Form 10-Q
Table of Contents

 

 

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, 2011

or

 

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

For the transition period from              to             

 

 

 

Commission File

Number

  

Exact name of registrants as specified in their charters, address of

principal executive offices and registrants’ telephone number

  

I.R.S. Employer

Identification Number

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

120 Tredegar Street

Richmond, Virginia 23219

(804) 819-2000

  

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

 

 

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

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

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

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

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

Dominion Resources, Inc.

 

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

Virginia Electric and Power Company

 

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

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

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

At March 31, 2011, the latest practicable date for determination, Dominion Resources, Inc. had 575,797,529 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.

 

 

 


Table of Contents

COMBINED INDEX

 

         Page
Number
 
  Glossary of Terms      PAGE 3   
  PART I. Financial Information   
Item 1.   Financial Statements      PAGE 6   
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations      PAGE 43   
Item 3.   Quantitative and Qualitative Disclosures About Market Risk      PAGE 55   
Item 4.   Controls and Procedures      PAGE 56   
  PART II. Other Information   
Item 1.   Legal Proceedings      PAGE 56   
Item 1A.   Risk Factors      PAGE 56   
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds      PAGE 57   
Item 6.   Exhibits      PAGE 58   

 

PAGE 2


Table of Contents

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)

ARO

  

Asset retirement obligation

ASLB

  

Atomic Safety and Licensing Board

bcf

  

Billion cubic feet

Bear Garden

  

A 580 MW combined cycle, natural gas-fired power station under construction in Buckingham County, Virginia

BP

  

BP Wind Energy North America Inc.

BREDL

  

Blue Ridge Environmental Defense League

CEO

  

Chief Executive Officer

CFO

  

Chief Financial Officer

CO2

  

Carbon dioxide

COL

  

Combined Construction Permit and Operating License

Companies

  

Dominion and Virginia Power, collectively

CONSOL

  

CONSOL Energy, Inc.

DEI

  

Dominion Energy, Inc.

Dominion

  

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

Dominion Direct®

  

A dividend reinvestment and open enrollment direct stock purchase plan

DRS

  

Dominion Resources Services, Inc.

DSM

  

Demand-side management

DTI

  

Dominion Transmission, Inc.

DVP

  

Dominion Virginia Power operating segment

East Ohio

  

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

E&P

  

Exploration & production

EPA

  

Environmental Protection Agency

EPS

  

Earnings per share

Fairless

  

Fairless power station

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

 

PAGE 3


Table of Contents

Abbreviation or Acronym

  

Definition

GHG

  

Greenhouse gas

INPO

  

Institute of Nuclear Power Operations

ISO

  

Independent system operator

Kewaunee

  

Kewaunee nuclear power station

kV

  

Kilovolt

LNG

  

Liquefied natural gas

mcf

  

Million cubic feet

MD&A

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Medicare Act

  

The Medicare Prescription Drug, Improvement and Modernization Act of 2003

Medicare Part D

  

Prescription drug benefit introduced in the Medicare Act

Millstone

  

Millstone nuclear power station

Moody’s

  

Moody’s Investors Service

Mt. Storm-to-Doubs Line

  

A 99-mile 500-kV transmission line in Virginia, West Virginia and Maryland

MW

  

Megawatt

MWh

  

Megawatt hour

NAAQS

  

National Ambient Air Quality Standards

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

NOX

  

Nitrogen oxide

NO2

  

Nitrogen dioxide

NRC

  

Nuclear Regulatory Commission

ODEC

  

Old Dominion Electric Cooperative

Ohio Commission

  

Public Utilities Commission of Ohio

Peoples

  

The Peoples Natural Gas Company

PIPP

  

Percentage of Income Payment Plan

PIR

  

Pipeline Infrastructure Replacement program deployed by East Ohio

PJM

  

PJM Interconnection, LLC

PNG Companies LLC

  

An indirect subsidiary of SteelRiver Infrastructure Fund North America

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

Riders C1 and C2

  

Rate adjustment clauses associated with the recovery of costs related to certain DSM programs

Rider R

  

A rate adjustment clause associated with the recovery of costs related to Bear Garden

Rider S

  

A rate adjustment clause associated with the recovery of costs related to the Virginia City Hybrid Energy Center

Rider T

  

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

 

PAGE 4


Table of Contents

Abbreviation or Acronym

  

Definition

ROE

  

Return on equity

RTO

  

Regional transmission organization

SEC

  

Securities and Exchange Commission

SO2

  

Sulfur dioxide

Standard & Poor’s

  

Standard & Poor’s Ratings Services, a division of the McGraw-Hill Companies, Inc.

State Line

  

State Line power station

U.S.

  

United States of America

VIE

  

Variable interest entity

Virginia City Hybrid Energy Center

  

A 585 MW baseload carbon-capture compatible, clean coal powered electric generation facility under construction in Wise County, Virginia

Virginia Commission

  

Virginia State Corporation Commission

Virginia Power

  

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

Virginia Settlement Approval Order

  

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

 

PAGE 5


Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DOMINION RESOURCES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

     Three Months Ended
March 31,
 
     2011      2010  
(millions, except per share amounts)              

Operating Revenue

   $ 4,057       $ 4,168   
                 

Operating Expenses

     

Electric fuel and other energy-related purchases

     1,049         1,028   

Purchased electric capacity

     119         108   

Purchased gas

     642         792   

Other operations and maintenance

     861         1,068   

Depreciation, depletion and amortization

     262         269   

Other taxes

     161         169   
                 

Total operating expenses

     3,094         3,434   

Income from operations

     963         734   
                 

Other income

     57         71   

Interest and related charges

     227         183   
                 

Income from continuing operations including noncontrolling interests before income tax expense

     793         622   

Income tax expense

     310         295   
                 

Income from continuing operations including noncontrolling interests

     483         327   

Loss from discontinued operations(1)

     —           (149
                 

Net Income Including Noncontrolling Interests

     483         178   

Noncontrolling Interests

     4         4   
                 

Net Income Attributable to Dominion

   $ 479       $ 174   
                 

Amounts Attributable to Dominion:

     

Income from continuing operations, net of tax

   $ 479       $ 323   

Loss from discontinued operations, net of tax

     —           (149
                 

Net income attributable to Dominion

   $ 479       $ 174   
                 

Earnings Per Common Share – Basic

     

Income from continuing operations

   $ 0.83       $ 0.54   

Loss from discontinued operations

     —           (0.25
                 

Net income attributable to Dominion

   $ 0.83       $ 0.29   
                 

Earnings Per Common Share – Diluted

     

Income from continuing operations

   $ 0.82       $ 0.54   

Loss from discontinued operations

     —           (0.25
                 

Net income attributable to Dominion

   $ 0.82       $ 0.29   
                 

Dividends paid per common share

   $ 0.4925       $ 0.4575   
(1) Includes income tax expense of $12 million for the three months ended March 31, 2010.

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

 

PAGE 6


Table of Contents

DOMINION RESOURCES, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

     March 31,
2011
    December 31,
2010(1)
 
(millions)             

ASSETS

    

Current Assets

    

Cash and cash equivalents

   $ 188      $ 62   

Customer receivables (less allowance for doubtful accounts of $28 and $26)

     1,837        2,158   

Other receivables (less allowance for doubtful accounts of $10 and $9)

     116        88   

Inventories

     1,044        1,163   

Derivative assets

     553        739   

Other

     1,194        1,190   
                

Total current assets

     4,932        5,400   
                

Investments

    

Nuclear decommissioning trust funds

     3,017        2,897   

Investment in equity method affiliates

     567        571   

Restricted cash equivalents

     344        400   

Other

     288        283   
                

Total investments

     4,216        4,151   
                

Property, Plant and Equipment

    

Property, plant and equipment

     40,390        39,855   

Accumulated depreciation, depletion and amortization

     (13,308     (13,142
                

Total property, plant and equipment, net

     27,082        26,713   
                

Deferred Charges and Other Assets

    

Goodwill

     3,141        3,141   

Regulatory assets

     1,443        1,446   

Other

     1,963        1,966   
                

Total deferred charges and other assets

     6,547        6,553   
                

Total assets

   $ 42,777      $ 42,817   
                

 

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

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

 

PAGE 7


Table of Contents

DOMINION RESOURCES, INC.

CONSOLIDATED BALANCE SHEETS—(Continued)

(Unaudited)

 

     March 31,
2011
    December  31,
2010(1)
 
(millions)       

LIABILITIES AND SHAREHOLDERS’ EQUITY

  

Current Liabilities

    

Securities due within one year

   $ 497      $ 497   

Short-term debt

     848        1,386   

Accounts payable

     1,189        1,562   

Accrued interest, payroll and taxes

     720        849   

Other

     1,247        1,479   
                

Total current liabilities

     4,501        5,773   
                

Long-Term Debt

    

Long-term debt

     15,063        14,023   

Junior subordinated notes payable to affiliates

     268        268   

Enhanced junior subordinated notes

     1,467        1,467   
                

Total long-term debt

     16,798        15,758   
                

Deferred Credits and Other Liabilities

    

Deferred income taxes and investment tax credits

     4,910        4,708   

Asset retirement obligations

     1,598        1,577   

Regulatory liabilities

     1,429        1,392   

Other

     1,341        1,355   
                

Total deferred credits and other liabilities

     9,278        9,032   
                

Total liabilities

     30,577        30,563   
                

Commitments and Contingencies (see Note 15)

    
                

Subsidiary Preferred Stock Not Subject to Mandatory Redemption

     257        257   
                

Common Shareholders’ Equity

    

Common stock – no par(2)

     5,464        5,715   

Other paid-in capital

     194        194   

Retained earnings

     6,612        6,418   

Accumulated other comprehensive loss

     (327     (330
                

Total common shareholders’ equity

     11,943        11,997   
                

Total liabilities and shareholders’ equity

   $ 42,777      $ 42,817   
                

 

(1) Dominion’s Consolidated Balance Sheet at December 31, 2010 has been derived from the audited Consolidated Financial Statements at that date.
(2) 1 billion shares authorized; 576 million and 581 million shares outstanding at March 31, 2011 and December 31, 2010, respectively.

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

 

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Table of Contents

DOMINION RESOURCES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 

Three Months Ended March 31,

   2011     2010  
(millions)             

Operating Activities

    

Net income including noncontrolling interests

   $ 483      $ 178   

Adjustments to reconcile net income including noncontrolling interests to net cash provided by operating activities:

    

Loss from sale of Peoples

     —          117   

Charges related to workforce reduction program

     —          338   

Depreciation, depletion and amortization (including nuclear fuel)

     318        320   

Deferred income taxes and investment tax credits

     227        (173

Other adjustments

     (46     11   

Changes in:

    

Accounts receivable

     292        126   

Inventories

     119        213   

Deferred fuel and purchased gas costs

     (50     (7

Prepayments

     54        260   

Accounts payable

     (299     (90

Accrued interest, payroll and taxes

     (129     89   

Margin deposit assets and liabilities

     (120     114   

Other operating assets and liabilities

     63        154   
                

Net cash provided by operating activities

     912        1,650   
                

Investing Activities

    

Plant construction and other property additions

     (806     (904

Proceeds from the sale of Peoples

     —          737   

Proceeds from sale of securities

     502        513   

Purchases of securities

     (522     (539

Restricted cash equivalents

     56        —     

Other

     18        22   
                

Net cash used in investing activities

     (752     (171
                

Financing Activities

    

Repayment of short-term debt, net

     (538     (1,000

Issuance and remarketing of long-term debt

     1,060        —     

Issuance of common stock

     17        27   

Repurchase of common stock

     (274     (191

Common dividend payments

     (285     (275

Subsidiary preferred dividend payments

     (4     (4

Other

     (10     (1
                

Net cash used in financing activities

     (34     (1,444
                

Increase in cash and cash equivalents

     126        35   

Cash and cash equivalents at beginning of period

     62        50   
                

Cash and cash equivalents at end of period

   $ 188      $ 85   
                

Supplemental Cash Flow Information

    

Significant noncash investing activities:

    

Accrued capital expenditures

   $ 167      $ 166   

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

 

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Table of Contents

VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

     Three Months Ended
March 31,
 
     2011      2010  
(millions)              

Operating Revenue

   $ 1,757       $ 1,739   
                 

Operating Expenses

     

Electric fuel and other energy-related purchases

     593         632   

Purchased electric capacity

     118         107   

Other operations and maintenance:

     

Affiliated suppliers

     73         120   

Other

     229         399   

Depreciation and amortization

     174         163   

Other taxes

     59         64   
                 

Total operating expenses

     1,246         1,485   
                 

Income from operations

     511         254   
                 

Other income

     29         14   

Interest and related charges

     92         88   
                 

Income before income tax expense

     448         180   

Income tax expense

     170         85   
                 

Net Income

     278         95   

Preferred dividends

     4         4   
                 

Balance available for common stock

   $ 274       $ 91   
                 

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

 

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Table of Contents

VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

     March 31,
2011
    December 31,
2010(1)
 
(millions)             

ASSETS

    

Current Assets

    

Cash and cash equivalents

   $ 80      $ 5   

Customer accounts receivable (less allowance for doubtful accounts of $10 and $11)

     783        905   

Other receivables (less allowance for doubtful accounts of $7 and $6)

     49        54   

Inventories (average cost method)

     639        597   

Prepayments

     30        65   

Other

     334        355   
                

Total current assets

     1,915        1,981   
                

Investments

    

Nuclear decommissioning trust funds

     1,368        1,319   

Restricted cash equivalents

     113        169   

Other

     3        4   
                

Total investments

     1,484        1,492   
                

Property, Plant and Equipment

    

Property, plant and equipment

     27,985        27,607   

Accumulated depreciation and amortization

     (9,812     (9,712
                

Total property, plant and equipment, net

     18,173        17,895   
                

Deferred Charges and Other Assets

    

Intangible assets

     211        212   

Regulatory assets

     407        370   

Other

     337        312   
                

Total deferred charges and other assets

     955        894   
                

Total assets

   $ 22,527      $ 22,262   
                

 

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

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

 

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Table of Contents

VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED BALANCE SHEETS—(Continued)

(Unaudited)

 

     March 31,
2011
     December  31,
2010(1)
 
(millions)              

LIABILITIES AND SHAREHOLDER’S EQUITY

     

Current Liabilities

     

Securities due within one year

   $ 15       $ 15   

Short-term debt

     582         600   

Accounts payable

     416         499   

Payables to affiliates

     45         76   

Affiliated current borrowings

     58         103   

Accrued interest, payroll and taxes

     239         214   

Other

     501         571   
                 

Total current liabilities

     1,856         2,078   
                 

Long-Term Debt

     6,861         6,702   
                 

Deferred Credits and Other Liabilities

     

Deferred income taxes and investment tax credits

     2,807         2,672   

Asset retirement obligations

     678         669   

Regulatory liabilities

     1,208         1,174   

Other

     207         203   
                 

Total deferred credits and other liabilities

     4,900         4,718   
                 

Total liabilities

     13,617         13,498   
                 

Commitments and Contingencies (see Note 15)

     
                 

Preferred Stock Not Subject to Mandatory Redemption

     257         257   
                 

Common Shareholder’s Equity

     

Common stock – no par(2)

     5,738         5,738   

Other paid-in capital

     1,111         1,111   

Retained earnings

     1,778         1,634   

Accumulated other comprehensive income

     26         24   
                 

Total common shareholder’s equity

     8,653         8,507   
                 

Total liabilities and shareholder’s equity

   $ 22,527       $ 22,262   
                 

 

(1) Virginia Power’s Consolidated Balance Sheet at December 31, 2010 has been derived from the audited Consolidated Financial Statements at that date.
(2) 300,000 shares authorized; 274,723 shares outstanding at March 31, 2011 and December 31, 2010.

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

 

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VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

Three Months Ended March 31,

   2011     2010  
(millions)     

Operating Activities

    

Net income

   $ 278      $ 95   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Charges related to workforce reduction program

     —          202   

Depreciation and amortization (including nuclear fuel)

     205        192   

Deferred income taxes and investment tax credits

     150        (59

Other adjustments

     (61     (18

Changes in:

    

Accounts receivable

     127        65   

Affiliated accounts receivable and payable

     (31     (20

Inventories

     (42     43   

Deferred fuel expenses

     (32     5   

Accounts payable

     (69     22   

Accrued interest, payroll and taxes

     25        143   

Other operating assets and liabilities

     (26     99   
                

Net cash provided by operating activities

     524        769   
                

Investing Activities

    

Plant construction and other property additions

     (408     (567

Purchases of nuclear fuel

     (49     (40

Purchases of securities

     (362     (317

Proceeds from sales of securities

     343        304   

Restricted cash equivalents

     56        —     

Other

     9        9   
                

Net cash used in investing activities

     (411     (611
                

Financing Activities

    

Repayment of short-term debt, net

     (18     (442

Issuance (repayment) of affiliated current borrowings, net

     (44     431   

Remarketing of long-term debt

     160        —     

Common dividend payments

     (130     (108

Preferred dividend payments

     (4     (4

Other

     (2     (1
                

Net cash used in financing activities

     (38     (124
                

Increase in cash and cash equivalents

     75        34   

Cash and cash equivalents at beginning of period

     5        19   
                

Cash and cash equivalents at end of period

   $ 80      $ 53   
                

Supplemental Cash Flow Information

    

Significant noncash investing and financing activities:

    

Accrued capital expenditures

   $ 121      $ 112   

Settlement of debt and issuance of common stock to Dominion

     —          433   

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

 

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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Nature of Operations

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

Note 2. Significant Accounting Policies

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

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, 2011 and their results of operations and cash flows for the three months ended March 31, 2011 and 2010. Such adjustments are normal and recurring in nature unless otherwise noted.

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

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

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

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

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

Note 3. Dispositions

Sale of Appalachian E&P Operations

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

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

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

 

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Sale of Peoples

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

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

 

     Three Months Ended
March  31,
2010
 
(millions)       

Operating revenue

   $ 67   

Loss before income taxes(1)

     (137

 

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

Note 4. Ceiling Test

Dominion follows the full cost method of accounting for its gas and oil E&P activities, which subjects capitalized costs to a quarterly ceiling test using hedge-adjusted prices. Due to the April 2010 sale of substantially all of its Appalachian E&P operations, as of March 31, 2011, Dominion no longer has any significant gas and oil properties subject to the ceiling test calculation.

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

Note 5. Operating Revenue

The Companies’ operating revenue consists of the following:

 

     Three Months Ended
March 31,
 
     2011      2010  
(millions)   

Dominion

  

Electric sales:

     

Regulated

   $ 1,730       $ 1,717   

Nonregulated

     941         945   

Gas sales:

     

Regulated

     139         145   

Nonregulated

     602         782   

Gas transportation and storage

     538         465   

Other

     107         114   
                 

Total operating revenue

   $ 4,057       $ 4,168   
                 

Virginia Power

     

Regulated electric sales

   $ 1,730       $ 1,717   

Other

     27         22   
                 

Total operating revenue

   $ 1,757       $ 1,739   
                 

 

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Note 6. Income Taxes

Continuing Operations

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

 

     Dominion     Virginia Power  

Three Months Ended March 31,

   2011     2010     2011     2010  

U.S. statutory rate

     35.0     35.0     35.0     35.0

Increases (reductions) resulting from:

        

State taxes, net of federal benefit

     3.7        3.8        3.9        4.1   

Legislative changes

     —          8.8        —          8.7   

Other, net

     0.4        (0.2     (0.9     (0.5
                                

Effective tax rate

     39.1     47.4     38.0     47.3
                                

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

In 2010, U.S. federal legislation was enacted that allows taxpayers to fully deduct qualifying capital expenditures incurred after September 8, 2010, through the end of 2011, when placed in service before 2013, and otherwise provides an extension of the fifty percent bonus depreciation allowance for qualifying capital expenditures through 2012. At December 31, 2010, there was uncertainty about the earliest date on which construction of property by or for a taxpayer could have begun in order to qualify for the full deduction of qualifying capital expenditures. Based on guidance issued by the U.S. Treasury Department in March 2011, Dominion’s and Virginia Power’s bonus depreciation allowance for 2010 has been reduced. Accordingly, Dominion and Virginia Power recorded adjustments in March 2011 to increase their income taxes payable and decrease their deferred tax liabilities by approximately $67 million and $33 million, respectively.

As of March 31, 2011, there have been no material changes in Dominion’s and Virginia Power’s unrecognized tax benefits. See Note 6 to the Consolidated Financial Statements in Dominion’s and Virginia Power's Annual Report on Form 10-K for the year ended December 31, 2010, for a discussion of these unrecognized tax benefits, including possible changes that could reasonably occur during the next twelve months.

Discontinued Operations

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

Note 7. Earnings Per Share

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

 

     Three Months Ended
March 31,
 
     2011      2010  

(millions, except EPS)

     

Net income attributable to Dominion

   $ 479       $ 174   
                 

Average shares of common stock outstanding – Basic

     579.8         599.9   

Net effect of potentially dilutive securities(1)

     0.7         1.0   
                 

Average shares of common stock outstanding – Diluted

     580.5         600.9   
                 

Earnings Per Common Share – Basic

   $ 0.83       $ 0.29   

Earnings Per Common Share – Diluted

   $ 0.82       $ 0.29   

 

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

 

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There were no potentially dilutive securities excluded from the calculation of diluted EPS for the three months ended March 31, 2011 and 2010.

Note 8. Comprehensive Income

The following table presents Dominion’s total comprehensive income:

 

     Three Months Ended
March  31,
 
     2011     2010  

(millions)

    

Net income including noncontrolling interests

   $ 483      $ 178   

Other comprehensive income (loss):

    

Net other comprehensive income (loss) associated with effective portion of changes in fair value of derivatives designated as cash flow hedges, net of taxes and amounts reclassified to earnings(1)

     (72     106   

Other, net of tax

     75        64   
                

Other comprehensive income

     3        170   
                

Comprehensive income including noncontrolling interests

     486        348   

Noncontrolling interests

     4        4   
                

Total comprehensive income attributable to Dominion

   $ 482      $ 344   
                

 

(1) Principally reflects an increase in commodity prices in 2011 as compared to a decrease in 2010.

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

 

     Three Months Ended
March  31,
 
     2011     2010  

(millions)

    

Net income

   $ 278      $ 95   

Other comprehensive income (loss):

    

Net other comprehensive loss associated with effective portion of changes in fair value of derivatives designated as cash flow hedges, net of taxes and amounts reclassified to earnings

     (1     (5

Other, net of tax

     3        2   
                

Other comprehensive income (loss)

     2        (3
                

Total comprehensive income

   $ 280      $ 92   
                

 

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Note 9. Fair Value Measurements

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

At March 31, 2011, Dominion’s and Virginia Power’s net balance of commodity derivatives categorized as Level 3 fair value measurements was a net liability of $163 million and $7 million, respectively. A hypothetical 10% increase in commodity prices would increase Dominion’s and Virginia Power’s Level 3 net liability by $73 million and $2 million, respectively, while a hypothetical 10% decrease in commodity prices would decrease Dominion’s and Virginia Power’s Level 3 net liability by $73 million and $2 million, respectively.

Non-recurring Fair Value Measurements

During March 2011, Dominion determined that it is unlikely that State Line will 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 reflects 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 potential environmental regulations that would likely require significant capital expenditures. As a result, Dominion evaluated State Line for impairment since it is more likely than not that State Line will be retired before the end of its previously estimated useful life. As a result of this evaluation, Dominion recorded an impairment charge of $55 million ($39 million after-tax) reflected in other operations and maintenance expense in its Consolidated Statement of Income, to write down State Line’s long-lived assets to their estimated fair value of less than $1 million. As management was not aware of any recent market transactions for comparable assets with sufficient transparency to develop a market approach to fair value, Dominion used the income approach (discounted cash flows) to estimate the fair value of State Line’s long-lived assets. This was considered a Level 3 fair value measurement due to the use of significant unobservable inputs including estimates of future power and other commodity prices.

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:

 

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     Level 1      Level 2      Level 3      Total  
(millions)                            

At March 31, 2011

           

Assets

           

Derivatives:

           

Commodity

   $ 50       $ 538       $ 30       $ 618   

Interest rate

     —           47         —           47   

Investments(1):

           

Equity securities:

           

U.S.:

           

Large cap

     1,822         —           —           1,822   

Other

     59         —           —           59   

Non-U.S.:

           

Large cap

     12         —           —           12   

Fixed Income:

           

Corporate debt instruments

     —           315         —           315   

U.S. Treasury securities and agency debentures

     308         156         —           464   

State and municipal

     —           260         —           260   

Other

     —           14         —           14   

Cash equivalents and other

     2         100         —           102   

Restricted cash equivalents

     —           344         —           344   
                                   

Total assets

   $ 2,253       $ 1,774       $ 30       $ 4,057   
                                   

Liabilities

           

Derivatives:

           

Commodity

     10         566         193         769   

Interest Rate

     —           17         —           17   
                                   

Total liabilities

   $ 10       $ 583       $ 193       $ 786   
                                   

At December 31, 2010

           

Assets

           

Derivatives:

           

Commodity

   $ 62       $ 734       $ 47       $ 843   

Interest rate

     —           54         —           54   

Investments(1):

           

Equity securities:

           

U.S.:

           

Large cap

     1,709         —           —           1,709   

Other

     56         —           —           56   

Non-U.S.:

           

Large cap

     12         —           —           12   

Fixed Income:

           

Corporate debt instruments

     —           327         —           327   

U.S. Treasury securities and agency debentures

     228         165         —           393   

State and municipal

     —           286         —           286   

Other

     —           19         —           19   

Cash equivalents and other

     25         97         —           122   

Restricted cash equivalents

     —           400         —           400   
                                   

Total assets

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

Liabilities

           

Derivatives:

           

Commodity

   $ 12       $ 716       $ 97       $ 825   

Interest rate

     —           5         —           5   
                                   

Total liabilities

   $ 12       $ 721       $ 97       $ 830   
                                   

 

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

 

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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,
 
     2011(1)     2010(1)  

(millions)

    

Beginning balance

   $ (50   $ (66

Total realized and unrealized gains (losses):

    

Included in earnings

     14        1   

Included in other comprehensive income (loss)

     (94     24   

Included in regulatory assets/liabilities

     (21     (5

Settlements

     (16     (15

Transfers out of Level 3

     4        1   
                

Ending balance

   $ (163   $ (60
                

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

   $ 4      $ (17

 

(1) Represents derivative assets and liabilities presented on a net basis.

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

 

     Operating
revenue
    Electric fuel
and  other
energy-
related

purchases
     Purchased gas     Total  
(millions)          

Three Months Ended March 31, 2011

         

Total gains (losses) included in earnings

   $ (2   $ 16       $ —        $ 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

     4        —           —          4   
                                 

Three Months Ended March 31, 2010

         

Total gains (losses) included in earnings

   $ (16   $ 21       $ (4   $ 1   

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

     (14     —           (3     (17

 

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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, 2011

           

Assets

           

Derivatives:

           

Commodity

   $ —         $ 6       $ 2       $ 8   

Investments(1):

           

Equity securities:

           

U.S.:

           

Large cap

     719         —           —           719   

Other

     26         —           —           26   

Fixed income:

           

Corporate debt instruments

     —           202         —           202   

U.S. Treasury securities and agency debentures

     149         61         —           210   

State and municipal

     —           73         —           73   

Other

     —           11         —           11   

Cash equivalents and other

     —           49         —           49   

Restricted cash equivalents

     —           113         —           113   
                                   

Total assets

   $ 894       $ 515       $ 2       $ 1,411   
                                   

Liabilities

           

Derivatives:

           

Commodity

   $ —         $ 5       $ 9       $ 14   
                                   

Total liabilities

   $ —         $ 5       $ 9       $ 14   
                                   

At December 31, 2010

           

Assets

           

Derivatives:

           

Commodity

   $ —         $ 12       $ 15       $ 27   

Investments(1):

           

Equity securities:

           

U.S.:

           

Large cap

     676         —           —           676   

Other

     25         —           —           25   

Fixed Income:

           

Corporate debt instruments

     —           215         —           215   

U.S. Treasury securities and agency debentures

     80         63         —           143   

State and municipal

     —           102         —           102   

Other

     —           15         —           15   

Cash equivalents and other

     10         61         —           71   

Restricted cash equivalents

     —           169         —           169   
                                   

Total assets

   $ 791       $ 637       $ 15       $ 1,443   
                                   

Liabilities

           

Derivatives:

           

Commodity

   $ —         $ 5       $ 1       $ 6   
                                   

Total liabilities

   $ —         $ 5       $ 1       $ 6   
                                   

 

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

 

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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,
 
     2011(1)     2010(1)  

(millions)

    

Beginning balance

   $ 14      $ (10

Total realized and unrealized gains (losses):

    

Included in earnings

     16        21   

Included in regulatory assets/liabilities

     (21     (5

Settlements

     (16     (21
                

Ending balance

   $ (7   $ (15
                

 

(1) Represents derivative assets and liabilities presented on a net basis.

The gains and losses included in earnings in the Level 3 fair value category were classified in electric fuel and other energy-related purchases expense in Virginia Power's Consolidated Statements of Income for the three months ended March 31, 2011 and 2010. There were no unrealized gains and losses included in earnings in the Level 3 fair value category relating to assets/liabilities still held at the reporting date for the three months ended March 31, 2011 and 2010.

Fair Value of Financial Instruments

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

 

     March 31, 2011      December 31, 2010  
     Carrying
Amount
     Estimated Fair
Value(1)
     Carrying
Amount
     Estimated Fair
Value(1)
 
(millions)            

Dominion

           

Long-term debt, including securities due within one year(2)

   $ 15,560       $ 17,097       $ 14,520       $ 16,112   

Junior subordinated notes payable to affiliates

     268         270         268         261   

Enhanced junior subordinated notes

     1,467         1,566         1,467         1,560   

Subsidiary preferred stock(3)

     257         251         257         249   
                                   

Virginia Power

           

Long-term debt, including securities due within one year(2)

   $ 6,876       $ 7,659       $ 6,717       $ 7,489   

Preferred stock(3)

     257         251         257         249   

 

(1) Fair value is estimated using market prices, where available, and interest rates currently available for issuance of debt with similar terms and remaining maturities. The carrying amount of debt issues with short-term maturities and variable rates refinanced at current market rates is a reasonable estimate of their fair value.
(2) Includes amounts which represent the unamortized discount and premium. At March 31, 2011 and December 31, 2010, includes the valuation of certain fair value hedges associated with Dominion’s fixed rate debt of approximately $30 million and $49 million, respectively.
(3) Includes issuance expenses of $2 million at March 31, 2011 and December 31, 2010.

Note 10. Derivatives and Hedge Accounting Activities

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

 

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methods for derivatives.

Dominion

The following table presents the volume of Dominion’s derivative activity as of March 31, 2011. These volumes are based on open derivative positions and represent the combined absolute value of their long and short positions, except in the case of offsetting deals, for which they represent the absolute value of the net volume of their long and short positions.

 

     Current      Noncurrent  

Natural Gas (bcf):

     

Fixed price(1)

     257         64   

Basis

     1,057         437   

Electricity (MWh):

     

Fixed price(1)

     21,327,569         16,252,978   

FTRs

     21,251,968         1,429,952   

Capacity (MW)

     1,321,300         3,700,650   

Liquids (gallons)(2)

     146,622,000         331,506,000   

Interest rate

   $ 500,000,000       $ 2,000,000,000   

 

(1) Includes options.
(2) Includes NGLs and oil.

For the three months ended March 31, 2011 and 2010, gains or losses on hedging instruments determined to be ineffective were not material. Amounts excluded from the assessment of effectiveness include gains or losses attributable to changes in the time value of options and changes in the differences between spot prices and forward prices and were not material for the three months ended March 31, 2011 and 2010.

The following table presents selected information related to gains (losses) on cash flow hedges included in AOCI in Dominion’s Consolidated Balance Sheet at March 31, 2011:

 

     AOCI
After-Tax
    Amounts Expected to be
Reclassified to Earnings
during the
next  12 Months
After-Tax
    Maximum Term  
(millions)                   

Commodities:

      

Gas

   $ (16   $ (8     45 months   

Electricity

     46        40        33 months   

NGLs

     (91     (33     45 months   

Other

     8        2        50 months   

Interest rate

     32        (6     366 months   
                  

Total

   $ (21   $ (5  
                  

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

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

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

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:

 

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     Fair Value  –
Derivatives under
Hedge Accounting
     Fair Value  –
Derivatives not under
Hedge Accounting
     Total Fair Value  
(millions)                     

March 31, 2011

        

ASSETS

        

Current Assets

        

Commodity

   $ 221       $ 300       $ 521   

Interest rate

     32         —           32   
                          

Total current derivative assets

     253         300         553   
                          

Noncurrent Assets

        

Commodity

     43         54         97   

Interest rate

     15         —           15   
                          

Total noncurrent derivative assets(1)

     58         54         112   
                          

Total derivative assets

   $ 311       $ 354       $ 665   
                          

LIABILITIES

        

Current Liabilities

        

Commodity

   $ 202       $ 353       $ 555   

Interest rate

     1         —           1   
                          

Total current derivative liabilities(2)

     203         353         556   
                          

Noncurrent Liabilities

        

Commodity

     139         75         214   

Interest rate

     16         —           16   
                          

Total noncurrent derivative liabilities(3)

     155         75         230   
                          

Total derivative liabilities

   $ 358       $ 428       $ 786   
                          

December 31, 2010

        

ASSETS

        

Current Assets

        

Commodity

   $ 291       $ 425       $ 716   

Interest rate

     23         —           23   
                          

Total current derivative assets

     314         425         739   
                          

Noncurrent Assets

        

Commodity

     44         83         127   

Interest rate

     31         —           31   
                          

Total noncurrent derivative assets(1)

     75         83         158   
                          

Total derivative assets

   $ 389       $ 508       $ 897   
                          

LIABILITIES

        

Current Liabilities

        

Commodity

   $ 178       $ 455       $ 633   
                          

Total current derivative liabilities(2)

     178         455         633   
                          

Noncurrent Liabilities

        

Commodity

     86         106         192   

Interest rate

     5         —           5   
                          

Total noncurrent derivative liabilities(3)

     91         106         197   
                          

Total derivative liabilities

   $ 269       $ 561       $ 830   
                          

 

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(1) Noncurrent derivative assets are presented in other deferred charges and other assets in Dominion’s Consolidated Balance Sheets.
(2) Current derivative liabilities are presented in other current liabilities in Dominion's Consolidated Balance Sheets.
(3) Noncurrent derivative liabilities are presented in other deferred credits and other liabilities in Dominion’s Consolidated Balance Sheets.

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

 

Derivatives in cash flow hedging relationships

   Amount of Gain
(Loss) Recognized
in AOCI  on
Derivatives
(Effective
Portion)(1)
    Amount of Gain
(Loss) Reclassified
from AOCI to
Income
    Increase
(Decrease) in
Derivatives
Subject to
Regulatory
Treatment(2)
 
(millions)                   

Three Months Ended March 31, 2011

      

Derivative Type and Location of Gains (Losses)

      

Commodity:

      

Operating revenue

     $ 28     

Purchased gas

       (48  

Electric fuel and other energy-related purchases

       1     

Purchased electric capacity

       1     
                        

Total commodity

   $ (142     (18   $ (5
                        

Interest rate(3)

     (1     —          (1
                        

Total

   $ (143   $ (18   $ (6
                        

Three Months Ended March 31, 2010

      

Derivative Type and Location of Gains (Losses)

      

Commodity:

      

Operating revenue

     $ 181     

Purchased gas

       (97  

Electric fuel and other energy-related purchases

       (3  

Purchased electric capacity

       1     
                        

Total commodity

   $ 299        82      $ (13
                        

Interest rate(3)

     (3     40        (1

Foreign currency(4)

     —          1        (1
                        

Total

   $ 296      $ 123      $ (15
                        

 

(1) Amounts deferred into AOCI have no associated effect in Dominion’s Consolidated Statements of Income.
(2) Represents net derivative activity deferred into and amortized out of regulatory assets/liabilities. Amounts deferred into regulatory assets/liabilities have no associated effect in Dominion’s Consolidated Statements of Income.
(3) Amounts recorded in Dominion’s Consolidated Statements of Income are classified in interest and related charges.
(4) Amounts recorded in Dominion’s Consolidated Statements of Income are classified in electric fuel and other energy-related purchases.

 

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     Amount of Gain (Loss) Recognized in Income on
Derivatives(1)
 
     Three Months Ended
March 31,
 

Derivatives not designated as hedging instruments

   2011     2010  

(millions)

    

Derivative Type and Location of Gains (Losses)

    

Commodity

    

Operating revenue

   $ 19      $ 40   

Purchased gas

     (11     (31

Electric fuel and other energy-related purchases

     16        21   
                

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.

Virginia Power

The following table presents the volume of Virginia Power’s derivative activity as of March 31, 2011. These volumes are based on open derivative positions and represent the combined absolute value of their long and short positions, except in the case of offsetting deals, for which they represent the absolute value of the net volume of their long and short positions.

 

     Current      Noncurrent  

Natural Gas (bcf):

     

Fixed price

     14         —     

Basis

     7         —     

Electricity (MWh):

     

Fixed price

     608,800         —     

FTRs

     20,297,263         1,429,952   

Capacity (MW)

     225,700         213,000   

For the three months ended March 31, 2011 and 2010, gains or losses on hedging instruments determined to be ineffective were not material. Amounts excluded from the assessment of effectiveness include gains or losses attributable to changes in the time value of options and changes in the differences between spot prices and forward prices and were not material for the three months ended March 31, 2011 and 2010.

The following table presents selected information related to gains on cash flow hedges included in AOCI in Virginia Power’s Consolidated Balance Sheet at March 31, 2011:

 

     AOCI
After-Tax
     Amounts Expected to be
Reclassified to Earnings
during the  next 12 Months
After-Tax
     Maximum Term  
(millions)         

Interest rate

   $ 3       $ —           333 months   

Other

     —           —           38 months   
                    

Total

   $ 3       $ —        
                    

The amounts that will be reclassified from AOCI to earnings will generally be offset by the recognition of the hedged transactions (e.g., anticipated interest payments) 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.

 

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Fair Value and Gains and Losses on Derivative Instruments

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

 

     Fair Value –
Derivatives under
Hedge Accounting
     Fair Value –
Derivatives not under
Hedge Accounting
     Total Fair Value  
(millions)         

March 31, 2011

        

ASSETS

        

Current Assets

        

Commodity

   $ 6       $ 2       $ 8   
                          

Total current derivative assets(1)

     6         2         8   
                          

Total derivative assets

   $ 6       $ 2       $ 8   
                          

LIABILITIES

        

Current Liabilities

        

Commodity

   $ 3       $ 9       $ 12   
                          

Total current derivative liabilities(2)

     3         9         12   
                          

Noncurrent Liabilities

        

Commodity

     2         —           2   
                          

Total noncurrent derivative liabilities(3)

     2         —           2   
                          

Total derivative liabilities

   $ 5       $ 9       $ 14   
                          

December 31, 2010

        

ASSETS

        

Current Assets

        

Commodity

   $ 12       $ 15       $ 27   
                          

Total current derivative assets(1)

     12         15         27   
                          

Total derivative assets

   $ 12       $ 15       $ 27   
                          

LIABILITIES

        

Current Liabilities

        

Commodity

   $ 2       $ 1       $ 3   
                          

Total current derivative liabilities(2)

     2         1         3   
                          

Noncurrent Liabilities

        

Commodity

     3         —           3   
                          

Total noncurrent derivative liabilities(3)

     3         —           3   
                          

Total derivative liabilities

   $ 5       $ 1       $ 6   
                          

 

(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.

 

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

 

Derivatives in cash flow hedging relationships

   Amount of Gain
(Loss) Recognized
in AOCI  on
Derivatives
(Effective
Portion)(1)
    Amount of Gain
(Loss) Reclassified
from AOCI to
Income
    Increase
(Decrease) in
Derivatives
Subject to
Regulatory
Treatment(2)
 
(millions)       

Three Months Ended March 31, 2011

      

Derivative Type and Location of Gains (Losses)

      

Commodity:

      

Purchased electric capacity

     $ 1     
                        

Total commodity

   $ —          1      $ (5
                        

Interest rate(3)

     —          —          (1
                        

Total

   $ —        $ 1      $ (6
                        

Three Months Ended March 31, 2010

      

Derivative Type and Location of Gains (Losses)

      

Commodity:

      

Electric fuel and other energy-related purchases

     $ (1  

Purchased electric capacity

       1     
                        

Total commodity

   $ (3     —        $ (13
                        

Interest rate(3)

     (1     3        (1

Foreign currency(4)

     —          —          (1
                        

Total

   $ (4   $ 3      $ (15
                        

 

(1) Amounts deferred into AOCI have no associated effect in Virginia Power’s Consolidated Statements of Income.
(2) Represents net derivative activity deferred into and amortized out of regulatory assets/liabilities. Amounts deferred into regulatory assets/liabilities have no associated effect in Virginia Power’s Consolidated Statements of Income.
(3) Amounts are recorded in interest and related charges in Virginia Power’s Consolidated Statements of Income.
(4) Amounts are recorded in electric fuel and other energy-related purchases in Virginia Power’s Consolidated Statements of Income.

 

     Amount of Gain (Loss) Recognized in Income on
Derivatives(1)
 
     Three Months Ended
March  31,
 

Derivatives not designated as hedging instruments

   2011      2010  

(millions)

     

Derivative Type and Location of Gains (Losses)

     

Commodity(2)

   $ 16       $ 21   
                 

Total

   $ 16       $ 21   
                 

 

(1) Includes derivative activity amortized out of regulatory assets/liabilities. Amounts deferred into regulatory assets/liabilities have no associated effect in Virginia Power’s Consolidated Statements of Income.
(2) Amounts are recorded in electric fuel and other energy-related purchases in Virginia Power’s Consolidated Statements of Income.

 

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Note 11. Investments

Dominion

Equity and Debt Securities

Rabbi Trust Securities

Marketable equity and debt securities and cash equivalents held in Dominion’s rabbi trusts and classified as trading totaled $95 million and $93 million at March 31, 2011 and December 31, 2010, respectively. Net unrealized gains on trading securities totaled $3 million and $2 million for the three months ended March 31, 2011 and 2010, respectively. Cost-method investments held in Dominion’s rabbi trusts totaled $18 million at both March 31, 2011 and December 31, 2010.

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, 2011

          

Marketable equity securities

          

U.S.:

          

Large Cap

   $ 1,181       $ 606       $ —        $ 1,787   

Other

     40         13         —          53   

Marketable debt securities:

          

Corporate bonds

     301         15         (1     315   

U.S. Treasury securities and agency debentures

     453         12         (1     464   

State and municipal

     213         8         (3     218   

Other

     14         —           —          14   

Cost method investments

     112         —           —          112   

Cash equivalents and other(2)

     54         —           —          54   
                                  

Total

   $ 2,368       $ 654       $ (5 )(3)    $ 3,017   
                                  

December 31, 2010

          

Marketable equity securities:

          

U.S.:

          

Large Cap

   $ 1,161       $ 515       $ —        $ 1,676   

Other

     39         11         —          50   

Marketable debt securities:

          

Corporate bonds

     310         18         (1     327   

U.S. Treasury securities and agency debentures

     380         12         (1     391   

State and municipal

     244         7         (4     247   

Other

     19         —           —          19   

Cost method investments

     108         —           —          108   

Cash equivalents and other(2)

     79         —           —          79   
                                  

Total

   $ 2,340       $ 563       $ (6 )(3)    $ 2,897   
                                  

 

(1) Included in AOCI and the decommissioning trust regulatory liability.
(2) Includes pending purchases of securities of $48 million and $43 million at March 31, 2011 and December 31, 2010, respectively.
(3) The fair value of securities in an unrealized loss position was $203 million and $252 million at March 31, 2011 and December 31, 2010, respectively.

 

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The fair value of Dominion’s marketable debt securities held in nuclear decommissioning trust funds at March 31, 2011 by contractual maturity is as follows:

 

     Amount       
(millions)          

Due in one year or less

   $ 91      

Due after one year through five years

     310      

Due after five years through ten years

     285      

Due after ten years

     325      
           

Total

   $ 1,011      
           

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

 

    

Three Months Ended

March 31,

 
     2011      2010  

(millions)

     

Proceeds from sales

   $ 502       $ 513   

Realized gains(1)

     14         55   

Realized losses(1)

     8         11   

 

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

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

 

    

Three Months Ended

March 31,

 
     2011     2010  

(millions)

    

Total other-than-temporary impairment losses(1)

   $ 5      $ 7   

Losses recorded to decommissioning trust regulatory liability

     (2     (3

Losses recognized in other comprehensive income (before taxes)

     —          (1
                

Net impairment losses recognized in earnings

   $ 3      $ 3   
                

 

(1) Amount includes other-than-temporary impairment losses for debt securities of $1 million and $2 million for the three months ended March 31, 2011 and 2010, respectively.

 

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Virginia Power

Decommissioning Trust Securities

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

 

     Amortized
Cost
     Total  Unrealized
Gains(1)
     Total  Unrealized
Losses(1)
    Fair Value  

(millions)

          

March 31, 2011

          

Marketable equity securities:

          

U.S.:

          

Large Cap

   $ 475       $ 244       $ —        $ 719   

Other

     20         6         —          26   

Marketable debt securities:

          

Corporate bonds

     195         8         (1     202   

U.S. Treasury securities and agency debentures

     207         3         —          210   

State and municipal

     73         1         (1     73   

Other

     11         —           —          11   

Cost method investments

     112         —           —          112   

Cash equivalents and other(2)

     15         —           —          15   
                                  

Total

   $ 1,108       $ 262       $ (2 )(3)     $ 1,368   
                                  

December 31, 2010

          

Marketable equity securities

          

U.S.:

          

Large Cap

   $ 469       $ 207       $ —        $ 676   

Other

     20         5         —          25   

Marketable debt securities:

          

Corporate bonds

     205         10         —          215   

U.S. Treasury securities and agency debentures

     141         2         —          143   

State and municipal

     103         1         (2     102   

Other

     15         —           —          15   

Cost method investments

     108         —           —          108   

Cash equivalents and other(2)

     35         —           —          35   
                                  

Total

   $ 1,096       $ 225       $ (2 )(3)   $ 1,319   
                                  

 

(1) Included in AOCI and the decommissioning trust regulatory liability.
(2) Includes pending purchases of securities of $34 million and $35 million at March 31, 2011 and December 31, 2010, respectively.
(3) The fair value of securities in an unrealized loss position was $120 million and $159 million at March 31, 2011, and December 31, 2010, respectively.

The fair value of Virginia Power’s debt securities at March 31, 2011, by contractual maturity is as follows:

 

     Amount       
(millions)          

Due in one year or less

   $ 12      

Due after one year through five years

     162      

Due after five years through ten years

     184      

Due after ten years

     138      
           

Total

   $ 496      
           

 

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

 

     Three Months Ended
March  31,
 
     2011      2010  

(millions)

     

Proceeds from sales

   $ 343       $ 304   

Realized gains(1)

     5         28   

Realized losses(1)

     4         4   

 

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

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

 

     Three Months Ended
March  31,
 
     2011     2010  

(millions)

    

Total other-than-temporary impairment losses(1)

   $ 2      $ 3   

Losses recorded to decommissioning trust regulatory liability

     (2     (3
                

Net impairment losses recognized in earnings

     $—          $—     
                

 

(1) Amount includes other-than-temporary impairment losses for debt securities of $1 million for the three months ended March 31, 2011 and 2010.

Note 12. Regulatory Matters

Other than the following matters, there have been no significant developments regarding the pending regulatory matters disclosed in Note 14 to the Consolidated Financial Statements in Dominion’s and Virginia Power’s Annual Report on Form 10-K for the year ended December 31, 2010.

Virginia Regulation

Biennial Review

Pursuant to the Regulation Act, the Virginia Commission initiated a review of Virginia Power’s base rates, terms and conditions in 2009, including a review of Virginia Power’s earnings for test year 2008. In March 2010, the Virginia Commission issued the Virginia Settlement Approval Order, thus concluding the 2009 case and resolving open issues relating to Virginia Power’s fuel factor and Riders R, S, T, C1 and C2.

Pursuant to the Regulation Act and the Virginia Settlement Approval Order, in March 2011, Virginia Power submitted its base rate filings and accompanying schedules in support of the first biennial review of its rates, terms and conditions, as well as of its earnings for test years 2009 and 2010. As a result of the Virginia Settlement Approval Order and the Regulation Act, Virginia Power’s base rates are not subject to change based on the 2011 biennial review. The Virginia Commission will determine whether Virginia Power’s earnings for the 2009 and 2010 test years, considered as a whole, were within 50 basis points above the authorized ROE of 11.9% established in the Virginia Settlement Approval Order. If Virginia Power’s earnings for the test years are more than 50 basis points above the authorized ROE, the Virginia Commission will order a credit to customers of 60% of the earnings that exceeded an ROE of 12.4% for the biennial period. The Virginia Commission will also authorize an ROE for Virginia Power that will be applied to Riders R, S, C1 and C2 and that will also be utilized to measure base rate earnings prospectively. Virginia Power is requesting authorization of an ROE of 12.5%, inclusive of a performance incentive of 100 basis points as provided for by the Regulation Act. Pursuant to the Regulation Act, Virginia Power’s authorized ROE, exclusive of any performance or other statutory incentive, can be no lower than the average of the returns reported for the three previous years by not less than a majority of comparable utilities in the Southeastern U.S., with certain limitations as described in the Regulation Act. A final order in the 2011 biennial review for base rates must be issued no later than November 30, 2011.

Generation Riders R and S

In connection with the Bear Garden and Virginia City Hybrid Energy Center projects, in March 2011, the Virginia Commission approved annual updates for Riders R and S with revenue requirements of $78 million and $199 million, respectively, for the April 1, 2011 to March 31, 2012 rate year, utilizing the 12.3% placeholder ROE (inclusive of a 100 basis point statutory enhancement) pending the Virginia Commission’s determination in the 2011 biennial review. The approved revenue requirements for Riders R and S represent increases of approximately $14 million and $45 million, respectively, over the revenue requirements associated with the Riders R and S customer rates in effect through March 31, 2011.

 

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DSM Riders C1 and C2

In connection with Virginia Power’s five DSM programs approved by the Virginia Commission, in March 2011, the Virginia Commission approved the annual updates for Riders C1 and C2 with revenue requirements of approximately $6 million and $12 million, respectively, for the April 1, 2011 to March 31, 2012 rate year, utilizing an 11.3% placeholder ROE pending the Virginia Commission’s determination in the 2011 biennial review.

If the Virginia Commission’s future rate decisions, including actions relating to Virginia Power’s biennial review and rate adjustment clause filings, differ materially from Virginia Power’s expectations, it could adversely affect its results of operations, financial conditions and cash flows.

Mt. Storm-to-Doubs Line

Portions of the Mt. Storm-to-Doubs line and certain associated facilities are approaching the end of their expected service lives and require replacement with new facilities to maintain reliable service. Virginia Power owns, and has been designated by PJM to rebuild, 96 miles of the line in West Virginia and Virginia, and The Potomac Edison Company owns, and has been designated by PJM to rebuild, the remaining three miles of the line in Maryland. In January 2011, Virginia Power filed an application with the Virginia Commission for approval of the rebuild project. The approval of the West Virginia Commission is not required. Subject to applicable state and federal regulatory approvals, Virginia Power’s portion of the rebuild project is expected to cost approximately $300 million and is expected to be completed by June 2015.

North Anna Power Station

Virginia Power is considering the construction of a third nuclear unit at a site located at North Anna, which Virginia Power owns along with ODEC. In February 2011, ODEC informed Virginia Power of its intent to no longer participate in the development of a potential new unit at North Anna. Virginia Power and ODEC are currently working together to finalize the terms and conditions of such withdrawal.

If Virginia Power decides to build the new unit, it must first receive a COL from the NRC, the approval of the Virginia Commission and certain environmental permits and other approvals.

The NRC is required to conduct a hearing in all COL proceedings. In August 2008, the ASLB of the NRC permitted BREDL to intervene in the proceeding. All of BREDL’s previous contentions in this proceeding have been dismissed. In October 2010, BREDL submitted two new contentions that it seeks to litigate that Virginia Power opposed. The ASLB dismissed BREDL’s additional proposed contentions in April 2011. No other persons sought to intervene in the proceeding. Absent additional admitted contentions, the mandatory NRC hearing will be uncontested with respect to other issues.

On April 14, 2011, twenty-one organizations and individuals that had previously intervened opposing various reactor licensing proceedings filed a petition requesting that the NRC suspend all decisions regarding reactor licensing and design certification pending completion of an NRC task force review of the events at Fukushima, Japan, among other requested relief. The North Anna 3 COL proceeding is one of the pending proceedings identified in this petition, and BREDL served the petition in the North Anna 3 COL proceeding on April 18, 2011. Because the NRC has indicated that any lessons learned from the Fukushima incident will be applied in due course, and because a final decision in the North Anna 3 COL proceeding is not expected until 2013, Dominion does not expect this petition to be granted or to affect the North Anna 3 COL proceeding.

Virginia Power continues to pursue various environmental permits that would be needed to support future construction and operation of a third nuclear unit at North Anna.

Ohio Regulation

In March 2011, East Ohio filed a request with the Ohio Commission to accelerate the PIR program by nearly doubling its PIR spending to more than $200 million annually. East Ohio has identified 1,450 miles of pipeline that need to be replaced, in addition to the pipeline originally identified in the PIR project scope. East Ohio requested that the Ohio Commission reauthorize the PIR program for a five-year period effective upon approval of its application.

In March 2011, the Ohio Commission approved East Ohio’s annual update of the PIPP Rider, which reflected the elimination of accumulated arrearages and projected deferred program costs of approximately $112 million for the 12-month period from April 2011 to March 2012.

 

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Note 13. Variable Interest Entities

As discussed in Note 16 to the Consolidated Financial Statements in Dominion’s and Virginia Power’s Annual Report on Form 10-K for the year ended December 31, 2010, certain variable pricing terms in some of the Companies’ long-term power and capacity contracts cause them to be considered variable interests in the counterparties.

Virginia Power has long-term power and capacity contracts with four non-utility generators with an aggregate summer generation capacity of approximately 870 MW. These contracts contain certain variable pricing mechanisms in the form of partial fuel reimbursement that Virginia Power considers to be variable interests. After an evaluation of the information provided by these entities, Virginia Power was unable to determine whether they were VIEs. However, the information they provided, as well as Virginia Power's knowledge of generation facilities in Virginia, enabled Virginia Power to conclude that, if they were VIEs, it would not be the primary beneficiary. This conclusion reflects Virginia Power's determination that its variable interests do not convey the power to direct the most significant activities that impact the economic performance of the entities during the remaining terms of Virginia Power's contracts and for the years the entities are expected to operate after its contractual relationships expire. The contracts expire at various dates ranging from 2015 to 2021. Virginia Power is not subject to any risk of loss from these potential VIEs other than its remaining purchase commitments which totaled $1.5 billion as of March 31, 2011. Virginia Power paid $53 million and $54 million for electric capacity and $39 million and $41 million for electric energy to these entities in the three months ended March 31, 2011 and 2010, respectively.

Virginia Power purchased shared services from DRS, an affiliated VIE, of approximately $93 million and $141 million for the three months ended March 31, 2011 and 2010, respectively. Virginia Power determined that it is not the most closely associated entity with DRS and therefore not the primary beneficiary. DRS provides accounting, legal, finance and certain administrative and technical services to all Dominion subsidiaries, including Virginia Power. Virginia Power has no obligation to absorb more than its allocated share of DRS costs.

Note 14. Significant Financing Transactions

Credit Facilities and Short-term Debt

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

At March 31, 2011, Dominion’s commercial paper and letters of credit outstanding, as well as capacity available under credit facilities, were as follows:

 

     Facility
Limit
     Outstanding
Commercial
Paper
     Outstanding
Letters of
Credit
     Facility
Capacity
Available
 
(millions)            

Three-year joint revolving credit facility(1)

   $ 3,000       $ 848       $ 1       $ 2,151   

Three-year joint revolving credit facility(2)

     500         —           112         388   
                                   

Total

   $ 3,500       $ 848       $ 113       $ 2,539   
                                   

 

(1) This credit facility was entered into in September 2010 and terminates in September 2013. This credit facility can be used to support bank borrowings and the issuance of commercial paper, as well as to support up to $1.5 billion of letters of credit.
(2) This credit facility was entered into in September 2010 and terminates in September 2013. This credit facility can be used to support bank borrowings, commercial paper and letter of credit issuances.

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

 

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At March 31, 2011, Virginia Power’s share of commercial paper and letters of credit outstanding, as well as its capacity available under its joint credit facilities with Dominion were as follows:

 

     Facility
Sub-limit
     Outstanding
Commercial
Paper
     Outstanding
Letters of
Credit
     Facility
Capacity
Available
 
(millions)            

Three-year joint revolving credit facility(1)

   $ 1,000       $ 582       $ 1       $ 417   

Three-year joint revolving credit facility(2)

     250         —           87         163   
                                   

Total

   $ 1,250       $ 582       $ 88       $ 580   
                                   

 

(1) This credit facility was entered into in September 2010 and terminates in September 2013. This credit facility can be used to support bank borrowings and the issuance of commercial paper, as well as to support up to $1.5 billion (or the sub-limit, whichever is less) of letters of credit. Virginia Power’s applicable sub-limit under this credit facility can be increased or decreased multiple times per year.
(2) This credit facility was entered into in September 2010 and terminates in September 2013. This credit facility can be used to support bank borrowings, commercial paper and letter of credit issuances. Virginia Power’s applicable sub-limit under this credit facility can be increased or decreased multiple times per year.

In addition to the credit facility commitments disclosed above, Virginia Power also has a three-year $120 million credit facility that was entered into in September 2010. The facility, which terminates in September 2013, supports certain tax-exempt financings of Virginia Power.

Long-term Debt

In March 2011, Dominion issued $500 million of 4.45% senior notes that mature in 2021 and $400 million of 1.80% senior notes that mature in 2014. The proceeds were used for general corporate purposes including the repayment of short-term debt.

In December 2010 and September 2009, Virginia Power borrowed $100 million and $60 million, respectively, in connection with the $160 million Industrial Development Authority of Wise County Solid Waste and Sewage Disposal Revenue Bonds, Series 2009 A, which mature in 2040. Due to unfavorable market conditions, Virginia Power acquired the bonds upon issuance with the intention of remarketing them to third parties at a later time. In March 2011, the bonds were remarketed to a third party and bear interest at a variable rate for the first five years, after which they will bear interest at a market rate to be determined at that time, using a remarketing process. The proceeds will be used to finance certain qualifying facilities at the Virginia City Hybrid Energy Center. These bonds had not been remarketed and thus were not reflected on the Consolidated Balance Sheet at December 31, 2010.

Convertible Securities

At March 31, 2011, Dominion had $202 million of outstanding contingent convertible senior notes that are convertible by holders into a combination of cash and shares of Dominion’s common stock under certain circumstances. The conversion feature requires that the principal amount of each note be repaid in cash, while amounts payable in excess of the principal amount will be paid in common stock. The conversion rate is subject to adjustment upon certain events such as subdivisions, splits, combinations of common stock or the issuance to all common stock holders of certain common stock rights, warrants or options and certain dividend increases. As of March 31, 2011, the conversion rate has been adjusted, primarily due to individual dividend payments above the level paid at issuance, to 28.6128 shares of common stock per $1,000 principal amount of senior notes, which represents a conversion price of $34.95.

As of December 31, 2010, the closing price of Dominion’s common stock was not equal to or higher than 120% of the conversion price for at least 20 out of the last 30 consecutive trading days; therefore, the senior notes were not eligible for conversion during the first quarter of 2011. As of March 31, 2011, the closing price of Dominion’s common stock was equal to or higher than 120% of the conversion price for at least 20 out of the last 30 consecutive trading days; therefore, the senior notes are eligible for conversion during the second quarter of 2011.

Issuance of Common Stock

Dominion maintains Dominion Direct® and a number of employee savings plans through which employer and employee contributions may be invested in the Company's common stock. These shares may either be newly issued or purchased on the open market with proceeds contributed to these plans by employees and the Company.

Since February 2010, Dominion Direct® and the Dominion employee savings plans have been purchasing Dominion common stock on the open market with the proceeds received through these programs, rather than having additional new common shares issued.

 

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During the three months ended March 31, 2011, Dominion issued 513,286 shares of common stock and received cash proceeds of $17 million through the exercise of employee stock options.

Repurchase of Common Stock

Dominion expects to repurchase between $600 million and $700 million of common stock with cash tax savings resulting from the extension of the bonus depreciation allowance, which is discussed in Note 6 to the Consolidated Financial Statements in Dominion's and Virginia Power's Annual Report on Form 10-K for the year ended December 31, 2010. In the first quarter of 2011, Dominion repurchased over 6 million shares of common stock for approximately $274 million on the open market under this program, at an average price of $45.30 per share. Dominion plans to continue the repurchases over the remainder of the year.

Note 15. Commitments and Contingencies

Other than the following matters, there have been no significant developments regarding the commitments and contingencies disclosed in Note 23 to the Consolidated Financial Statements in Dominion’s and Virginia Power’s Annual Report on Form 10-K for the year ended December 31, 2010.

Guarantees

Dominion

At March 31, 2011, Dominion had issued $128 million of guarantees, primarily to support equity method investees. No significant amounts related to these guarantees have been recorded. As of March 31, 2011, Dominion’s exposure under these guarantees was $52 million, primarily related to certain reserve requirements associated with non-recourse financing.

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

At March 31, 2011, Dominion had issued the following subsidiary guarantees:

 

     Stated Limit      Value(1)  
(millions)      

Subsidiary debt(2)

   $ 126       $ 126   

Commodity transactions(3)

     3,099         352   

Lease obligation for power generation facility(4)

     757         757   

Nuclear obligations(5)

     231         66   

Other(6)

     502         108   
                 

Total

   $ 4,715       $ 1,409   
                 

 

(1) Represents the estimated portion of the guarantee’s stated limit that is utilized as of March 31, 2011 based upon prevailing economic conditions and fact patterns specific to each guarantee arrangement. For those guarantees related to obligations that are recorded as liabilities by Dominion’s subsidiaries, the value includes the recorded amount.
(2) Guarantees of debt of certain DEI subsidiaries. In the event of default by the subsidiaries, Dominion would be obligated to repay such amounts.
(3) Guarantees related to energy trading and marketing activities and other commodity commitments of certain subsidiaries, including subsidiaries of Virginia Power and DEI. These guarantees were provided to counterparties in order to facilitate physical and financial transactions in gas, oil, electricity, pipeline capacity, transportation and related commodities and services. If any of these subsidiaries fail to perform or pay under the contracts and the counterparties seek performance or payment, Dominion would be obligated to satisfy such obligation. Dominion and its subsidiaries receive similar guarantees as collateral for credit extended to others. The value provided includes certain guarantees that do not have stated limits.
(4) Guarantee of a DEI subsidiary’s leasing obligation for Fairless.
(5)

Guarantees related to certain DEI subsidiaries’ potential retrospective premiums that could be assessed if there is a nuclear incident under Dominion’s nuclear insurance programs and guarantees for a DEI subsidiary’s and Virginia Power’s commitment to buy nuclear fuel. Excludes Dominion’s agreement to provide up to $150 million and $60 million to two DEI subsidiaries to pay the operating expenses of

 

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Millstone and Kewaunee, respectively, in the event of a prolonged outage, as part of satisfying certain NRC requirements concerned with ensuring adequate funding for the operations of nuclear power stations.

(6) Guarantees related to other miscellaneous contractual obligations such as leases, environmental obligations and construction projects. Also includes guarantees related to certain DEI subsidiaries' obligations for equity capital contributions and energy generation associated with Fowler Ridge and NedPower.

Virginia Power

As of March 31, 2011, Virginia Power had issued $16 million of guarantees primarily to support tax-exempt debt issued through conduits. No significant amounts related to these guarantees have been recorded.

Surety Bonds and Letters of Credit

As of March 31, 2011, Dominion had purchased $118 million of surety bonds, including $39 million at Virginia Power, and authorized the issuance of standby letters of credit by financial institutions of $113 million, including $88 million at Virginia Power, to facilitate commercial transactions by its subsidiaries with third parties. Under the terms of the surety bonds, the Companies are obligated to indemnify the respective surety bond company for any amounts paid.

Renewable Generation

Virginia Power announced it plans to convert three of its coal power plants to biomass as part of its larger strategy to diversify its portfolio in meeting customer energy needs and adding renewable energy. The power stations expected to be converted to biomass are located in Altavista, Hopewell and Southampton Counties in Virginia and will each provide approximately 50 MW of capacity. If the conversions are approved by local governments, the Virginia Department of Environmental Quality and the Virginia Commission, the power stations could begin burning renewable biomass in 2013.

Potential Kewaunee Divestiture

Dominion continually reviews its portfolio of assets to determine which assets fit strategically and support its objectives to improve return on invested capital and shareholder value. If Dominion identifies assets that do not support its objectives and believes they may be of greater value to another owner, Dominion may consider such assets for divestiture. In connection with this effort, in the first quarter of 2011, Dominion decided to pursue the sale of Kewaunee, a 556 MW nuclear merchant generation facility located in Wisconsin. If these efforts are successful, Dominion may be required to present Kewaunee's assets and liabilities that are subject to sale as held for sale in its Consolidated Balance Sheet and Kewaunee's results of operations in discontinued operations in its Consolidated Statements of Income. Held for sale classification would require that amounts be recorded at the lower of book value or sale price less costs to sell and could result in the recording of an impairment charge. Any sale of Kewaunee would be subject to the approval of Dominion's Board of Directors, as well as applicable state and federal approvals.

Note 16. Credit Risk

Credit risk is the risk of financial loss if counterparties fail to perform their contractual obligations. In order to minimize overall credit risk, credit policies are maintained, including the evaluation of counterparty financial condition, collateral requirements and the use of standardized agreements that facilitate the netting of cash flows associated with a single counterparty. In addition, counterparties may make available collateral, including letters of credit or cash held as margin deposits, as a result of exceeding agreed-upon credit limits, or may be required to prepay the transaction.

Dominion and Virginia Power maintain a provision for credit losses based on factors surrounding the credit risk of their customers, historical trends and other information. Management believes, based on credit policies and the provision for credit losses, that it is unlikely that a material adverse effect on financial position, results of operations or cash flows would occur as a result of counterparty nonperformance.

General

Dominion

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

Dominion’s exposure to credit risk is concentrated primarily within its energy marketing and price risk management activities, as Dominion transacts with a smaller, less diverse group of counterparties and transactions may involve large notional volumes and potentially volatile commodity prices. Energy marketing and price risk management activities include trading of energy-related commodities, marketing of merchant generation output, structured transactions and the use of financial contracts for

 

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enterprise-wide hedging purposes. Gross credit exposure for each counterparty is calculated as outstanding receivables plus any unrealized on- or off-balance sheet exposure, taking into account contractual netting rights. Gross credit exposure is calculated prior to the application of collateral. At March 31, 2011, Dominion’s gross credit exposure totaled $493 million. After the application of collateral, credit exposure is unchanged. Of this amount, investment grade counterparties, including those internally rated, represented 83%. One counterparty exposure represents 9% of Dominion’s total exposure and is a large financial institution rated investment grade.

Virginia Power

Virginia Power sells electricity and provides distribution and transmission services to customers in Virginia and northeastern North Carolina. Management believes that this geographic concentration risk is mitigated by the diversity of Virginia Power’s customer base, which includes residential, commercial and industrial customers, as well as rural electric cooperatives and municipalities. Credit risk associated with trade accounts receivable from energy consumers is limited due to the large number of customers. Virginia Power’s exposure to potential concentrations of credit risk results primarily from sales to wholesale customers. Virginia Power’s gross credit exposure for each counterparty is calculated as outstanding receivables plus any unrealized on- or off-balance sheet exposure, taking into account contractual netting rights. Gross credit exposure is calculated prior to the application of collateral. At March 31, 2011, Virginia Power’s exposure to potential concentrations of credit risk was not considered material.

Credit-Related Contingent Provisions

The majority of Dominion’s derivative instruments contain credit-related contingent provisions. These provisions require Dominion to provide collateral upon the occurrence of specific events, primarily a credit downgrade. If the credit-related contingent features underlying these instruments that are in a liability position and not fully collateralized with cash were fully triggered as of March 31, 2011 and December 31, 2010, Dominion would have been required to post an additional $103 million and $88 million, respectively, of collateral to its counterparties. The collateral that would be required to be posted includes the impacts of any offsetting asset positions and any amounts already posted for derivatives, non-derivative contracts and derivatives elected under the normal purchases and normal sales exception, per contractual terms. Dominion had posted $105 million in collateral, including $7 million of letters of credit at March 31, 2011 and $54 million in collateral, including $19 million of letters of credit at December 31, 2010, related to derivatives with credit-related contingent provisions that are in a liability position and not fully collateralized with cash. The collateral posted includes any amounts paid related to non-derivative contracts and derivatives elected under the normal purchases and normal sales exception, per contractual terms. The aggregate fair value of all derivative instruments with credit-related contingent provisions that are in a liability position and not fully collateralized with cash as of March 31, 2011 and December 31, 2010 was $257 million and $210 million, respectively, which does not include the impact of any offsetting asset positions. See Note 10 for further information about derivative instruments.

Note 17. Related Party Transactions

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

Transactions with Affiliates

Virginia Power transacts with affiliates for certain quantities of natural gas and other commodities in the ordinary course of business. Virginia Power also enters into certain commodity derivative contracts with affiliates. Virginia Power uses these contracts, which are principally comprised of commodity swaps, to manage commodity price risks associated with purchases of natural gas.

DRS provides accounting, legal, finance and certain administrative and technical services to Virginia Power. Presented below are significant transactions with DRS and other affiliates:

 

     Three Months Ended
March  31,
 
     2011      2010  
(millions)              

Commodity purchases from affiliates

   $ 62       $ 67   

Services provided by affiliates

     93         141   

 

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Virginia Power has borrowed funds from Dominion under short-term borrowing arrangements. Virginia Power’s outstanding borrowings, net of repayments, under the Dominion money pool for its nonregulated subsidiaries totaled $58 million and $24 million, as of March 31, 2011 and December 31, 2010, respectively. Virginia Power’s short-term demand note borrowings from Dominion were $79 million as of December 31, 2010. There were no short-term demand note borrowings as of March 31, 2011. Virginia Power’s interest charges related to its borrowings from Dominion were immaterial for the periods ended March 31, 2011 and 2010.

 

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Note 18. Employee Benefit Plans

The components of Dominion’s provision for net periodic benefit cost were as follows:

 

     Pension Benefits     Other  Postretirement
Benefits
 
     2011     2010     2011     2010  
(millions)       

Three Months Ended March 31,

        

Service cost

   $ 27      $ 27      $ 12      $ 14   

Interest cost

     64       66        23        25   

Expected return on plan assets

     (110     (99     (20     (17

Amortization of prior service cost (credit)

     1       1        (3     (2

Amortization of net loss

     24       15        3        3   

Settlements and curtailments(1)

     —          84        —          38   

Special termination benefits(2)

     —          9        —          1   
                                

Net periodic benefit cost

   $ 6      $ 103      $ 15      $ 62   
                                

 

(1) Relates to the sale of Peoples and a workforce reduction program.
(2) Represents a one-time special termination benefit for certain employees in connection with a workforce reduction program.

Employer Contributions

During the three months ended March 31, 2011, Dominion made no contributions to its defined benefit pension plans or other postretirement benefit plans. Dominion expects to contribute approximately $18 million, of which Virginia Power’s portion is expected to be $1 million, to its other postretirement benefit plans through Voluntary Employees’ Beneficiary Associations during the remainder of 2011.

 

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Note 19. Operating Segments

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

 

Primary Operating Segment

  

Description of Operations

   Dominion    Virginia Power

DVP

   Regulated electric distribution    X    X
   Regulated electric transmission    X    X
   Nonregulated retail energy marketing (electric and gas)    X   

Dominion Generation

   Regulated electric fleet    X    X
   Merchant electric fleet    X   

Dominion Energy

   Gas transmission and storage    X   
   Gas distribution    X   
   LNG import and storage    X   
   Producer services    X   

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

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

In the three months ended March 31, 2011, Dominion reported after-tax net expenses of $62 million for specific items in the Corporate and Other segment, with $54 million of these net expenses attributable to its operating segments. In the three months ended March 31, 2010, Dominion reported after-tax net expenses of $402 million for specific items in the Corporate and Other segment, with $215 million of these net expenses attributable to its operating segments.

The net expenses for specific items in 2011 primarily related to the impact of the following items:

 

 

A $55 million ($39 million after-tax) impairment charge related to State Line, attributable to Dominion Generation; and

 

 

A $32 million ($19 million after-tax) loss from the operations of Kewaunee, attributable to Dominion Generation. Kewaunee's results of operations have been reflected in the Corporate and Other segment due to Dominion's decision in the first quarter of 2011 to pursue the sale of Kewaunee.

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

 

 

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

 

   

DVP ($67 million after-tax);

 

   

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

 

   

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

 

 

A $137 million ($149 million after-tax) loss from the discontinued operations of Peoples primarily reflecting a net loss on the sale, attributable to the Corporate and Other segment.

The Corporate and Other Segment of Virginia Power primarily includes certain specific items that are not included in profit measures evaluated by executive management in assessing segment performance or allocating resources among the segments. In the three months ended March 31, 2010, Virginia Power reported after-tax net expenses of $140 million for specific items attributable to its operating segments in the Corporate and Other segment. Virginia Power recorded no expenses in its Corporate and Other segment during the three months ended March 31, 2011.

 

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

 

 

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

 

   

DVP ($63 million after-tax); and

 

   

Dominion Generation ($60 million after-tax).

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

 

     DVP      Dominion
Generation
     Dominion
Energy
     Corporate
and Other
    Adjustments/
Eliminations
    Consolidated
Total
 
(millions)   

Three Months Ended March 31,

  

2011

  

Total revenue from external customers

   $ 1,051       $ 1,863       $ 834       $ 36      $ 273      $ 4,057   

Intersegment revenue

     95         70         208         143        (516     —     
                                                   

Total operating revenue

     1,146         1,933         1,042         179        (243     4,057   
                                                   

Net income (loss) attributable to Dominion

     149         298         169         (137     —          479   
                                                   

2010

               

Total revenue from external customers

   $ 1,003       $ 1,978       $ 850       $ 40      $ 297      $ 4,168   

Intersegment revenue

     88         102         273         232        (695     —     
                                                   

Total operating revenue

     1,091         2,080         1,123         272        (398     4,168   

Loss from discontinued operations, net of tax

     —           —           —           (149     —          (149
                                                   

Net income (loss) attributable to Dominion

     114         325         175         (440     —          174   
                                                   

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

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

 

     DVP      Dominion
Generation
     Corporate
and Other
    Consolidated
Total
 
(millions)                           

Three Months Ended March 31,

          

2011

          

Operating revenue

   $ 453       $ 1,304       $ —        $ 1,757   

Net income

     113         165         —          278   
                                  

2010

          

Operating revenue

   $ 402       $ 1,337       $ —        $ 1,739   

Net income (loss)

     93         143         (141     95   

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Contents of MD&A

MD&A consists of the following information:

 

 

Forward-Looking Statements

 

 

Accounting Matters

 

 

Dominion

 

   

Results of Operations

 

   

Segment Results of Operations

 

 

Virginia Power

 

   

Results of Operations

 

   

Segment Results of Operations

 

 

Liquidity and Capital Resources

 

 

Future Issues and Other Matters

Forward-Looking Statements

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

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

 

 

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

 

 

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

 

 

Federal, state and local legislative and regulatory developments;

 

 

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

 

 

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

 

 

Risks associated with the operation of nuclear facilities, including costs associated with the disposal of spent nuclear fuel, decommissioning, plant maintenance and changes in existing regulations governing such facilities;

 

 

Unplanned outages of the Companies’ facilities;

 

 

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

 

 

Counterparty credit and performance risk;

 

 

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

 

 

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

 

 

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

 

 

Fluctuations in interest rates;

 

 

Changes in federal and state tax laws and regulations;

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

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

 

 

Industrial, commercial and residential growth or decline in the Companies’ service areas and changes in customer growth or usage patterns, including as a result of energy conservation programs;

 

 

Additional competition in electric markets in which Dominion’s merchant generation facilities operate;

 

 

Changes in technology, particularly with respect to new, developing or alternative sources of generation and smart grid technologies;

 

 

Changes to regulated electric rates collected by Virginia Power and regulated gas distribution, transportation and storage rates, including LNG storage, collected by Dominion;

 

 

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

 

 

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

 

 

Adverse outcomes in litigation matters.

Additionally, other risks that could cause actual results to differ from predicted results are set forth in Item 1A. Risk Factors in Dominion’s and Virginia Power’s Annual Report on Form 10-K for the year ended December 31, 2010 and in Part II, Item 1A. Risk Factors in this report.

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

Accounting Matters

Critical Accounting Policies and Estimates

As of March 31, 2011, there have been no significant changes with regard to the critical accounting policies and estimates disclosed in MD&A in Dominion’s and Virginia Power’s Annual Report on Form 10-K for the year ended December 31, 2010. The policies disclosed included the accounting for regulated operations, AROs, income taxes, derivative contracts and other instruments at fair value, goodwill and long-lived asset impairment testing, employee benefit plans and unbilled revenue.

Other

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

Dominion

Results of Operations

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

 

     2011      2010      $ Change  
(millions, except EPS)         

First Quarter

        

Net income attributable to Dominion

   $ 479       $ 174       $ 305   

Diluted EPS

     0.82         0.29         0.53   

Overview

First Quarter 2011 vs. 2010

Net income attributable to Dominion increased by $305 million. Favorable drivers include the absence of the following 2010 items:

 

 

Charges related to a workforce reduction program; and

 

 

A loss on the sale of Peoples.

Unfavorable drivers include lower margins from merchant generation operations and an impairment charge related to State Line.

 

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Analysis of Consolidated Operations

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

 

     First Quarter  
     2011      2010     $ Change  
(millions)        

Operating revenue

   $ 4,057       $ 4,168      $ (111

Electric fuel and other energy-related purchases

     1,049         1,028        21   

Purchased electric capacity

     119         108        11   

Purchased gas

     642         792        (150
                         

Net revenue

     2,247         2,240        7   
                         

Other operations and maintenance

     861         1,068        (207

Depreciation, depletion and amortization

     262         269        (7

Other taxes

     161         169        (8

Other income

     57         71        (14

Interest and related charges

     227         183        44   

Income tax expense

     310         295        15   

Loss from discontinued operations

     —           (149     149   

An analysis of Dominion’s results of operations follows:

First Quarter 2011 vs. 2010

Net revenue increased $7 million, primarily reflecting:

 

 

An $88 million increase from regulated natural gas distribution operations primarily reflecting increased rider revenue related to low income assistance programs;

 

 

A $46 million increase from electric utility operations primarily reflecting:

 

   

The impact of Riders C1 and C2, R, S and T ($47 million); and

 

   

An increase in ancillary revenues received from PJM ($7 million); partially offset by

 

   

The net impact ($14 million) of a decrease in sales to retail customers primarily due to a decrease in heating degree days ($45 million) and favorable economic conditions on customer usage and other factors ($31 million);

 

 

A $28 million increase in retail energy marketing activities primarily due to a decrease in purchased gas expense; and

 

 

A $15 million increase in producer services primarily related to higher physical margins partially offset by unfavorable price changes on economic hedging positions, all associated with natural gas aggregation, marketing and trading activities.

These increases were partially offset by:

 

 

A $106 million decrease reflecting the sale of substantially all of Dominion's Appalachian E&P operations in April 2010; and

 

 

A $66 million decrease from merchant generation operations due to a decrease at certain nuclear generation facilities ($40 million) primarily due to lower realized prices, as well as a decline in margins at certain fossil generation facilities ($26 million) largely due to decreased volumes.

Other operations and maintenance decreased 19%, primarily reflecting:

 

 

A $338 million net decrease in salaries, wages and benefits primarily due to the absence of charges recorded in 2010 related to a workforce reduction program; and

 

 

A $21 million decrease due to the absence of a ceiling test impairment charge related to the carrying value of Dominion's E&P properties that were sold in April 2010.

These decreases were partially offset by:

 

 

An $84 million increase in bad debt expense at regulated natural gas distribution operations, primarily related to low income assistance programs. These expenses are recovered through rates and do not impact net income;

 

 

A $55 million impairment charge related to State Line; and

 

 

A $16 million increase in outage costs due to an increase in scheduled outage days at certain merchant generation facilities ($32 million), partially offset by a decrease in scheduled outage days at certain electric utility generation facilities ($16 million). The outage days primarily occurred at nuclear facilities.

 

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Other income decreased 20% primarily due to a decrease in earnings from equity method investments ($16 million) and lower net realized gains (including investment income) on nuclear decommissioning trust funds ($11 million), partially offset by an increase in the equity component of AFUDC as a result of construction and expansion projects ($14 million).

Interest and related charges increased 24% primarily due to the absence of a benefit recorded in 2010 resulting from the discontinuance of hedge accounting for certain interest rate derivatives.

Loss from discontinued operations primarily reflects a loss on the sale of Peoples in February 2010.

Segment Results of Operations

Segment results include the impact of intersegment revenues and expenses, which may result in intersegment profit and loss. Presented below is a summary of contributions by Dominion’s operating segments to net income attributable to Dominion:

 

     Net Income attributable to Dominion     Diluted EPS  

First Quarter

   2011     2010     $ Change     2011     2010     $ Change  
(millions, except EPS)                                     

DVP

   $ 149      $ 114      $ 35      $ 0.26      $ 0.19      $ 0.07   

Dominion Generation

     298        325        (27     0.51        0.54        (0.03

Dominion Energy

     169        175        (6     0.29        0.29        —     
                                                

Primary operating segments

     616        614        2        1.06        1.02        0.04   

Corporate and Other

     (137     (440     303        (0.24     (0.73     0.49   
                                                

Consolidated

   $ 479      $ 174      $ 305      $ 0.82      $ 0.29      $ 0.53   
                                                

DVP

Presented below are selected operating statistics related to DVP’s operations:

 

     First Quarter  
     2011      2010      % Change  

Electricity delivered (million MWh)

     20.9         21.2         (1 )% 

Degree days (electric distribution service area):

        

Cooling(1)

     1         —           100   

Heating(2)

     2,068         2,126         (3

Average electric distribution customer accounts (thousands)(3)

     2,435         2,417         1   

Average retail energy marketing customer accounts (thousands)(3)

     2,121         1,954         9   

 

(1) Cooling degree days are units measuring the extent to which the average daily temperature is greater than 65 degrees Fahrenheit, and are calculated as the difference between 65 degrees and the average temperature for that day.
(2) Heating degree days are units measuring the extent to which the average daily temperature is less than 65 degrees Fahrenheit, and are calculated as the difference between 65 degrees and the average temperature for that day.
(3) Period average.

 

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Presented below, on an after-tax basis, are the key factors impacting DVP’s net income contribution:

 

     First Quarter
2011 vs. 2010
Increase (Decrease)
 
     Amount     EPS  
(millions, except EPS)             

Regulated electric sales:

    

Weather

   $ (9   $ (0.02

FERC transmission revenue(1)

     26        0.05   

Other

     7        0.01   

Retail energy marketing operations

     17        0.03   

Storm damage and service restoration – electric distribution operations

     6        0.01   

Interest expense

     (6     (0.01

Other

     (6     (0.01

Share accretion

     —          0.01   
                

Change in net income contribution

   $ 35      $ 0.07   
                

 

(1) Primarily reflects an increase in the FERC-based formula rate designed to recover the expected revenue requirement for the current period. Includes the impact of an increase in the equity return of approximately $8 million.

Dominion Generation

Presented below are selected operating statistics related to Dominion Generation’s operations:

 

     First Quarter  
     2011      2010      % Change  

Electricity supplied (million MWh):

        

Utility

     20.9         21.2         (1 )% 

Merchant(1)

     11.2         12.4         (10

Degree days (electric utility service area):

        

Cooling

     1         —           100   

Heating

     2,068         2,126         (3

 

(1) Includes 0.8 in 2011 and 1.2 in 2010 related to Kewaunee.

Presented below, on an after-tax basis, are the key factors impacting Dominion Generation’s net income contribution:

 

     First Quarter
2011 vs. 2010
Increase (Decrease)
 
     Amount     EPS  
(millions, except EPS)             

Merchant generation margin

   $ (38   $ (0.06

Regulated electric sales:

    

Weather

     (18     (0.03

Other

     17        0.03   

Rate adjustment clause equity return

     15        0.03   

Kewaunee 2010 earnings(1)

     (5     (0.01

Other

     2        —     

Share accretion

     —          0.01   
                

Change in net income contribution

   $ (27   $ (0.03
                

 

(1) Kewaunee’s 2011 results of operations have been reflected in the Corporate and Other segment due to Dominion’s decision, in the first quarter of 2011, to pursue a sale of the power station.

 

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Dominion Energy

Presented below are selected operating statistics related to Dominion Energy’s operations.

 

     First Quarter  
     2011      2010      % Change  

Gas distribution throughput (bcf):

        

Sales

     16         15         7

Transportation

     110         99         11   

Heating degree days (gas distribution service area)

     3,143         2,947         7   

Average gas distribution customer accounts (thousands)(1):

        

Sales

     259         261         (1

Transportation

     1,053         1,055         —     

 

(1) Period average.

Presented below, on an after-tax basis, are the key factors impacting Dominion Energy’s net income contribution:

 

     First Quarter
2011 vs. 2010
Increase (Decrease)
 
     Amount     EPS  
(millions, except EPS)             

E&P disposed operations

   $ (14   $ (0.03

Producer services margin

     9        0.02   

Other

     (1     —     

Share accretion

     —          0.01   
                

Change in net income contribution

   $ (6   $ —     
                

Corporate and Other

Presented below are the Corporate and Other segment’s after-tax results:

 

     First Quarter  
     2011     2010     $ Change  
(millions, except EPS)                   

Specific items attributable to operating segments

   $ (54   $ (215   $ 161   

Specific items attributable to corporate operations:

      

Peoples discontinued operations

     —          (149     149   

Other

     (8     (38     30   
                        

Total specific items

     (62     (402     340   

Other corporate operations

     (75     (38     (37
                        

Total net expense

   $ (137   $ (440   $ 303   
                        

EPS impact

   $ (0.24   $ (0.73   $ 0.49   
                        

Total Specific Items

Corporate and Other includes specific items that are not included in profit measures evaluated by management in assessing segment performance or in allocating resources among the segments. See Note 19 to the Consolidated Financial Statements for discussion of these items.

Other Corporate Operations

First Quarter 2011 vs. 2010

Net expenses increased $37 million primarily due to the absence of a net benefit resulting from the discontinuance of hedge accounting and subsequent changes in fair value of certain interest rate derivatives during the first quarter of 2010 and lower consolidated state income tax benefits.

 

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Virginia Power

Results of Operations

Presented below is a summary of Virginia Power’s consolidated results:

 

     First Quarter  
     2011      2010      $ Change  
(millions)                     

Net income

   $ 278       $ 95       $ 183   

Overview

First Quarter 2011 vs. 2010

Net income increased by $183 million. The primary driver is the absence of charges related to a workforce reduction program in 2010.

Analysis of Consolidated Operations

Presented below are selected amounts related to Virginia Power’s results of operations:

 

     First Quarter  
     2011      2010      $ Change  
(millions)                     

Operating revenue

   $ 1,757       $ 1,739       $ 18   

Electric fuel and other energy-related purchases

     593         632         (39

Purchased electric capacity

     118         107         11   
                          

Net revenue

     1,046         1,000         46   
                          

Other operations and maintenance

     302         519         (217

Depreciation and amortization

     174         163         11   

Other taxes

     59         64         (5

Other income

     29         14         15   

Interest and related charges

     92         88         4   

Income tax expense

     170         85         85   

An analysis of Virginia Power’s results of operations follows:

First Quarter 2011 vs. 2010

Net revenue increased 5%, primarily reflecting:

 

 

The impact from Riders C1 and C2, R, S and T ($47 million); and

 

 

An increase in ancillary revenues received from PJM ($7 million); partially offset by

 

 

The net impact ($14 million) of a decrease in sales to retail customers primarily due to a decrease in heating degree days ($45 million) and favorable economic conditions on customer usage and other factors ($31 million).

Other operations and maintenance decreased 42%, primarily reflecting a $216 million net decrease in salaries, wages and benefits including administrative and general costs primarily due to the absence of charges recorded in 2010 related to a workforce reduction program.

Other income increased $15 million, primarily reflecting an increase in the equity component of AFUDC as a result of construction and expansion projects.

Income tax expense increased $85 million, primarily reflecting higher pre-tax income in 2011.

 

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Segment Results of Operations

Presented below is a summary of contributions by Virginia Power’s operating segments to net income:

 

     First Quarter  
     2011      2010     $ Change  
(millions)                    

DVP

   $ 113       $ 93      $ 20   

Dominion Generation

     165         143        22   
                         

Primary operating segments

     278         236        42   

Corporate and Other

     —           (141     141   
                         

Consolidated

   $ 278       $ 95      $ 183   
                         

DVP

Presented below are operating statistics related to Virginia Power’s DVP segment:

 

     First Quarter  
     2011      2010      % Change  

Electricity delivered (million MWh)

     20.9         21.2         (1 )% 

Degree days (electric distribution service area):

        

Cooling

     1         —           100   

Heating

     2,068         2,126         (3

Average electric distribution customer accounts (thousands)(1)

     2,435         2,417         1   

 

(1) Period average.

Presented below, on an after-tax basis, are the key factors impacting Virginia Power’s DVP segment’s net income contribution:

 

     First Quarter
2011 vs.  2010
Increase
(Decrease)
 
(millions)       

Regulated electric sales:

  

Weather

   $ (9

FERC transmission revenue(1)

     26   

Other

     7   

Storm damage and service restoration – electric distribution operations

     6   

Interest expense

     (6

Other

     (4
        

Change in net income contribution

   $ 20   
        

 

(1) Primarily reflects an increase in the FERC-based formula rate designed to recover the expected revenue requirement for the current period. Includes the impact of an increase in the equity return of approximately $8 million.

 

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Dominion Generation

Presented below are operating statistics related to Virginia Power’s Dominion Generation segment:

 

     First Quarter  
     2011      2010      % Change  

Electricity supplied (million MWh):

     20.9         21.2         (1 )% 

Degree days (electric utility service area):

        

Cooling

     1         —           100   

Heating

     2,068         2,126         (3

Presented below, on an after-tax basis, are the key factors impacting Virginia Power’s Dominion Generation segment’s net income contribution:

 

     First Quarter
2011 vs. 2010
Increase
(Decrease)
 
(millions)       

Rate adjustment clause equity return

   $ 15   

Outage costs

     10   

Regulated electric sales:

  

Weather

     (18

Other

     17   

Other

     (2
        

Change in net income contribution

   $ 22   
        

Corporate and Other

Corporate and Other includes specific items that are not included in profit measures evaluated by management in assessing segment performance or in allocating resources among the segments. See Note 19 to the Consolidated Financial Statements for discussion of these items.

Liquidity and Capital Resources

Dominion and Virginia Power depend on both internal and external sources of liquidity to provide working capital and to fund capital requirements. Short-term cash requirements not met by cash provided by operations are generally satisfied with proceeds from short-term borrowings. Long-term cash needs are met through issuances of debt and/or equity securities.

At March 31, 2011, Dominion had $2.5 billion of unused capacity under its credit facilities, including $580 million of unused capacity under joint credit facilities available to Virginia Power.

A summary of Dominion’s cash flows is presented below:

 

     2011     2010  
(millions)             

Cash and cash equivalents at January 1

   $ 62      $ 50   

Cash flows provided by (used in):

    

Operating activities

     912        1,650   

Investing activities

     (752     (171

Financing activities

     (34     (1,444
                

Net increase in cash and cash equivalents

     126        35   
                

Cash and cash equivalents at March 31

   $ 188      $ 85   
                

 

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A summary of Virginia Power’s cash flows is presented below:

 

     2011     2010  
(millions)             

Cash and cash equivalents at January 1

   $ 5      $ 19   

Cash flows provided by (used in):

    

Operating activities

     524        769   

Investing activities

     (411     (611

Financing activities

     (38     (124
                

Net increase in cash and cash equivalents

     75        34   
                

Cash and cash equivalents at March 31

   $ 80      $ 53   
                

Operating Cash Flows

Net cash provided by Dominion’s operating activities decreased by $738 million, primarily due to higher margin collateral requirements, lower merchant generation margins, the unfavorable impact of weather and net changes in working capital items.

Net cash provided by Virginia Power’s operating activities decreased by $245 million, primarily due to lower deferred fuel cost recoveries, the unfavorable impact of weather and net changes in other working capital items.

Dominion believes that its operations provide a stable source of cash flow to contribute to planned levels of capital expenditures and maintain or grow the dividend on common shares. Virginia Power believes that its operations provide a stable source of cash flow to contribute to planned levels of capital expenditures and provide dividends to Dominion.

The Companies’ operations are subject to risks and uncertainties that may negatively impact the timing or amounts of operating cash flows, which are discussed in Item 1A. Risk Factors in Dominion’s and Virginia Power’s Annual Report on Form 10-K for the year ended December 31, 2010 and Part II, Item 1A. Risk Factors in this report.

Credit Risk

Dominion’s exposure to potential concentrations of credit risk results primarily from its energy marketing and price risk management activities. Presented below is a summary of Dominion’s credit exposure as of March 31, 2011 for these activities. Gross credit exposure for each counterparty is calculated prior to the application of collateral and represents outstanding receivables plus any unrealized on- or off-balance sheet exposure, taking into account contractual netting rights.

 

     Gross  Credit
Exposure
     Credit
Collateral
     Net Credit
Exposure
 
(millions)                     

Investment grade(1)

   $ 308       $ —         $ 308   

Non-investment grade(2)

     7         —           7   

No external ratings:

        

Internally rated—investment grade(3)

     103         —           103   

Internally rated—non-investment grade(4)

     75         —           75   
                          

Total

   $ 493       $ —         $ 493   
                          

 

(1) Designations as investment grade are based upon minimum credit ratings assigned by Moody’s and Standard & Poor’s. The five largest counterparty exposures, combined, for this category represented approximately 30% of the total net credit exposure.
(2) The five largest counterparty exposures, combined, for this category represented approximately 1% of the total net credit exposure.
(3) The five largest counterparty exposures, combined, for this category represented approximately 14% of the total net credit exposure.
(4) The five largest counterparty exposures, combined, for this category represented approximately 9% of the total net credit exposure.

Virginia Power’s exposure to potential concentrations of credit risk results primarily from sales to wholesale customers. Gross credit exposure for each counterparty is calculated prior to the application of collateral and represents outstanding receivables plus any unrealized on- or off-balance sheet exposure, taking into account contractual netting rights. At March 31, 2011, Virginia Power's exposure to potential concentrations of credit risk was not considered material.

 

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Investing Cash Flows

Net cash used in Dominion’s investing activities increased by $581 million, primarily reflecting the absence of the proceeds received from the sale of Peoples in February 2010.

Net cash used in Virginia Power’s investing activities decreased by $200 million, primarily due to lower capital expenditures.

Financing Cash Flows and Liquidity

Dominion and Virginia Power rely on capital markets as significant sources of funding for capital requirements not satisfied by cash provided by their operations. As discussed further in Credit Ratings and Debt Covenants in Dominion’s and Virginia Power’s Annual Report on Form 10-K for the year ended December 31, 2010, the Companies’ ability to borrow funds or issue securities and the return demanded by investors are affected by credit ratings. In addition, the raising of external capital is subject to certain regulatory requirements, including registration with the SEC and, in the case of Virginia Power, approval by the Virginia Commission.

Each of the Companies meets the definition of a well-known seasoned issuer under SEC rules governing the registration, communications and offering processes under the Securities Act of 1933. The rules provide for a streamlined shelf registration process to provide registrants with timely access to capital. This allows the Companies to use automatic shelf registration statements to register any offering of securities, other than those for business combination transactions.

Net cash used in Dominion’s financing activities decreased by $1.4 billion, primarily due to net debt issuances in 2011 compared to net debt repayments in 2010 partially reflecting the use of proceeds from the sale of Peoples.

Net cash used in Virginia Power’s financing activities decreased by $86 million, primarily due to net debt issuances/remarketings in 2011 compared to net debt repayments in 2010.

See Note 14 to the Consolidated Financial Statements for further information regarding Dominion’s and Virginia Power’s credit facilities, liquidity and significant financing transactions, including stock repurchases.

Credit Ratings

Credit ratings are intended to provide banks and capital market participants with a framework for comparing the credit quality of securities and are not a recommendation to buy, sell or hold securities. In the Credit Ratings section of MD&A in Dominion’s and Virginia Power’s Annual Report on Form 10-K for the year ended December 31, 2010, there is a discussion on the use of capital markets by the Companies, as well as the impact of credit ratings on the accessibility and costs of using these markets. As of March 31, 2011, there have been no changes in the Companies’ credit ratings.

Debt Covenants

In the Debt Covenants section of MD&A in Dominion’s and Virginia Power’s Annual Report on Form 10-K for the year ended December 31, 2010, there is a discussion on the various covenants present in the enabling agreements underlying the Companies’ debt. As of March 31, 2011, there have been no material changes to debt covenants, nor any events of default under the Companies’ debt covenants.

Future Cash Payments for Contractual Obligations and Planned Capital Expenditures

As of March 31, 2011, there have been no material changes outside the ordinary course of business to Dominion’s or Virginia Power’s contractual obligations nor any material changes to planned capital expenditures as disclosed in MD&A in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2010.

Use of Off-Balance Sheet Arrangements

As of March 31, 2011, there have been no material changes in the off-balance sheet arrangements disclosed in MD&A in Dominion’s Annual Report on Form 10-K for the year ended December 31, 2010.

 

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Future Issues and Other Matters

The following discussion of future issues and other information includes current developments of previously disclosed matters and new issues arising during the period covered by, and subsequent to, the dates of Dominion’s and Virginia Power’s Consolidated Financial Statements that may impact the Companies’ future results of operations and/or financial condition. This section should be read in conjunction with Item 1. Business and Future Issues and Other Matters in MD&A in Dominion’s and Virginia Power’s Annual Report on Form 10-K for the year ended December 31, 2010.

Regulatory Matters

See Note 14 to the Consolidated Financial Statements in Dominion’s and Virginia Power’s Annual Report on Form 10-K for the year ended December 31, 2010 and Note 12 to the Consolidated Financial Statements in this report for additional information on various regulatory matters.

Environmental Matters

Dominion and Virginia Power are subject to costs resulting from a number of federal, state and local laws and regulations designed to protect human health and the environment. These laws and regulations affect future planning and existing operations. They can result in increased capital, operating and other costs as a result of compliance, remediation, containment and monitoring obligations. See Note 23 to the Consolidated Financial Statements in Dominion’s and Virginia Power’s Annual Report on Form 10-K for the year ended December 31, 2010 and Note 15 to the Consolidated Financial Statements in this report for additional information on various environmental matters.

Legal Matters

See Item 3. Legal Proceedings in Dominion’s and Virginia Power’s Annual Report on Form 10-K for the year ended December 31, 2010 and Part II, Item 1. Legal Proceedings in this report for additional information on various legal matters.

Nuclear Matters

In March 2011, a magnitude 9.0 earthquake and subsequent tsunami caused significant damage at the Fukushima Daiichi nuclear power station in northeast Japan. It is expected that these events will result in significant nuclear safety reviews required by the NRC, industry groups such as INPO and/or international organizations. Like other U.S. nuclear operators, Dominion is currently gathering data to respond to INPO recommendations related to the ability to respond to design-basis and beyond-design-basis events at its stations. Such reviews may impact future operations and/or capital requirements at U.S. nuclear facilities, including those owned by Dominion and Virginia Power.

Allegheny Storage Project

DTI is developing the Allegheny Storage Project, which is expected to provide approximately 7.5 bcf of incremental storage service and associated year-round transportation service to three local distribution companies under 15-year contracts. Storage capacity for the project will be provided from capacity leased from East Ohio and storage pool enhancements at DTI. To provide the 125,000 dekatherms per day of incremental firm transportation service, DTI intends to construct additional compression facilities and upgrade measurement and regulation. The Allegheny Storage Project is expected to be in service in April 2014, subject to FERC approval, which DTI plans to request later in 2011.

Tioga Area Expansion Project

In February 2011, DTI concluded a binding open season for its Tioga Area Expansion Project, which is designed to provide approximately 270,000 dekatherms per day of firm transportation service from supply interconnects in Tioga and Potter Counties in Pennsylvania to DTI's Crayne interconnect with Texas Eastern Transmission, LP in Greene County, Pennsylvania and the Leidy interconnect with Transcontinental Gas Pipe Line Company in Clinton County, Pennsylvania. Two customers have contracted for the service under 15-year terms. Subject to the receipt of regulatory approvals, the project is anticipated to be in service in November 2013.

 

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ITEM 3.

QUANTITATIVE AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK

The matters discussed in this Item may contain “forward-looking statements” as described in the introductory paragraphs under Part I, Item 2. MD&A of this Form 10-Q. The reader’s attention is directed to those paragraphs for discussion of various risks and uncertainties that may impact Dominion and Virginia Power.

Market Risk Sensitive Instruments and Risk Management

Dominion’s and Virginia Power’s financial instruments, commodity contracts and related financial derivative instruments are exposed to potential losses due to adverse changes in commodity prices, interest rates and equity security prices as described below. Commodity price risk is present in Dominion’s and Virginia Power’s electric operations, Dominion’s gas procurement operations, and Dominion’s energy marketing and trading operations due to the exposure to market shifts in prices received and paid for electricity, natural gas and other commodities. The Companies use commodity derivative contracts to manage price risk exposures for these operations. Interest rate risk is generally related to their outstanding debt. In addition, they are exposed to investment price risk through various portfolios of equity and debt securities.

The following sensitivity analysis estimates the potential loss of future earnings or fair value from market risk sensitive instruments over a selected time period due to a 10% unfavorable change in commodity prices or interest rates.

Commodity Price Risk

To manage price risk, Dominion and Virginia Power primarily hold commodity-based financial derivative instruments for non-trading purposes associated with purchases and sales of electricity, natural gas and other energy-related products. As part of its strategy to market energy and to manage related risks, Dominion also holds commodity-based financial derivative instruments for trading purposes.

The derivatives used to manage commodity price risk are executed within established policies and procedures and may include instruments such as futures, forwards, swaps, options and FTRs that are sensitive to changes in the related commodity prices. For sensitivity analysis purposes, the hypothetical change in market prices of commodity-based financial derivative instruments is determined based on models that consider the market prices of commodities in future periods, the volatility of the market prices in each period, as well as the time value factors of the derivative instruments. Prices and volatility are principally determined based on observable market prices.

A hypothetical 10% unfavorable change in market prices of Dominion’s non-trading commodity-based financial derivative instruments would have resulted in a decrease in fair value of approximately $202 million and $183 million as of March 31, 2011 and December 31, 2010, respectively. A hypothetical 10% unfavorable change in commodity prices would not have resulted in a material change in the fair value of Dominion’s commodity-based financial derivative instruments held for trading purposes as of March 31, 2011 or December 31, 2010.

A hypothetical 10% unfavorable change in commodity prices would have resulted in a decrease of approximately $5 million and $3 million in the fair value of Virginia Power’s non-trading commodity-based financial derivatives as of March 31, 2011 and December 31, 2010, respectively.

The impact of a change in energy commodity prices on Dominion’s and Virginia Power’s non-trading commodity-based financial derivative instruments at a point in time is not necessarily representative of the results that will be realized when the contracts are ultimately settled. Net losses from commodity derivative instruments used for hedging purposes, to the extent realized, will generally be offset by recognition of the hedged transaction, such as revenue from physical sales of the commodity.

Interest Rate Risk

Dominion and Virginia Power manage their interest rate risk exposure predominantly by maintaining a balance of fixed and variable rate debt. They also enter into interest rate sensitive derivatives, including interest rate swaps and interest rate lock agreements. For variable rate debt and interest rate swaps designated under fair value hedging and outstanding for Dominion and Virginia Power, a hypothetical 10% increase in market interest rates would not have resulted in a material change in annual earnings at March 31, 2011 or December 31, 2010.

Additionally, Dominion and Virginia Power may use forward-starting interest rate swaps and interest rate lock agreements as anticipatory hedges. As of March 31, 2011, Dominion had $500 million in aggregate notional amounts of these interest rate

 

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derivatives outstanding. A hypothetical 10% decrease in market interest rates would not have resulted in a material change in the fair value of these interest rate derivatives at March 31, 2011. There were none of these interest rate derivatives outstanding at December 31, 2010.

Investment Price Risk

Dominion and Virginia Power are subject to investment price risk due to securities held as investments in decommissioning and rabbi trust funds that are managed by third-party investment managers. These trust funds primarily hold marketable securities that are reported in the Consolidated Balance Sheets at fair value.

Dominion recognized net realized gains (including investment income) on nuclear decommissioning and rabbi trust investments of $28 million, $58 million and $95 million for the three months ended March 31, 2011 and 2010 and for the year ended December 31, 2010, respectively. Net realized gains and losses include gains and losses from the sale of investments as well as any other-than-temporary declines in fair value. For the three months ended March 31, 2011 and 2010 and the year ended December 31, 2010, Dominion recorded, in AOCI and regulatory liabilities, a net increase in unrealized gains on these investments of $96 million, $54 million and $182 million, respectively.

Virginia Power recognized net realized gains (including investment income) on nuclear decommissioning trust investments of $8 million, $28 million and $44 million for the three months ended March 31, 2011 and 2010 and for the year ended December 31, 2010, respectively. Net realized gains and losses include gains and losses from the sale of investments as well as any other-than-temporary declines in fair value. Virginia Power recorded, in AOCI and regulatory liabilities, a net increase in unrealized gains on these investments of $39 million, $18 million and $67 million for the three months ended March 31, 2011 and 2010 and for the year ended December 31, 2010, respectively.

Dominion sponsors employee pension and other postretirement benefit plans, in which Dominion’s and Virginia Power’s employees participate, that hold investments in trusts to fund benefit payments. If the values of investments held in these trusts decline, it will result in future increases in the periodic cost recognized for such employee benefit plans and will be included in the determination of the amount of contributions to be made to the employee benefit plans.

ITEM 4. CONTROLS AND PROCEDURES

Senior management of each of Dominion and Virginia Power, including Dominion’s and Virginia Power’s CEO and CFO, evaluated the effectiveness of each of their respective Companies’ disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation process, each of Dominion’s and Virginia Power’s CEO and CFO have concluded that each of their respective Companies’ disclosure controls and procedures are effective.

There were no changes in either Dominion’s or Virginia Power’s internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, either of the Companies’ internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, Dominion and Virginia Power are alleged to be in violation or in default under orders, statutes, rules or regulations relating to the environment, compliance plans imposed upon or agreed to by the Companies, or permits issued by various local, state and/or federal agencies for the construction or operation of facilities. Administrative proceedings may also be pending on these matters. In addition, in the ordinary course of business, the Companies and their subsidiaries are involved in various legal proceedings. Dominion and Virginia Power believe that the ultimate resolution of these proceedings will not have a material adverse effect on their financial position, liquidity or results of operations. See Notes 12 and 15 to the Consolidated Financial Statements and Notes 14 and 23 in Dominion’s and Virginia Power’s Annual Report on Form 10-K for the year ended December 31, 2010 for discussions on various environmental and other regulatory proceedings to which Dominion and/or Virginia Power are a party which disclosures are incorporated herein by reference.

ITEM 1A. RISK FACTORS

Dominion’s and Virginia Power’s businesses are influenced by many factors that are difficult to predict, involve uncertainties that may materially affect actual results and are often beyond the Companies’ control. A number of these risk factors have been identified in Dominion’s and Virginia Power’s Annual Report on Form 10-K for the year ended December 31, 2010, which should be taken into consideration when reviewing the information contained in this report. Other than the risk factor discussed below, there have been no material changes with regard to the risk factors previously disclosed in Dominion’s and Virginia Power’s Annual Report on Form 10-K for the year ended December 31, 2010. For other factors that may cause actual results to

 

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differ materially from those indicated in any forward-looking statement or projection contained in this report, see Forward-Looking Statements in MD&A.

Dominion and Virginia Power have substantial ownership interests in and operate seven nuclear power plants; as a result, each may incur substantial costs and liabilities. Dominion and Virginia Power operate and have an ownership interest in seven nuclear units (four of which are owned and operated by Virginia Power, exclusive of a 11.6% undivided interest held by ODEC in the two North Anna units, and three of which are owned and operated by Dominion, exclusive of a 6.53% undivided interest in Unit 3 of Millstone held by Massachusetts Municipal Wholesale Electric Company and Central Vermont Public Service Corporation). In addition, Virginia Power is exploring the possibility of expanding its nuclear generating capacity to meet future expected baseload generation needs. Dominion’s and Virginia Power’s nuclear facilities are subject to operational, environmental, health and financial risks such as the on-site storage of spent nuclear fuel, the ability to dispose of such spent nuclear fuel, the ability to maintain adequate reserves for decommissioning, limitations on the amounts and types of insurance available, potential operational liabilities and extended outages, the costs of replacement power, the costs of maintenance and the costs of securing the facilities against possible terrorist attacks. Dominion and Virginia Power maintain decommissioning trusts and external insurance coverage to minimize the financial exposure to these risks; however, it is possible that damages could exceed the amount of the Companies’ insurance coverage. If Dominion and Virginia Power are not allowed to recover the additional costs incurred through insurance, or in the case of Virginia Power through regulatory mechanisms, their results of operations could be negatively impacted.

Dominion’s and Virginia Power’s nuclear facilities are also subject to complex government regulation which could negatively impact their results of operations. The NRC has broad authority under federal law to impose licensing and safety-related requirements for the operation of nuclear generating facilities. In the event of noncompliance, the NRC has the authority to impose fines, set license conditions, shut down a nuclear unit, or take some combination of these actions, depending on its assessment of the severity of the situation, until compliance is achieved. Revised safety requirements promulgated by the NRC could require Dominion and Virginia Power to make substantial expenditures at their nuclear plants. In addition, although the Companies have no reason to anticipate a serious nuclear incident at their plants, if an incident did occur, it could materially and adversely affect their results of operations and/or financial condition. A major incident at a nuclear facility anywhere in the world, such as the recent nuclear events in Japan, could cause the NRC to adopt increased safety regulations or otherwise limit or restrict the operation or licensing of domestic nuclear units.

Dominion and Virginia Power are subject to complex governmental regulation that could adversely affect their results of operations. Dominion’s and Virginia Power’s operations are subject to extensive federal, state and local regulation and require numerous permits, approvals and certificates from various governmental agencies. These operations are also subject to legislation governing taxation at the federal, state and local level. They must also comply with environmental legislation and associated regulations. Management believes that the necessary approvals have been obtained for existing operations and that their business is conducted in accordance with applicable laws. However, new laws or regulations, the revision or reinterpretation of existing laws or regulations, or penalties imposed for non-compliance with existing laws or regulations may result in substantial expense.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Dominion

ISSUER PURCHASES OF EQUITY SECURITIES

 

Period

   (a) Total
Number of
Shares
(or Units)
Purchased(1)
     (b) Average
Price Paid
per Share
(or Unit)(2)
     (c) Total Number
of  Shares (or Units)
Purchased as Part
of Publicly
Announced Plans or
Programs
     (d) Maximum Number  (or
Approximate Dollar
Value) of Shares (or Units)
that May Yet Be
Purchased under the Plans
or Programs(3)

1/1/11-1/31/11

     7,804       $ 42.72         —         32,586,412 shares/

$1.78 billion

2/1/11-2/28/11

     526,709         44.53         493,666       32,092,746 shares/

$1.76 billion

3/1/11-3/31/11

     5,554,685         45.36         5,552,356       26,540,390 shares/

$1.50 billion

Total

     6,089,198       $ 45.28         6,046,022       26,540,390 shares/

$1.50 billion

 

(1) In January, February and March 2011, 7,804 shares, 33,043 shares and 2,329 shares, respectively, were tendered by employees to satisfy tax withholding obligations on vested restricted and goal-based stock.
(2) Represents the weighted-average price paid per share.
(3) The remaining repurchase authorization is pursuant to repurchase authority granted by the Dominion Board of Directors in February 2005, as modified in June 2007. The aggregate authorization granted by the Dominion Board of Directors was 86 million shares (as adjusted to reflect a two-for-one stock split distributed in November 2007) not to exceed $4 billion.

 

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ITEM 6. EXHIBITS

 

Exhibit

Number

  

Description

   Dominion    Virginia
Power
 
3.1.a    Dominion Resources, Inc. Articles of Incorporation as amended and restated effective May 20, 2010 (Exhibit 3.1, Form 8-K filed May 20, 2010, File No. 1-8489).    X   
3.1.b    Virginia Electric and Power Company Amended and Restated Articles of Incorporation, effective March 3, 2011 (filed herewith).         X   
3.2.a    Dominion Resources, Inc. Amended and Restated Bylaws, effective May 18, 2010 (Exhibit 3.2, Form 8-K filed May 20, 2010, File No. 1-8489).    X   
3.2.b    Virginia Electric and Power Company Amended and Restated Bylaws, effective June 1, 2009 (Exhibit 3.1, Form 8-K filed June 3, 2009, File No. 1-2255).         X   
4    Dominion Resources, Inc. and Virginia Electric and Power Company agree to furnish to the Securities and Exchange Commission upon request any other instrument with respect to long-term debt as to which the total amount of securities authorized does not exceed 10% of either of their total consolidated assets.    X      X   
  4.1    Form of Senior Indenture, dated June 1, 2000, between Dominion Resources, Inc. and The Bank of New York Mellon (as successor trustee to JP Morgan Chase Bank (formerly The Chase Manhattan Bank)), as Trustee (Exhibit 4(iii), Form S-3 Registration Statement filed December 21, 1999, File No. 333-93187); Form of First Supplemental Indenture, dated June 1, 2000 (Exhibit 4.2, Form 8-K filed June 22, 2000, File No. 1-8489); Forms of Second and Third Supplemental Indentures, dated July 1, 2000 (Exhibits 4.2 and 4.3, Form 8-K filed July 11, 2000, File No. 1-8489); Fourth Supplemental Indenture, dated September 1, 2000 (Exhibit 4.2, Form 8-K filed September 8, 2000, File No. 1-8489); Sixth Supplemental Indenture, dated September 1, 2000 (Exhibit 4.3, Form 8-K filed September 11, 2000, File No. 1-8489); Form of Seventh Supplemental Indenture, dated October 1, 2000 (Exhibit 4.2, Form 8-K filed October 12, 2000, File No. 1-8489); Form of Eighth Supplemental Indenture, dated January 1, 2001 (Exhibit 4.2, Form 8-K filed January 24, 2001, File No. 1-8489); Form of Ninth Supplemental Indenture, dated May 1, 2001 (Exhibit 4.4, Form 8-K filed May 25, 2001, File No. 1-8489); Form of Tenth Supplemental Indenture, dated March 1, 2002 (Exhibit 4.2, Form 8-K filed March 18, 2002, File No. 1-8489); Form of Eleventh Supplemental Indenture, dated June 1, 2002 (Exhibit 4.2, Form 8-K filed June 25, 2002, File No. 1- 8489); Form of Twelfth Supplemental Indenture, dated September 1, 2002 (Exhibit 4.2, Form 8-K filed September 11, 2002, File No. 1-8489); Thirteenth Supplemental Indenture, dated September 16, 2002 (Exhibit 4.1, Form 8-K filed September 17, 2002, File No. 1-8489); Fourteenth Supplemental Indenture, dated August 1, 2003 (Exhibit 4.4, Form 8-K filed August 20, 2003, File No. 1-8489); Forms of Fifteenth and Sixteenth Supplemental Indentures, dated December 1, 2002 (Exhibits 4.2 and 4.3, Form 8-K filed December 13, 2002, File No. 1-8489); Forms of Seventeenth and Eighteenth Supplemental Indentures, dated February 1, 2003 (Exhibits 4.2 and 4.3, Form 8-K filed February 11, 2003, File No. 1-8489; Forms of Twentieth and Twenty-First Supplemental Indentures, dated March 1, 2003 (Exhibits 4.2 and 4.3, Form 8-K filed March 4, 2003, File No. 1-8489); Form of Twenty-Second Supplemental Indenture, dated July 1, 2003 (Exhibit 4.2, Form 8-K filed July 22, 2003, File No. 1-8489); Form of Twenty-Third Supplemental Indenture, dated December 1, 2003 (Exhibit 4.2, Form 8-K filed December 10, 2003, File No. 1-8489); Forms of Twenty-Fifth and Twenty-Sixth Supplemental Indentures, dated January 1, 2004 (Exhibits 4.2 and 4.3, Form 8-K filed January 14, 2004, File No. 1-8489); Form of Twenty-Seventh Supplemental Indenture, dated December 1, 2004 (Exhibit 4.2, Form S-4 Registration Statement filed November 10, 2004, File No. 333-120339); Forms of Twenty-Eighth and Twenty-Ninth Supplemental Indentures, dated June 1, 2005 (Exhibits 4.2 and 4.3, Form 8-K filed June 17, 2005, File No. 1-8489); Form of Thirtieth Supplemental Indenture, dated July 1, 2005 (Exhibit 4.2, Form 8-K filed July 12, 2005, File No. 1-8489); Form of Thirty-First Supplemental Indenture, dated September 1, 2005 (Exhibit 4.2, Form 8-K filed September 26, 2005, File No. 1-8489); Forms of Thirty-Second and Thirty-Third Supplemental Indentures, dated November 1, 2006 (Exhibits 4.2 and 4.3, Form 8-K filed November 13, 2006, File No. 1-8489); Form of Thirty-Fourth Supplemental Indenture, dated November 1, 2007 (Exhibit 4.2, Form 8-K filed November 29, 2007, File No. 1-8489); Forms of Thirty-Fifth, Thirty-Sixth and Thirty-Seventh Supplemental Indentures, dated June 1, 2008 (Exhibits 4.2, 4.3 and 4.4, Form 8-K filed June 16, 2008, File No. 1-8489); Form of Thirty-Eighth Supplemental and Amending Indenture,    X   

 

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Exhibit

Number

  

Description

   Dominion      Virginia
Power
 
   dated November 1, 2008 (Exhibit 4.2, Form 8-K filed November 26, 2008, File No. 1-8489); Thirty-Ninth Supplemental Indenture Amending the Twenty-Seventh Supplemental Indenture, dated December 1, 2008 and effective as of December 16, 2008 (Exhibit 4.1, Form 8-K filed December 5, 2008, File No. 1-8489); Form of Thirty-Ninth Supplemental Indenture, dated August 1, 2009 (Exhibit 4.3, Form 8-K filed August 12, 2009, File No. 1-8489); Fortieth Supplemental Indenture, dated August 1, 2010 (Exhibit 4.3, Form 8-K filed September 2, 2010, File No. 1-8489); Forty-First Supplemental Indenture, dated March 1, 2011 (Exhibit 4.3, Form 8-K, filed March 7, 2011, File No. 1-8489); Forty-Second Supplemental Indenture, dated March 1, 2011 (Exhibit 4.4, Form 8-K, filed March 7, 2011, File No. 1-8489).      
10.1*    Dominion Resources, Inc. Executive Stock Purchase Tool Kit, effective September 1, 2001, amended and restated February 18, 2011 (Exhibit 10.22, Form 10-K filed February 28, 2011, File No. 1-8489).      X      
10.2*    Dominion Resources, Inc. 2011 Performance Grant Plan under 2011 Long-Term Compensation Program approved January 20, 2011 (Exhibit 10.1, Form 8-K filed January 21, 2011, File No. 1-8489).      X         X   
10.3*    Dominion Resources, Inc. Form of Restricted Stock Award Agreement under 2011 Long-Term Compensation Program approved January 20, 2011 (Exhibit 10.2, Form 8-K filed January 21, 2011, File No. 1-8489).      X         X   
12.1    Ratio of earnings to fixed charges for Dominion Resources, Inc. (filed herewith).      X      
12.2a    Ratio of earnings to fixed charges for Virginia Electric and Power Company (filed herewith).         X   
12.2b    Ratio of earnings to fixed charges and preferred dividends for Virginia Electric and Power Company (filed herewith).         X   
31.a    Certification by Chief Executive Officer of Dominion Resources, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).      X      
31.b    Certification by Chief Financial Officer of Dominion Resources, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).      X      
31.c    Certification by Chief Executive Officer of Virginia Electric and Power Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).         X   
31.d    Certification by Chief Financial Officer of Virginia Electric and Power Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).         X   
32.a    Certification to the Securities and Exchange Commission by Chief Executive Officer and Chief Financial Officer of Dominion Resources, Inc. as required by Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).      X      
32.b    Certification to the Securities and Exchange Commission by Chief Executive Officer and Chief Financial Officer of Virginia Electric and Power Company as required by Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).         X   
99    Condensed consolidated earnings statements (filed herewith).      X         X   
101^   

The following financial statements from Dominion Resources, Inc. Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, filed on April 29, 2011, formatted in XBRL: (i) Consolidated Statements of Income, (ii) Consolidated Balance Sheets, (iii) Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements.

     X      

 

* Indicates management contract or compensatory plan or arrangement
^ This exhibit will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such exhibit will not be deemed to be incorporated by reference into any filing under the Securities Act or Securities Exchange Act, except to the extent that one of the Companies specifically incorporates it by reference.

 

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

   

DOMINION RESOURCES, INC.

Registrant

April 29, 2011  

/s/ Ashwini Sawhney

 

Ashwini Sawhney

Vice President – Accounting and Controller

(Chief Accounting Officer)

 

VIRGINIA ELECTRIC AND POWER COMPANY

Registrant

April 29, 2011  

/s/ Ashwini Sawhney

 

Ashwini Sawhney

Vice President – Accounting

(Chief Accounting Officer)

 

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EXHIBIT INDEX

 

Exhibit

Number

  

Description

   Dominion    Virginia
Power
 
3.1.a    Dominion Resources, Inc. Articles of Incorporation as amended and restated effective May 20, 2010 (Exhibit 3.1, Form 8-K filed May 20, 2010, File No. 1-8489).    X   
3.1.b    Virginia Electric and Power Company Amended and Restated Articles of Incorporation, effective March 3, 2011 (filed herewith).         X   
3.2.a    Dominion Resources, Inc. Amended and Restated Bylaws, effective May 18, 2010 (Exhibit 3.2, Form 8-K filed May 20, 2010, File No. 1-8489).    X   
3.2.b    Virginia Electric and Power Company Amended and Restated Bylaws, effective June 1, 2009 (Exhibit 3.1, Form 8-K filed June 3, 2009, File No. 1-2255).         X   
4    Dominion Resources, Inc. and Virginia Electric and Power Company agree to furnish to the Securities and Exchange Commission upon request any other instrument with respect to long-term debt as to which the total amount of securities authorized does not exceed 10% of either of their total consolidated assets.    X      X   
  4.1    Form of Senior Indenture, dated June 1, 2000, between Dominion Resources, Inc. and The Bank of New York Mellon (as successor trustee to JP Morgan Chase Bank (formerly The Chase Manhattan Bank)), as Trustee (Exhibit 4(iii), Form S-3 Registration Statement filed December 21, 1999, File No. 333-93187); Form of First Supplemental Indenture, dated June 1, 2000 (Exhibit 4.2, Form 8-K filed June 22, 2000, File No. 1-8489); Forms of Second and Third Supplemental Indentures, dated July 1, 2000 (Exhibits 4.2 and 4.3, Form 8-K filed July 11, 2000, File No. 1-8489); Fourth Supplemental Indenture, dated September 1, 2000 (Exhibit 4.2, Form 8-K filed September 8, 2000, File No. 1-8489); Sixth Supplemental Indenture, dated September 1, 2000 (Exhibit 4.3, Form 8-K filed September 11, 2000, File No. 1-8489); Form of Seventh Supplemental Indenture, dated October 1, 2000 (Exhibit 4.2, Form 8-K filed October 12, 2000, File No. 1-8489); Form of Eighth Supplemental Indenture, dated January 1, 2001 (Exhibit 4.2, Form 8-K filed January 24, 2001, File No. 1-8489); Form of Ninth Supplemental Indenture, dated May 1, 2001 (Exhibit 4.4, Form 8-K filed May 25, 2001, File No. 1-8489); Form of Tenth Supplemental Indenture, dated March 1, 2002 (Exhibit 4.2, Form 8-K filed March 18, 2002, File No. 1-8489); Form of Eleventh Supplemental Indenture, dated June 1, 2002 (Exhibit 4.2, Form 8-K filed June 25, 2002, File No. 1- 8489); Form of Twelfth Supplemental Indenture, dated September 1, 2002 (Exhibit 4.2, Form 8-K filed September 11, 2002, File No. 1-8489); Thirteenth Supplemental Indenture, dated September 16, 2002 (Exhibit 4.1, Form 8-K filed September 17, 2002, File No. 1-8489); Fourteenth Supplemental Indenture, dated August 1, 2003 (Exhibit 4.4, Form 8-K filed August 20, 2003, File No. 1-8489); Forms of Fifteenth and Sixteenth Supplemental Indentures, dated December 1, 2002 (Exhibits 4.2 and 4.3, Form 8-K filed December 13, 2002, File No. 1-8489); Forms of Seventeenth and Eighteenth Supplemental Indentures, dated February 1, 2003 (Exhibits 4.2 and 4.3, Form 8-K filed February 11, 2003, File No. 1-8489; Forms of Twentieth and Twenty-First Supplemental Indentures, dated March 1, 2003 (Exhibits 4.2 and 4.3, Form 8-K filed March 4, 2003, File No. 1-8489); Form of Twenty-Second Supplemental Indenture, dated July 1, 2003 (Exhibit 4.2, Form 8-K filed July 22, 2003, File No. 1-8489); Form of Twenty-Third Supplemental Indenture, dated December 1, 2003 (Exhibit 4.2, Form 8-K filed December 10, 2003, File No. 1-8489); Forms of Twenty-Fifth and Twenty-Sixth Supplemental Indentures, dated January 1, 2004 (Exhibits 4.2 and 4.3, Form 8-K filed January 14, 2004, File No. 1-8489); Form of Twenty-Seventh Supplemental Indenture, dated December 1, 2004 (Exhibit 4.2, Form S-4 Registration Statement filed November 10, 2004, File No. 333-120339); Forms of Twenty-Eighth and Twenty-Ninth Supplemental Indentures, dated June 1, 2005 (Exhibits 4.2 and 4.3, Form 8-K filed June 17, 2005, File No. 1-8489); Form of Thirtieth Supplemental Indenture, dated July 1, 2005 (Exhibit 4.2, Form 8-K filed July 12, 2005, File No. 1-8489); Form of Thirty-First Supplemental Indenture, dated September 1, 2005 (Exhibit 4.2, Form 8-K filed September 26, 2005, File No. 1-8489); Forms of Thirty-Second and Thirty-Third Supplemental Indentures, dated November 1, 2006 (Exhibits 4.2 and 4.3, Form 8-K filed November 13, 2006, File No. 1-8489); Form of Thirty-Fourth Supplemental Indenture, dated November 1, 2007 (Exhibit 4.2, Form 8-K filed November 29, 2007, File No. 1-8489); Forms of Thirty-Fifth, Thirty-Sixth and Thirty-Seventh Supplemental Indentures, dated June 1, 2008 (Exhibits 4.2, 4.3 and 4.4, Form 8-K filed June 16, 2008, File No. 1-8489); Form of Thirty-Eighth Supplemental and Amending Indenture,    X   

 

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Table of Contents

Exhibit

Number

  

Description

   Dominion      Virginia
Power
 
   dated November 1, 2008 (Exhibit 4.2, Form 8-K filed November 26, 2008, File No. 1-8489); Thirty-Ninth Supplemental Indenture Amending the Twenty-Seventh Supplemental Indenture, dated December 1, 2008 and effective as of December 16, 2008 (Exhibit 4.1, Form 8-K filed December 5, 2008, File No. 1-8489); Form of Thirty-Ninth Supplemental Indenture, dated August 1, 2009 (Exhibit 4.3, Form 8-K filed August 12, 2009, File No. 1-8489); Fortieth Supplemental Indenture, dated August 1, 2010 (Exhibit 4.3, Form 8-K filed September 2, 2010, File No. 1-8489); Forty-First Supplemental Indenture, dated March 1, 2011 (Exhibit 4.3, Form 8-K, filed March 7, 2011, File No. 1-8489); Forty-Second Supplemental Indenture, dated March 1, 2011 (Exhibit 4.4, Form 8-K, filed March 7, 2011, File No. 1-8489).      
10.1*    Dominion Resources, Inc. Executive Stock Purchase Tool Kit, effective September 1, 2001, amended and restated February 18, 2011 (Exhibit 10.22, Form 10-K filed February 28, 2011, File No. 1-8489).      X      
10.2*    Dominion Resources, Inc. 2011 Performance Grant Plan under 2011 Long-Term Compensation Program approved January 20, 2011 (Exhibit 10.1, Form 8-K filed January 21, 2011, File No. 1-8489).      X         X   
10.3*    Dominion Resources, Inc. Form of Restricted Stock Award Agreement under 2011 Long-Term Compensation Program approved January 20, 2011 (Exhibit 10.2, Form 8-K filed January 21, 2011, File No. 1-8489).      X         X   
12.1    Ratio of earnings to fixed charges for Dominion Resources, Inc. (filed herewith).      X      
12.2a    Ratio of earnings to fixed charges for Virginia Electric and Power Company (filed herewith).         X   
12.2b    Ratio of earnings to fixed charges and preferred dividends for Virginia Electric and Power Company (filed herewith).         X   
31.a    Certification by Chief Executive Officer of Dominion Resources, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).      X      
31.b    Certification by Chief Financial Officer of Dominion Resources, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).      X      
31.c    Certification by Chief Executive Officer of Virginia Electric and Power Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).         X   
31.d    Certification by Chief Financial Officer of Virginia Electric and Power Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).         X   
32.a    Certification to the Securities and Exchange Commission by Chief Executive Officer and Chief Financial Officer of Dominion Resources, Inc. as required by Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).      X      
32.b    Certification to the Securities and Exchange Commission by Chief Executive Officer and Chief Financial Officer of Virginia Electric and Power Company as required by Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).         X   
99    Condensed consolidated earnings statements (filed herewith).      X         X   
101^   

The following financial statements from Dominion Resources, Inc. Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, filed on April 29, 2011, formatted in XBRL: (i) Consolidated Statements of Income, (ii) Consolidated Balance Sheets, (iii) Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements.

     X      

 

* Indicates management contract or compensatory plan or arrangement
^ This exhibit will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such exhibit will not be deemed to be incorporated by reference into any filing under the Securities Act or Securities Exchange Act, except to the extent that one of the Companies specifically incorporates it by reference.

 

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