The tables below present Dominion’s derivative asset and liability balances by type of financial instrument, before and after the effects of offsetting, as of March 31, 2013:


	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheet		Net Amounts of Assets Presented in the Consolidated Balance Sheet
(millions)
Interest rate contracts:
Over-the-counter	$	78	$	—	$	78
Commodity contracts:
Over-the-counter		245		—		245
Exchange		418		—		418

Total derivatives, subject to a master netting arrangement or similar arrangement		741		—		741
Total derivatives, not subject to a master netting arrangement or similar arrangement		10		—		10

Total⁽¹⁾	$	751	$	—	$	751

(1)

The total derivative asset balance contains $534 million of current assets, $527 million and $7 million of which is presented in current derivative assets and assets held for sale, respectively, in Dominion’s Consolidated Balance Sheet, and $217 million of noncurrent derivative assets, which is presented in other deferred charges and other assets in Dominion’s Consolidated Balance Sheet.


			Gross Amounts Not Offset in the Consolidated Balance Sheet
	Net Amounts of Assets Presented in the Consolidated Balance Sheet		Financial Instruments		Cash Collateral Received		Net Amounts
(millions)
Interest rate contracts:
Over-the-counter	$	78	$	15	$	—	$	63
Commodity contracts:
Over-the-counter		245		74		—		171
Exchange		418		405		1		12

Total	$	741	$	494	$	1	$	246

PAGE28


	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheet		Net Amounts of Liabilities Presented in the Consolidated Balance Sheet
(millions)
Interest rate contracts:
Over-the-counter	$	33	$	—	$	33
Commodity contracts:
Over-the-counter		145		—		145
Exchange		462		—		462

Total derivatives, subject to a master netting arrangement or similar arrangement		640		—		640
Total derivatives, not subject to a master netting arrangement or similar arrangement		4		—		4

Total⁽¹⁾	$	644	$	—	$	644

(1)

The total derivative liability balance contains $556 million of current liabilities, which is presented in current derivative liabilities in Dominion’s Consolidated Balance Sheet, and $88 million of noncurrent derivative liabilities, which is presented in the other deferred credits and other liabilities in Dominion’s Consolidated Balance Sheet.


			Gross Amounts Not Offset in the Consolidated Balance Sheet
	Net Amounts of Liabilities Presented in the Consolidated Balance Sheet		Financial Instruments		Cash Collateral Paid		Net Amounts
(millions)
Interest rate contracts:
Over-the-counter	$	33	$	15	$	—	$	18
Commodity contracts:
Over-the-counter		145		74		13		58
Exchange		462		405		57		—

Total	$	640	$	494	$	70	$	76

PAGE29

The tables below present Dominion’s derivative asset and liability balances by type of financial instrument, before and after the effects of offsetting, as of December 31, 2012:


	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheet		Net Amounts of Assets Presented in the Consolidated Balance Sheet
(millions)
Interest rate contracts:
Over-the-counter	$	93	$	—	$	93
Commodity contracts:
Over-the-counter		290		—		290
Exchange		416		—		416

Total derivatives, subject to a master netting arrangement or similar arrangement		799		—		799
Total derivatives, not subject to a master netting arrangement or similar arrangement		29		—		29

Total⁽¹⁾	$	828	$	—	$	828

(1)

The total derivative asset balance contains $518 million of current assets, which is presented in current derivative assets in Dominion’s Consolidated Balance Sheet and $310 million of noncurrent derivative assets, which is presented in other deferred charges and other assets in Dominion’s Consolidated Balance Sheet.


			Gross Amounts Not Offset in the Consolidated Balance Sheet
	Net Amounts of Assets Presented in the Consolidated Balance Sheet		Financial Instruments		Cash Collateral Received		Net Amounts
(millions)
Interest rate contracts:
Over-the-counter	$	93	$	19	$	—	$	74
Commodity contracts:								—
Over-the-counter		290		97		—		193
Exchange		416		350		4		62

Total	$	799	$	466	$	4	$	329

PAGE30


	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheet		Net Amounts of Liabilities Presented in the Consolidated Balance Sheet
(millions)
Interest rate contracts:
Over-the-counter	$	66	$	—	$	66
Commodity contracts:
Over-the-counter		191		—		191
Exchange		393		—		393

Total derivatives, subject to a master netting arrangement or similar arrangement		650		—		650
Total derivatives, not subject to a master netting arrangement or similar arrangement		11		—		11

Total⁽¹⁾	$	661	$	—	$	661

(1)

The total derivative liability balance contains $510 million of current liabilities, which is presented in current derivative liabilities in Dominion’s Consolidated Balance Sheet and $151 million of noncurrent derivative liabilities, which is presented in other deferred credits and other liabilities in Dominion’s Consolidated Balance Sheet.


			Gross Amounts Not Offset in the Consolidated Balance Sheet
	Net Amounts of Liabilities Presented in the Consolidated Balance Sheet		Financial Instruments		Cash Collateral Paid		Net Amounts
(millions)
Interest rate contracts:
Over-the-counter	$	66	$	19	$	—	$	47
Commodity contracts:								—
Over-the-counter		191		97		20		74
Exchange		393		350		43		—

Total	$	650	$	466	$	63	$	121

The following table presents the volume of Dominion’s derivative activity as of March 31, 2013. 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⁾		292		47
Basis		875		482
Electricity (MWh):
Fixed price⁽¹⁾		19,932,885		15,662,175
FTRs		19,950,674		—
Capacity (MW)		200,525		90,744
Liquids (Gal)⁽²⁾		161,322,000		109,284,000
Interest rate	$	1,350,000,000	$	1,650,000,000

(1)	Includes options.

(2)	Includes NGLs and oil.

PAGE31

For the three months ended March 31, 2013 and 2012, 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 March 31, 2013:


	AOCI After-Tax			Amounts Expected to be Reclassified to Earnings during the next 12 Months After-Tax			Maximum Term
(millions)
Commodities:
Gas	$	(20	)	$	(14	)		31 months
Electricity		31			(12	)		33 months
Other		8			4			38 months
Interest rate		(155	)		(27	)		358 months

Total	$	(136	)	$	(49	)

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.

PAGE32

Fair Value and Gains and Losses on Derivative Instruments

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


	Fair Value – Derivatives under Hedge Accounting		Fair Value – Derivatives not under Hedge Accounting		Total Fair Value
(millions)
March 31, 2013
ASSETS
Current Assets
Commodity	$	94	$	406	$	500
Interest rate		34		—		34

Total current derivative assets⁽¹⁾		128		406		534

Noncurrent Assets
Commodity		106		67		173
Interest rate		44		—		44

Total noncurrent derivative assets⁽²⁾		150		67		217

Total derivative assets	$	278	$	473	$	751

LIABILITIES
Current Liabilities
Commodity	$	123	$	400	$	523
Interest rate		33		—		33

Total current derivative liabilities		156		400		556

Noncurrent Liabilities
Commodity		46		42		88

Total noncurrent derivative liabilities⁽³⁾		46		42		88

Total derivative liabilities	$	202	$	442	$	644

December 31, 2012
ASSETS
Current Assets
Commodity	$	103	$	379	$	482
Interest rate		36		—		36

Total current derivative assets		139		379		518

Noncurrent Assets
Commodity		130		123		253
Interest rate		57		—		57

Total noncurrent derivative assets⁽²⁾		187		123		310

Total derivative assets	$	326	$	502	$	828

LIABILITIES
Current Liabilities
Commodity	$	103	$	341	$	444
Interest rate		66		—		66

Total current derivative liabilities		169		341		510

Noncurrent Liabilities
Commodity		58		93		151

Total noncurrent derivative liabilities⁽³⁾		58		93		151

Total derivative liabilities	$	227	$	434	$	661

(1)	$7 million of current derivative assets are classified as assets held for sale in Dominion’s Consolidated Balance Sheet. See Note 3 for further information.

PAGE33

(2)	Noncurrent derivative assets are presented in other deferred charges and other assets 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 March 31, 2013
Derivative Type and Location of Gains (Losses)
Commodity:
Operating revenue				$	(84	)
Purchased gas					(34	)
Electric fuel and other energy-related purchases					(3	)

Total commodity	$	(157	)		(121	)	$	7

Interest rate⁽³⁾		13			(3	)		16

Total	$	(144	)	$	(124	)	$	23

Three Months Ended March 31, 2012
Derivative Type and Location of Gains (Losses)
Commodity:
Operating revenue				$	64
Purchased gas					(30	)
Electric fuel and other energy-related purchases					(7	)

Total commodity	$	176			27		$	(1	)

Interest rate⁽³⁾		32			1			27

Total	$	208		$	28		$	26

(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.


	Amount of Gain (Loss) Recognized in Income on Derivatives⁽¹⁾
	Three Months Ended March 31,
Derivatives not designated as hedging instruments	2013		2012
(millions)
Derivative Type and Location of Gains (Losses)
Commodity
Operating revenue	$	3	$	69
Purchased gas		18		(10	)
Electric fuel and other energy-related purchases		3		(27	)
Interest rate⁽²⁾		—		(2	)

Total	$	24	$	30

(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.

PAGE34

Virginia Power

The following table presents the volume of Virginia Power’s derivative activity as of March 31, 2013. 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		16		—
Basis		8		—
Electricity (MWh):
Fixed price		644,000		—
FTRs		17,168,056		—
Capacity (MW)		152,000		48,800
Interest rate	$	—	$	250,000,000

Note 10. 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 $95 million at March 31, 2013 and December 31, 2012, respectively. Cost method investments held in Dominion’s rabbi trusts totaled $13 million and $14 million at March 31, 2013 and December 31, 2012, respectively.

PAGE35

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)
March 31, 2013
Marketable equity securities:
U.S.:
Large Cap	$	1,153	$	879	$	—		$	2,032
Other		44		18		—			62
Marketable debt securities:
Corporate bonds		336		28		—			364
U.S. Treasury securities and agency debentures		628		19		(1	)		646
State and municipal		236		23		—			259
Other		8		—		—			8
Cost method investments		113		—		—			113
Cash equivalents and other⁽²⁾		63		—		—			63

Total	$	2,581	$	967	$	(1	)⁽³⁾	$	3,547

December 31, 2012
Marketable equity securities:
U.S.:
Large Cap	$	1,210	$	732	$	—		$	1,942
Other		40		13		—			53
Marketable debt securities:
Corporate bonds		295		30		—			325
U.S. Treasury securities and agency debentures		523		19		(2	)		540
State and municipal		248		26		—			274
Other		6		1		—			7
Cost method investments		117		—		—			117
Cash equivalents and other⁽²⁾		72		—		—			72

Total	$	2,511	$	821	$	(2	)⁽³⁾	$	3,330

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

(2)	Includes pending purchases of securities of $14 million and $6 million at March 31, 2013 and December 31, 2012, respectively.

(3)	The fair value of securities in an unrealized loss position was $208 million and $195 million at March 31, 2013 and December 31, 2012, respectively.

PAGE36

The fair value of Dominion’s marketable debt securities held in nuclear decommissioning trust funds at March 31, 2013 by contractual maturity is as follows:


	Amount
(millions)
Due in one year or less	$	162
Due after one year through five years		333
Due after five years through ten years		367
Due after ten years		415

Total	$	1,277

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


	Three Months Ended March 31,
	2013		2012
(millions)
Proceeds from sales	$	554	$	415
Realized gains⁽¹⁾		63		28
Realized losses⁽¹⁾		6		4

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

Other-than-temporary impairment losses on investments held in nuclear decommissioning trust funds for Dominion were not material for the three months ended March 31, 2013 and 2012.

Blue Racer

In December 2012, Dominion formed Blue Racer to provide midstream services to natural gas producers operating in the Utica Shale region in Ohio and portions of Pennsylvania. Blue Racer is an equal partnership between Dominion and Caiman, with Dominion contributing midstream assets and Caiman contributing private equity capital. In March 2013, DTI contributed Line TL-404 to Blue Racer and received approximately $47 million in cash proceeds resulting in an approximately $25 million ($14 million after-tax) gain. The Natrium natural gas processing and fractionation facility is expected to be completed in the second quarter of 2013, and is expected to be contributed to Blue Racer upon completion.

PAGE37

Virginia Power

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)
March 31, 2013
Marketable equity securities:
U.S.:
Large Cap	$	490	$	373	$	—	$	863
Other		21		9		—		30
Marketable debt securities:
Corporate bonds		198		16		—		214

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company